Matt Yglesias

Jason Furman on Fiscal Policy

Jason Furman is now Deputy Director of the National Economic Council. Conveniently, he also wrote an article for Slate back in April on what fiscal policy should look like. Thus far, everything that Obama’s done has been something that Furman recommended. But not everything Furman recommended has thus far made it into the budget. So it’s perhaps useful to take a look at what other kinds of ideas are bouncing around. Furman advocates:

1. “[I]ncreased sin taxes on items like cigarettes” which, as you know, I agree with. I’m not sure how much room there is left to run with federal cigarette taxes before we start producing a counterproductive black market, but there’s a strong case for higher alcohol taxes and a decent case for legalizing-and-taxing marijuana.

2. He says we should seek “a broader tax base by, for example, reforming the deductibility of the mortgage interest.” This is a very good idea, albeit politically difficult to implement. But insofar as we’re concerned with the long-run deficit, you could use a non-indexed cap such that over the years inflation will slowly phase the deduction out.
3. On Social Security he says “Two of my favorite options are raising that amount of Social Security payroll that is taxable and indexing benefits and/or taxes to the changing ratio of beneficiaries to workers.”
4. He calls for “scaling back on weapons systems originally designed to fight pitched battles on the plains of Europe,” which does seem to be the inclination of many inside the administration, but all signs are that they won’t actually seek to cut the defense budget or even to hold the defense budget steady. Instead, the White House will have a battle with the Pentagon over whether a country that accounts for half of global defense expenditures should engage in moderate real increases in defense spending or large real increases in defense spending. I expect fiscally conservative Blue Dog deficit hawks to be outraged by this state of affairs.*

Outside the realm of bullet points, two other things he suggests are switching the measure of inflation to the C-CPI-U and that cuts in small-bore government programs could be valuable “if only to create more confidence in the budget process.” The latter, I think, is something we very well may see. The President loves the line about going through the budget “line by line” and eliminating programs that don’t work, so they probably need to eliminate something or other to be able to keep saying it.

On the inflation index thing, this almost seems like a bipartisan deficit reduction no-brainer. It would, in effect, simultaneously raise taxes and cut spending but could be plausibly portrayed as doing neither—it’s just a technical adjustment to the way the Consumer Price Index is calculated! Of course, you would never want to do something like that as a one-party measure but if there’s ever a bipartisan commission or what have you, then this is a very appealing option. From an ideological point of view, I would say that the problem to watch out for is that you sometimes hear the suggestion that this switch should be made only for Social Security. That’s not something I would want to see progressives agree to. But make the switch across the board and it’s a progressive measure that, in exchange for a mild slowing of the growth in Social Security benefits, would also mildly increase not only the level of Social Security taxes but also income taxes more generally, generating revenue that can be used for all manner of worthy domestic purposes.

More »« Less

Obama, Entitlements, and Health Care

Barack Obama did an interview at The Washington Post yesterday where he apparently said a bunch of stuff, including something that inspired the Post to run a big article about his plans for entitlement reform. But for a long article about how Obama told the Post something about his plans for entitlement reform, it contains shockingly little information about what Obama actually said about his plans for entitlement reform. Instead, you see a bunch of political speculation. Josh Marshall has a post up with a message from a reader about how “The current owners (particularly the Sam Zell’s and private equity firms of the world) don’t give a hoot for the public trust aspect of the major metros that they own – unlike the families that started and ran these papers for generations.” That’s true, but by the same token it seems to me that a great many of the reporters working at these places don’t give a hoot about public trust issues either.

Thus an article where we have to wait until graf twenty before a substantive remark from Barack Obama about entitlement policy emerges. And he says—ellipsis in the original—the following:

“Social Security, we can solve,” he said, waving his left hand. “The big problem is Medicare, which is unsustainable. . . . We can’t solve Medicare in isolation from the broader problems of the health-care system.”

Since the article is poorly written, it’s hard to know what to make of this. But that sounds like Obama saying that entitlement reform should be made subordinate to comprehensive reform of the health care system. Or, rather, that Obama seems health care reform as the centerpiece of his approach to long-term budgetary strategy. It wouldn’t surprise me to learn that’s what Obama thinks, since that’s definitely what Peter Orszag thinks, and Orszag is Obama’s choice to be his top budget guy. And if that’s right, that’s a kind of different story than one with this lede: “President-elect Barack Obama pledged yesterday to shape a new Social Security and Medicare ‘bargain’ with the American people, saying that the nation’s long-term economic recovery cannot be attained unless the government finally gets control over its most costly entitlement programs.”

McCain’s Social Security Alternative Universe

Josh Marshall watches John McCain talk about Social Security with Wolf Blitzer and is astounded:

McCain fabricated an alternative history of the 2005 Social Security battle in order to create a new tax talking points. According to McCain, and he repeated this again and again, “the [Social Security] talks broke down because the Democrats insisted as a precondition that we raise taxes.”

That’s very weird. First, there were no Social Security talks. And the Democrats didn’t make any demands to raise taxes. They didn’t even propose raising taxes. As many of you know, I followed that debate extremely closely. And McCain just made this stuff out of whole cloth. Really bizarre.

Right. What happened was that Bush proposed privatizing Social Security. Democrats said “no.” Then Bush said there was a crisis and we needed to respond by privatizing Social Security. Democrats responded that there was no crisis and privatizing Social Security would be a bad idea. Then Bush called for everyone to get together and reform Social Security in a bipartisan way. Democrats said they were open to holding some bipartisan negotiations about the projected long-run financing of Social Security if Bush would take the concept of privatization off the table. Bush refused, and suddenly, albeit accurately, stopped proclaiming the existence of a crisis. At this point, many Republicans who backed Bush’s privatization effort started pretending they’d done something else.

McCain and Entitlements

Marc Ambinder points to some Sarah Palin remarks in which she says “John McCain and I will protect the entitlement programs that Americans depend on – and above all, Social Security.” But it was just a few days ago that the McCain campaign decided that rather than raise taxes on health care, they wanted to More »« Less on Medicare and Medicaid. In other words, the very entitlements that Palin just promised to protect.

Meanwhile, it’s still the case that McCain has long favored privatizing Social Security — not protecting it.

No Plan Here

Marc Ambinder rightly deems the following McCain campaign rebuttal to accusations being made about his views on Social Security to be “amusing”:

JOHN MCCAIN HAS MADE NO SPECIFIC SOCIAL SECURITY REFORM PROPOSAL, SO IT HAS NO COST

See, that’s Barack Obama’s problem. When he’s proposed new programs or substantial changes to existing programs, he’s tried to spell his ideas out in some detail and provide a budgetary framework. If he stayed vaguer, then it’d all be free!

McCain on Social Security

One of the most frustrating aspects of politics is the biannual war of words over whether or not conservative politicians want to privatize Social Security. Privatizing Social Security is unpopular, so progressive politicians like to point out that conservative ones want to privatize it. Conservatives then deny a desire to do any such thing, protesting instead that they have only vague dreams of “fixing” it. Then the press shows up to accuse any Democrat who dares point out the obvious — that conservatives want to privatize Social Security — of distorting the truth.

At any rate, here’s John McCain giving his view on Social Security privatization:

Now here’s CQ on the subject:

In a much anticipated address at the Democratic National Convention, Clinton said, “John McCain wants to privatize Social Security.”

“Privatizing Social Security” is how Democrats refer to President Bush’s plan to allow workers to divert a portion of the program’s payroll taxes to personal investment accounts.

McCain has repeatedly warned that the Social Security system is going broke and needs to be fixed to meet the needs of future generations.

However, the senator is not proposing anything as ambitious — or as concrete — as what the president attempted to do in 2005.

And it’s true, McCain isn’t proposing a concrete program of privatization — because he’s frightened that if people were to obtain an accurate assessment of his views he would lose the election — but it’s also true that he wants to privatize Social Security, as witnessed by his statement that privatization is necessary over the long run. Note, though, that “privatization” isn’t just “how Democrats refer to President Bush’s plan” — it’s also how John McCain refers to his preferred Social Security policy. Now how much credence should we give to his campaign season self-reports about privatization? I would say very little, since it’s a subject he demonstrably lies about:

What’s more, interviewed by The Wall Street Journal in March, McCain “I’m totally in favor of personal savings accounts” in Social Security — i.e., privatization. When privatization was on the table in 2005, McCain supported it. Phil Gramm, one of McCain’s top economic advisers is a long-time privatization advocate. Cato’s Michael Tanner, a long-time privatization advocate, has observed that McCain is trying to obscure his record for political purposes:

During his years in the Senate, John McCain earned a reputation as a fiscal conservative and champion of entitlement reform. But on the campaign trail this year, “straight talk” has been very hard to come by. In discussing Social Security, Mr. McCain, who once favored slowing the growth in benefits and allowing younger workers to privately invest a portion of their Social Security taxes, now speaks mostly in banalities about “reaching across the aisle” to achieve “bipartisan consensus.”

Stepping back, Social Security is the single largest program the federal government runs. John McCain is a major party presidential nominee. Accurately reporting the views of a major party presidential nominee on the fate of the federal government’s largest program is important. And it’s not too difficult! Google for “McCain Social Security privatization” and you’ll find plenty of accurate information, including video of McCain talking about the need to privatize.

Social Security Anniversary

Eric Rauchway has a nice brief overview of the historical context of Social Security’s founding and it’s significance in the broader sweep of American history.

Social Security and the Candidates

One of John McCain’s key demographic bases of support is old people, particular older working class Americans. These are much the same people who are likely to be strong supporters of Social Security. McCain, meanwhile, not only thinks that the very idea of a pay-as-you-go public pension system is a “disgrace” but was a firm defender of George W. Bush’s unpopular plan to dismantle the program and replace it with a riskier, less progressive system of mandatory private investment accounts. Under the circumstances, a lot of people have been waiting around impatiently to see Social Security play a larger role in discussion of McCain and his agenda.

As you can see over on the right, the AFL-CIO is stepping up to the plate with a hard-hitting mailer that not only tags him as a Social Security opponent but notes that his thinking on retirement seems to reflect his own vast wealth. Certainly it’s true that anyone with an heiress wife and a U.S. Senate pension can probably get along fine without Social Security but that’s no reason for McCain to try to make the rest of us get by. The DNC’s also put together a two-minute web video reminding people not only of McCain’s position on Social Security but also specifically trying him to the right-wing campaign against the program that’s been going on even longer (just barely) than McCain’s been alive.

At the same time, Christian Weller has a post up at the Wonk Room contrasting McCain’s approach with Barack Obama’s efforts to make retirement more, rather than less, secure:

Moreover, Sen. Obama wants to make it easier for people to save. He would require that employers automatically enroll their employees in retirement savings plans and, if employers don’t offer such plans, they would have to offer employees an easy way to contribute to Individual Retirement Accounts (IRAs) through payroll deduction. On top of this, he would vastly improve the current system of public matches for people’s contributions to their retirement savings accounts, at least for families making less than $75,000.

The press has amasses an impressive record over the past several election cycles of letting Republicans who favor privatizing Social Security get away with claiming they don’t favor it, but this time around there seems to be a more concerted effort to try to make the point clearly so maybe that will change.

Happy Birthday Social Security

It was 73 years ago today that President Franklin Roosevelt signed the legislation establishing the Social Security program. For each and every one of those 73 years, Social Security has been a pay-as-you-go public pension scheme in which the current generation of workers’ taxes go to pay benefits to present retirees and, in exchange, future generations of workers will pay for current workers when they retire. It’s been effective at meetings its goals and broadly popular:

Or, as John McCain would have it, the whole thing is a complete disgrace.