Economist Bill Gale provides a useful and thoughtful review of the package outlined by the President this morning. Since I’m obsessed with the class warfare nonsense we’re hearing from the R’s on this, allow me to highlight that section of Bill’s analysis (note the part of Rep. Ryan’s budget):
Proposals to raise taxes on high-income households inevitably generate claims of “class warfare.”
–But it seems reasonable to ask for some fiscal sacrifice from a group that (a) is very well off, (b) has seen meteoric income gains relative to the rest of the population over the past 30 years, and (c) has nevertheless seen their average tax burden fall, not rise, during that period. It does not seem fair to let the wealthiest escape from sharing the burden of closing the fiscal gap; nor is there a way to impose that burden without tax increases.
–Ironically, proposals like Rep. Ryan’s recent plan to address long-term fiscal issues would impose more than the full burden of closing the fiscal gap on low- and middle-income households and, at the same time, give high-income households a tax cut. That seems much less justified on fairness grounds than asking high-income households to share in the burden of closing the fiscal gap.
Next, my CBPP colleague Jim Horney provides a close look at some key aspects of this plan. He hits a particularly important point here:
The only people largely shielded from cuts under the President’s plan are the most vulnerable Americans — children, the disabled, the blind, and the elderly with very low incomes. In light of the recent Census data showing a historically high rate of poverty, the President wisely followed the core principle established by the Bowles-Simpson commission report that deficit reduction should not push more Americans into, or deeper into, poverty. Such a balanced approach — both increases in revenues and reductions in spending — is the only approach that will put the budget on an economically and politically sustainable path.
He then turns to the forthcoming Congressional debate (my bold):
The balanced approach the President has proposed takes on a wide variety of special interests, from wealthy Americans who want to preserve their tax breaks to the pharmaceutical industry that does not want to give up the increases in the prices the federal government pays for prescription drugs for low-income Americans that the industry was given in the 2003 Medicare prescription drug bill. But if Congress does not stand up to these special interests, it will be the broad American public that pays — both in squandered opportunities for deficit reduction and in big cuts in programs that benefit average Americans rather than those best able to lobby Congress.
…An unbalanced deficit reduction package that allows lawmakers to continue to pretend that no increase in revenues is necessary and that it is possible to avoid confrontations with powerful special interests would be worse than no deal at all. The latter outcome would at least show the public that it is lawmakers’ unwillingness to confront reality on revenues and special interests that is blocking the path to substantial, sustainable deficit reduction. This is why the President’s vow to veto a deficit reduction package that is not balanced represents a stand in support of real deficit reduction.
Remember, this plan is the President’s recommendation to the supercommittee. If they gridlock—and if you thought that probability was high last week, you must think it’s higher now, following Rep. Boehner’s protestations against new revs and the $1.5bn in revs in the plan itself—then the automatic cuts kick in, and those a) exempt the entitlements (outside of a 2% provider cut in Medicare) and b) get 50% of their cuts from defense.
Such a sequester would be far better than a lousy budget deal. And the President was quite clear today what a lousy deal would look like–Mr. President, you get the last word (from his speech yesterday):
This is not class warfare. It’s math. The money is going to have to come from someplace. And if we’re not willing to ask those who’ve done extraordinarily well to help America close the deficit and we are trying to reach that same target of $4 trillion, then the logic, the math says everybody else has to do a whole lot more: We’ve got to put the entire burden on the middle class and the poor. We’ve got to scale back on the investments that have always helped our economy grow. We’ve got to settle for second-rate roads and second-rate bridges and second-rate airports, and schools that are crumbling.
That’s unacceptable to me. That’s unacceptable to the American people. And it will not happen on my watch. I will not support — I will not support — any plan that puts all the burden for closing our deficit on ordinary Americans. And I will veto any bill that changes benefits for those who rely on Medicare but does not raise serious revenues by asking the wealthiest Americans or biggest corporations to pay their fair share. We are not going to have a one-sided deal that hurts the folks who are most vulnerable.