Deficit compromise


 

The Washington Post reported last week on a discouraging poll. Americans supposedly want to reduce the deficit, but not if it means changing Medicare, cutting programs like defense or Medicaid, or raising taxes on anybody but the very richest Americans. Democrats and Republicans seem farther than ever from finding agreement. It’s times like this that I’m glad there are some optimists around who still see some basis for making progress with America’s daunting fiscal challenge.

Diane Lim Rogers sees the issue this way:

Stories about [the Washington Post-ABC] poll have tended to emphasize the majority who are opposed to each item in a "pick one" menu of tough choices: 78 percent opposed to cutting Medicare, 69 percent opposed to cutting Medicaid, 56 percent opposed to cutting defense spending. The only "pick one" option that a majority (72 percent) supported: "raising taxes on incomes over $250,000." And even that is not as agreeable as it sounds, considering that households with incomes over $250,000 make up only about 2 percent of the population– i.e., you’d think we could get a little closer to 98 percent support on that one.

But that majority opposition to each of the "tough choices" is because respondents were asked to take or leave each of those tough choices as the single strategy for deficit reduction. No one wants to agree to give up something if they think others in society aren’t going to give up something, too. None of those "pick one" choices conveyed a notion of shared sacrifice or a "balanced" approach.

Diane notes that only a slight majority opposed a

more balanced approach which combines ("small") cuts in the major entitlement programs with "raising taxes on all Americans." This is a glass that is (almost) half full. We haven’t even begun to make the full sales pitch on this "shared sacrifice" plan with more specifics about how Medicare and Social Security can be trimmed while actually strengthening the safety-net parts of those programs (reassuring the liberals), or how revenues can be raised in a progressive manner by reducing “tax entitlements” rather than merely jacking up tax rates (reassuring the conservatives).

This gives me hope.

The same poll shows that a majority of Americans (59 percent) already agree that the best way to reduce the deficit is through the only-generally-described "combination" of tax increases and spending cuts– not just one or the other.

David Paul Kuhn quotes a related analysis of the Washington Post-ABC poll by political psychologist Steven Kull, director of the Program for Public Consultation at the University of Maryland:

It’s like you are saying, would you like to have some cake? Yes. Would you like to eat your cake? Yes. Ah, they want to have their cake and eat it too!

The public is capable of dealing with the budget in a rational fashion. When you ask one-off questions they can only react in a visceral way. No, it’s not attractive to cut spending. No, it’s not attractive to raise taxes. Yes, you want to balance the budget. You haven’t asked them to make tradeoffs.

Kuhn reports an approach by Kull that tried to get at this more constructively:

Kull’s study asked a random sample of Americans to do precisely that. They presented adults with the discretionary budget shortfall of $625 billion by 2015, as well as shortfalls in Social Security and Medicare. Participants chose from a range of realistic options using a computer application.

The majority made Social Security solvent. They accomplished that by raising the income limit subject to the payroll tax and increasing the retirement age to at least age 68; majorities agreed to similar tweaks of Medicare eligibility and benefits.

The average respondent reduced the discretionary budget deficit by 70 percent. One third of deficit reductions came from cuts to government programs. Two-thirds came from increased taxes and adjustments to the tax code.

A budget proposal from Representative Paul Ryan (R-WI) relies on sharp cuts in future Medicare benefits, but the accompanying reductions in tax rates make both the claimed effects on the deficit implausible and the proposal a political nonstarter when Democrats control the Senate and White House. Paul Krugman endorses an alternative calling itself the People’s Budget, though Tyler Cowen thinks it implies 70% marginal state plus federal tax rates, 50% tax on capital gains, and yet the plan’s calculations assume that this is going to raise the real GDP growth rate by 0.3% per year. Ditto what I said about the Ryan plan.

It is abundantly clear to me that the only plan that is going to work must be based on Diane’s principle of shared sacrifice– taxes need to be raised and entitlements need to be cut.

Now just give us some leaders with the courage to state the obvious.

Deficit compromise
James Hamilton
Wed, 27 Apr 2011 02:13:54 GMT

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