How to Get Serious About the Budget

McArdle gives time to express the sanctimonious reason for not dealing the budget, and just hoping higher taxes will solve the issue.  Then I think effectively blunts those reasons.

Megan McArdle

via How to Get Serious About the Budget.

Blogger and occasional Atlantic commenter  Freddie DeBoer writes that "serious" budget pundits aren’t thinking seriously about what budget cuts would entail:

Here’s what you won’t find at the Daily Dish, or at the Corner, or in any of the other places showily demanding seriousness: the actual, human, negative consequences of harsh entitlement cutbacks. I mean, from reading online today, you’d be hard pressed to know why we have Social Security and Medicare at all. I’ll tell you why: because our winner-take-all economic system leaves defenseless, impoverished people in its wake. We have Social Security because the sight of so many elderly people left literally homeless and starving , too old and weak to work, was unseemly to an earlier generation that was willing to take less for themselves to provide for others. We have Medicare because it is an obscenity for a country responsible for the atom bomb and the moon landing and the Hoover Dam to allow suffer and die from lack of health care access due to the vagaries of birth and chance. That’s why those programs exist.Cutting them will lead to human misery and death. It will. Cutting Social Security will mean the difference between subsistence and a pitiful existence for untold thousands of senior citizens. Cutting Medicare will mean some people won’t get the health care they need when they need it and will suffer the physical pain and indignity that comes with that. That’s just the way it is. Yet I keep reading all of these very serious people today failing to mention this reality at all. It’s as if we have entitlement programs for no reason.

Phony, showy seriousness is built on complaints, vague talk about thrift and national virtue, and a studied, preach-to-the-choir attitude where well paid journos and pundits see who can outdo each other in advocating measures that will be painful to others but painless for them. Actual seriousness means wrestling with the very serious and real costs of the harsh measures you’re advocating. You don’t get to show your courage in being ruthlessly pragmatic if you aren’t willing to show who you are being ruthless against. The first step is showing the victims. Perhaps if Sullivan gets the deficit-reducing budget he wants, the Dish can start a "Homeless Grandmother of the Day" feature. Democracy needs that sort of thing; it’s far, far too easy for people to operate in generalizations that preserve the illusion of painlessness.

It goes both ways, though. Me, I’d like to see our insane military budget cut severely, and you start by pulling almost all of the troops out of the 155 countries we have them currently stationed in. But the defense industry employs a lot of people…. That’s the problem with austerity measures; they kill jobs. I hope the people asking for these sweeping budget measures are ready for 12%-15% unemployment….

I’d say that at least this pundit wants to get serious now precisely because I don’t want to see punishing cuts in pensions and health care services, or 15% unemployment.  The way that you avoid making those kinds of cuts is that you start early, before there’s a crisis.  You refocus social security on people with low lifetime earnings, giving those with higher earnings plenty of warning that they need to save.  You put tight(er) means tests on Medicare and Medicaid to encourage the development of markets for private health insurance and long term care insurance for the carriage trade.  You start cutting back military priorities relatively slowly, so that companies, workers, and redundant troops have time to transition into something else.  You phase out tax breaks like the mortgage income deduction slowly enough that neither budgets nor the housing market break.  If this was on the table now, most of us budget hawks would be perfectly fine with the current deficit.

But if we don’t start now–if we put it off because we know that at the margin, spending cuts and tax increases mean a negative shock for people who haven’t done anything wrong except assume that the government would go on much as it has in the past–then we’re going to end up in a crisis where the market doesn’t want to lend us any more money, or will only lend it at ruinous rates.  Then we will have to increase taxes and cut spending rapidly, meaning real suffering for program beneficiaries–and also meaning that we won’t be able to target the cuts as neatly.  It’s easy to focus social security cuts on higher earners if you start twenty years out.  If you do it when they’re one year from retirement, you can’t simply cut off higher earners, because they won’t have saved, and they will have assumed obligations commensurate with their expected benefits.
I assume that a lot of people think that if we just hold out to that point, the difficulty of making benefit cuts will mean that more of the burden gets borne by tax increases.  But people looking at percentages of GDP are dramatically underestimating the scale of what’s involved.  For example, I was on a panel where someone told me that "all" we had to do to salvage Social Security was lift the cap on social security earnings. My reaction was:  all?  That’s a fifteen percentage point tax hike on all income above $106,000, much of which is supposed to be taxed, as of 2014, at 39.5%.  On top of the 55% marginal tax rates you’re proposing on top incomes, you need to add in state and local taxes, and the already uncapped Medicare taxes, plus the Medicare surcharge, pushing the marginal tax rate on  those incomes well over 60%.  To look at it from the point of view of the wealthy, you’re proposing to slash their current after-tax salary income by about a quarter in one fell blow.
Even assuming that tax rates can go that high without adverse political or economic impacts, and that there’s no income shifting to get around the rates, then that’s it; you’ve now raised all the money from the wealthy that you’re going to.  Would you really want to spend it on keeping Social Security exactly as it is, rather than the many other things that the government could be doing?
It’s the same when Republicans talk about spending: our spending involves a few people getting a lot of money, and a lot of people getting a little money.  How deep are you really willing to slash social security benefits?  Whose ox will you gore?
That’s why the serious people want to start now, even though it’s unpleasant.  Waiting is only going to make it worse.

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