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Research in Focus


Wall Street Banker Peter Peterson and the Deficit Ostriches

Pete Peterson

By Dean Baker, appeared originally at TruthOut

Last spring, Wall Street investment banker Peter Peterson hosted a lavish, daylong conference devoted to the budget deficit. One of the highlights was an appearance by President Clinton. Clinton boasted of how he had wanted to cut Social Security back in the mid-90s but Congressional leaders from both parties wouldn’t let him.

The cut he had wanted would have reduced the annual cost of living adjustment by 1 percentage point annually. This would have left seniors in their 70s, 80s and 90s with Social Security benefits today that are about 15 percent lower than their current level. How great would that have been?

Peterson is back with Round II this week, another lavish affair devoted to the deficit. President Clinton will again be playing a starring role, although it is not clear whether he will still be boasting about his wish to cut Social Security benefits.

What is clear is that Peterson is using his vast fortune to push an agenda that has little to do with deficit reduction, and everything to do with cutting Social Security, Medicare, and other programs that are vital to ordinary working people.

This fact is apparent from the list of attendees. This is supposed to be a group seriously committed to deficit reduction, yet one of the highlights will be a talk by Rep. Paul Ryan, the Republican chairman of the Budget Committee.

Mr. Ryan is best known for a budget proposal that calls for $3 trillion in individual and corporate tax cuts over the next decade. These cuts are supposed to be offset by the elimination of tax deductions, except Ryan does not identify a single tax deduction that he wants to eliminate.

All he identified is $3 trillion in tax cuts, most of them going to the wealthy, that he wants to eliminate. In Peterson’s world, giving up $3 trillion in revenue is deficit reduction.

The remarkable part of this story is that there are people who are talking about the budget deficit in a serious way. They are proposing solutions that enjoy the support of the American people and they are right in front of Peterson’s nose, but he is doing his best to ignore them.

While Ryan will be touting his plan for adding another $3 trillion to the debt with more tax cuts for the wealthy, and increasing the cost of Medicare to the American people by $34 trillion, at least one of the groups at the conference will be presenting a budget plan that is much more in accordance with the views of the American people.

The Economic Policy Institute (EPI) will be presenting a plan at the conference that Peterson’s group has scored as achieving sustainable budget targets in ways that are broadly consistently with polling data. (Two other groups presenting at the conference, the Center for American Progress and the Roosevelt Institute Campus Network are likely to present plans sharing many of the same themes, but their proposals are not yet public.)

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A Spending Cut by Any Other Name

Sen. Bob Corker discusses the “CAP Act,” a bipartisan bill that would put a binding cap on all federal spending. (AP Photo/Manuel Balce Ceneta)

By Heather McGhee originally published at The American Prospect

Congress returns from a two-week recess today. But for legislators who spent the time championing the House Republicans’ extreme agenda to slash federal spending, the break was more like detention. Town hall meetings across the country erupted into bedlam as members came face-to-face with the actual beneficiaries of public spending on health care, retirement, college, food supports, and more.

In Orlando, Rep. Daniel Webster was shouted down by furious constituents. “Florida has had this policy for the last 12 years,” said one town-hall attendee, referring to the state’s low taxes and meager public benefits. “We don’t have money to take care of the poor, and unemployment is at 11 percent!”

Everyone in Washington wants big spending cuts, particularly as a concession for raising the debt limit. But few people outside Washington want spending on them to be cut. So what is a conservative Congress member to do? Enter the new Capitol Hill bipartisan policy darling, the innocuous-sounding “global spending cap.” Last Tuesday, Sen. Joe Manchin, a Democrat from West Virginia, became the latest lawmaker to sign on to the most prominent spending-cap proposal, the Corker-McCaskill Commitment to American Prosperity Act.

The CAP Act, unlike the detailed House GOP budget, could play well in a town hall. It mentions no specific programs. A cap doesn’t even sound like a cut — it sounds like more of the same. But[h1] in reality, it’s just a massive budget cut by another name. The bill would simply place an automatic cap on the amount Congress can spend. It’s not as draconian a cap as the Hatch Balanced Budget Amendment, which all 47 Senate Republicans signed on to in March because it would send spending back to pre-Great Society levels and require a supermajority to raise any additional revenue. Against that economic inanity, the Corker-McCaskill cap might seem reasonable (as spending-only fixes for a primarily revenue problem go). Corker-McCaskill would limit total government spending — including on Medicare and Social Security — to a fixed percentage of gross domestic product. Last year, spending was at 23.8 percent of GDP; starting in 2013, the CAP Act would curb spending to 22.25 percent, lowering it until it reached a permanent limit of 20.6 percent in 2023.

If spending exceeds the cap, automatic cuts to the fastest-growing categories of spending would kick in (though Congress can override the rule with a two-thirds majority vote). Why 20.6 percent? Well, that was the historical average over the past 30 years. But beyond the question of why the last three decades, during which we’ve witnessed a historic decline of the middle- and working-class, should be our economic benchmark, there are some very real reasons to reject this new bipartisan solution.

First things first: It’s not a measure to reduce the deficit. Absurdly, it would limit public expenditures to an arbitrary number even if the federal coffers were flush with cash. It also ignores revenues, which are at a record low due to a combination of the recession, widespread corporate tax-dodging, and low rates with wide loopholes. For these reasons, one can’t seriously claim that it is a prudent fiscal measure.

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