Ten former chairmen of the Council of Economic Advisers implore the federal government to address the budget deficit in an op-ed for Politico today. The bipartisan group suggests using the plan devised by President Obama’s deficit commission as a starting point:
The commission’s specific proposals cover a wide range. It recommends cutting discretionary spending substantially, relative to current projections. Everything is on the table, including security spending, which has grown rapidly in the past decade.
It also urges significant tax reform. The key principle is to limit tax expenditures—tax breaks designed to encourage certain activities—and so broaden the tax base. It advocates using some of the resulting revenues for deficit reduction and some for lowering marginal tax rates, which can help encourage greater investment and economic growth.
To ensure unanimity, the authors left out any reforms that were especially controversial, so National Review Online spoke with professors Glenn Hubbard, Greg Mankiw, and Harvey Rosen — all of whom served under President George W. Bush — about some of their ideas.
Mankiw would raise gasoline taxes to increase revenue. “The Bowles-Simpson commission proposed a very modest increase,” he says. “I would move in that direction but even more aggressively. There’s a large literature about the externalities of driving: climate change, yes, but also congestion. It’s something I experience every day on my way to Harvard.” Mankiw acknowledged that the commission was concerned about any gas-tax hike’s political palatability. “But I don’t have to worry about political palatability,” he joked.
Rosen also mentioned taxes. “One thing I would do would be to keep taxes as a percentage of GDP at about the same as the historic ratio, which is between 18 and 19 percent,” he said. “This is a major departure from the Bowles-Simpson plan, which I believe would raise the proportion to 20 percent. So that’s a typical difference between conservative economists and liberal economists.”
Hubbard, meanwhile, focused on entitlements. “I’ve long believed the solution has little to do with the tax side. The spending share is not only high but growing. What I had recommended are things like progressive indexation of Social Security, moving to a premium model of Medicare, and block-granting Medicaid.”
And what do the economists think of the flurry of continuing resolutions in Congress?
“I’m inclined to think that given the political environment, they’re being sensible because if they get out in front on the long-term issues by themselves, they’ll be creamed,” Rosen muses. “I think they need to focus on the short-term issues until both sides are ready to step on the third rail together.”
Mankiw, however, worries that the resolutions are focusing too much attention on discretionary spending. “We really care about total spending,” he reminds NRO. “By focusing on what they’re doing . . . I worry that it diverts energy away from the heart of the matter, which is entitlement and tax reform.”
Finally, Hubbard encourages Rep. Paul Ryan (R., Wis.) to be bold. “I hope that Paul Ryan and his colleagues push for [entitlement reform]. It’s also where the Republicans can differentiate themselves as being serious about solving these problems.”