The Agenda

Josh Barro on Simpson-Bowles

Josh Barro has a thoughtful discussion at The Barrometer of why President Obama chose not to embrace Simpson-Bowles:

Obama’s budget is to the “right” of Simpson-Bowles in that it raises less revenue. But it is to the left of Simpson-Bowles in that collects revenue on a much more progressive schedule. Simpson-Bowles would have raised more revenue without moving the needle much on the overall progressivity of the tax code, meaning that middle-income people would have paid significantly more than they do today. President Obama’s budget raises new revenue solely by taxing the rich, making the tax code much more progressive. And the Obama-Boehner deal never made explicit how the elimination of tax expenditures would have been allocated among income quintiles.

It may be true that, despite the preferences of the base, the president would have been willing to break his campaign promise in order to get a bipartisan budget deal. Certainly, the president is smart enough to understand that current levels of taxation on the middle class are inconsistent even with Republicans’ spending preferences, let alone his own. But since Republicans are even less keen than Democrats on a middle-class tax increase—and because they understand that it is good politics to oppose one—it was never going to work for the president to sit back and hope the Republicans would come to him with terms along the lines of Simpson-Bowles.

One area where I sense that Josh and I broadly disagree is on the question of whether it is possible to deliver high-touch public services, like medical care to the elderly and K-12 education, far more efficiently than we do at present. I suspect that Josh (very sensibly) thinks that we shouldn’t assume that we will magically cure Baumol’s cost disease, and not just because the political resistance to structural reform is intense. We might hope that, for example, blended learning strategies will allow us to deploy human capital more effectively in schools, but we shouldn’t assume that it will when we make fiscal projections. Similarly, given the historical trajectory of medical cost growth in the United States and across the advanced market democracies, it is a stretch to assume that the embrace of market mechanisms will not only dampen cost growth but might actually reduce the cost of providing (what is perceived to be) quality medical care. In contrast, I’m pretty optimistic about the potential for “disruptive technologies” in this space and thus I weigh political resistance to the deployment of disruptive technologies more heavily in my assessments of the larger political landscape. Suffice it to say, I think that Josh’s view is at least as sensible as my own, if not much more so. 


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