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Reducing the Debt Without Raising Taxes and Without Cutting Benefits

January 26th, 2011 . by economistmom

I think the President’s speech was inspired, but not specific enough to be inspiring.  I noticed he managed to talk about fiscal responsibility and the need to follow through on the recommendations of his fiscal commission, without making any of the necessary hard choices actually sound that hard.  Nowhere will you find the phrase “raise revenue” (let alone the dirtier word “taxes”) or “cut benefits” (let alone “entitlements”).

CNN’s Jeanne Sahadi wrote this piece that emphasizes the same major complaint: no specifics.  I wrote the remarks below for Jeanne last night, part of an online panel of experts who gave their quick reactions to the speech.  (**UPDATE 12:30 pm: here’s the link to those reactions.)

For most of his State of the Union speech, President Obama made promises for additional federal spending and tax cuts, motivated by the ongoing needs of our still-struggling economy. It was only toward the end of his speech that he reiterated his commitment to fiscal responsibility. He proposed a five-year freeze on non-security discretionary spending, which he says would save around $400 billion over the next ten years. But this amounts to a mere 6 percent reduction of projected deficits and a less than 1 percent reduction in total federal spending.

As the President’s own fiscal commission made clear, any real solution will have to involve cuts to defense and national security spending as well, and reforms to the largest mandatory spending programs, Social Security and Medicare. At the same time, recognizing that it will be nearly impossible (as well as undesirable) to cut benefits across the board in order to “flat line” entitlement spending, the President’s commission recognized that additional tax revenue–above the historical average and above current policy extended–will be needed. Everything in the federal budget needs to be put on the deficit-reduction table.

While the President acknowledged his commission’s message on the need for major reforms to these major programs, he avoided mentioning that these involve tough policy choices about whose benefits will be cut and whose taxes will be raised.

The President sounded committed on the general principle of fiscal responsibility but is still not courageous enough to spell out to the American people what exactly that will require. If he does not take the lead on that difficult conversation, and instead continues the easier practice of promising and following through on more deficit spending, there is very little hope that we will see the kinds of policy changes that are needed to put our nation back on an economically sustainable path.

7 Responses to “Reducing the Debt Without Raising Taxes and Without Cutting Benefits”

  1. comment number 1 by: markg

    Treasury securities. The govt sells these to cover deficit spending. They ARE govt debt.
    Treasury securites. They are listed on the asset side of private sector balance sheets. They ARE assets to the private sector.
    Treasury securities. A US Savings bond is a type of Treasury security. They ARE savings for people.
    Economistmom, why do you want to take assets and savings away from the private sector? Do you feel private sector balance sheets (assets-liabilities) are solid? From where I am sitting, the govt needs to run a bigger deficit to restore private sector balance sheets and savings and increase aggregate demand to drive growth. Where am I wrong?

  2. comment number 2 by: AMTbuff

    >I noticed he managed to talk about fiscal responsibility and the need to follow through on the recommendations of his fiscal commission, without making any of the necessary hard choices actually sound that hard. Nowhere will you find the phrase “raise revenue” (let alone the dirtier word “taxes”) or “cut benefits” (let alone “entitlements”).

    I had the same reaction to Ryan’s speech. It was honest about the magnitude of the problem, but it had no specifics on the hard choices. Ryan was more reality-based than Obama, but he needed to go much deeper into the bad, bad news.

    It has been said many times before, but it was never more true than today: Any CEO or CFO who engaged in the same behavior as our Congress and President would be go to jail. Bragging about having done a great job by having taken on even more unpayable debt and made more soon to be broken promises would only add to the jail sentence.

  3. comment number 3 by: AMTbuff

    Megan McArdle is easier than I was on Obama:

    “It’s not that Obama doesn’t know how to fix the problems; I think that like most people in Washington, he understands the broad parameters within which the fixes will be carried out. But he can’t make Congress do it before there’s an actual crisis. And saying all of this is all too likely to trigger the crisis–a crisis he’d much rather would happen during someone else’s presidency. So he tells us what we want to hear: that we need to find a way to fix Social Security without, y’know, changing it in any way. And will you look at those green jobs! … The reason he does this, of course, is that like the analysts on all of those calls, we let him. Indeed, we actively, even eagerly, participate in the denial.”

  4. comment number 4 by: Phil

    You have neglected to give the President credit for several references to broadening the tax base. On more than one occasion he spoke of simplifying the tax code, and closing loopholes (eliminating tax expenditures) for both corporations and individuals. He also discussed raising taxes on the top 2% of earners.

  5. comment number 5 by: SteveinCH

    And yet, he refused to support his own budget commission’s recommendations along the same line. Generic talk is cheap. I’ll wait to see his budget I suppose.

  6. comment number 6 by: AMTbuff

    Taxing the rich or cutting discretionary spending are merely drops in the bucket. Raising their profile is therefore misleading.

  7. comment number 7 by: SteveinCH

    True indeed. And of course, discretionary spending won’t be cut, it will just rise less quickly than GDP.