Tax Analysts Blog

Congress Is Making a Bad Deal on the Budget, but One Republican Has a Better Idea

Posted on Dec 12, 2013

It’s amazing what passes for success in Washington these days. Budget negotiators on Capitol Hill have delivered a non-disaster, cobbling together a pathetic half-measure that pleases no one and accomplishes almost nothing.

True, it allows Democrats and Republicans to avoid abject failure, which is no small thing, given recent history. These days, just keeping the wheels from flying off qualifies as statesmanship.

But the budget deal fails to address the nation’s short- and long-term problems. Specifically, it does nothing to boost sluggish economic growth, settling instead for not making it even slower. (Which a continuation of the sequester would have done.) At the same time, it makes scarcely a dent in the nation’s long-term fiscal problems, which remain a function of rising entitlement costs.

Indeed, negotiators specifically declined to deal with big problems, worried that attempts to draft a “grand bargain” might interfere with their ability to kick the can down the road again. They were probably right about that.

But what’s tragic about this outcome is that it’s wholly unnecessary. It’s not like better, more productive economic policies aren’t obvious. Thoughtful people in both parties know exactly what the nation needs.

In a recent op-ed for The New York Times, Harvard economist Martin Feldstein laid out a perfectly sensible plan. The country, he wrote, needs a large dose of short- and medium-term fiscal stimulus, coupled with a meaningful plan for long-term fiscal consolidation.

Feldstein touched on all the salient points. Economic growth is too slow, while unemployment is too high. The Federal Reserve has done its part to counter both trends, but monetary policy has reached the limits of its utility. The nation needs something more.

As it happens, Feldstein has a suggestion: fiscal stimulus. He suggests at least a trillion dollars in new spending over the next five years, most of it devoted to infrastructure building and military equipment.

At the same time, Feldstein calls for credible – but not short-term – budgetary offsets to pay for this new spending. “The key,” he writes, “is to combine a major short-term fiscal stimulus with long-term deficit reductions that would cause the ratio of debt to gross domestic product to begin declining by the end of this decade.” Specifically: "Slowing the growth of Social Security and Medicare and raising revenue by limiting the subsidies that are built into the tax code could shrink future deficits to less than 2 percent of gross domestic product, enough to put the debt-to-GDP. ratio on a path back to the 40 percent level that we had before the recession."

Feldstein is careful to distinguish his stimulus from that other stimulus, pointing to his focus on infrastructure. “The lack of ‘shovel-ready’ projects is not an excuse for not pursuing this strategy,” Feldstein writes, “or for diverting the funds into income transfers and other low-impact spending of the kind that made the 2009 stimulus so ineffective.”

All of this is eminently sensible. And it would be wholly unremarkable were it not coming from a Republican.

But of course, Feldstein isn’t really a Republican in the modern sense. Nowadays, Republicans recoil from the word “stimulus” like Dracula from a clove of garlic. But that’s a recent phenomenon. In the 1980s, when Feldstein was helping shape Ronald Reagan’s economic policy, stimulus was perfectly respectable in GOP circles. In fact, it remained an element of Republican fiscal policy through the mid-2000s.

It’s tempting to dismiss Feldstein as a dinosaur of sorts – a relic of this earlier, more moderate GOP past. And that’s exactly what Paul Krugman has done. Feldstein, he says, is one of a group of “fairly reasonable economists living in a political fantasy world.” These poor deluded souls insist that they are still Republicans, but few latter-day Republicans would be willing to claim them as their own.

Krugman goes on to ridicule Feldstein’s good effort at drafting a workable fiscal compromise. And that’s a shame. Because what, after all, is Krugman hoping for? The wholesale implosion and disappearance of the Republican Party? That’s not going to happen. And it wouldn’t be good for the country even if it did. You don’t have to look to Soviet Russia for a lesson on the dangers of single-party rule -– just consider how well Democrats governed the South in the era before the civil rights movement fractured the party’s hammerlock on Southern politics. Competitive parties make for better government.

The only reasonable hope is that the Republican Party will stop being the party of obstruction and denial, returning to its roots as a genuinely conservative force rather than a reactionary one. And that hope depends on reform from within -- the kind of reform championed by Republicans like Feldstein.

Feldstein’s plan is not perfect, and it's certainly vague enough to obscure a multitude of sins and omissions. Liberals are likely to hate its focus on entitlement reform. Conservatives, it hardly needs to be said, despise its spending.

But unlike the recent budget deal hammered out by Rep. Paul Ryan, R-Wis., and Sen. Patty Murray, D-Wash., this is a compromise that alienates everyone while actually doing something useful. It’s a good start on a hard problem.

Read Comments (1)

amt buffDec 12, 2013

Neither party will accept a major concession on long-term spending and taxes in
exchange for short-term concessions. The central battle is about the proper
level of government spending, and thus taxation, in the long term. To break the
stalemate that battle needs to be won by one party or the other.

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