Jobs now, deficits . . . soon!
The Washington Post, July 8, 2010
I got into policy journalism in the late 1980s and government in the early 1990s because of my worries about debt and deficits. I was a warrior for "generational equity" back when I was still (sigh) a member of the younger generation. And I'm as fearful as the next fiscal scold of long-term damage from the gap between federal spending and revenue, not to mention the trillions in unfunded liabilities in public employee pensions at the state and local level.
I come before you, in other words, a deficit hawk to the core. But it is the height of economic follyand socially dangerous, in my viewto elevate deficit reduction as a goal today over boosting jobs and growth. Especially when there are ways to goose the economy while at the same time legislating changes that move us toward fiscal sanity once we're past this stagnation.
What would a radically centrist "Jobs Now, Deficits Soon" package look like?
Start with the tax side, where we should accelerate the kind of sensible tax reform that's overdue. That means cutting payroll and corporate taxes nowand offsetting this with phased-in tax hikes on dirty energy and consumption, to take effect only once jobs and growth are back on track.
Why this swap? Cutting (and ideally eliminating) payroll taxes is the surest way to lower the cost of employment and boost hiring.
And while the link between corporate taxes and jobs is more dubious, we should cut these levies for at least three reasons: (1) they're uncompetitively high compared with the rest of the world; (2) they're paid by employees or shareholders (so they're not a "freebie" paid by evil corporations, as some on the left seem to think); and (3) announcing a combined payroll and corporate tax cut would send a huge signal to the spooked business community that Washington "gets it" when it comes to growth.
Meanwhile, higher taxes on dirty energy would help our environmental goals; and a value-added tax, or something like it, is, as every other advanced nation has recognized, a sounder way to fund government than job-killing taxes on payrolls and corporations.
But tax cuts are hardly enough. We need spending initiatives as well. For starters, we need to extend unemployment benefitsin a job market this tough, the argument that these benefits promote idleness isn't persuasive. We also need to help states avoid the layoffs and cutbacks that will further dampen consumption. But not without strings to encourage future prudence; David Brooks's idea that fiscal relief be conditioned on states enacting longer-term public pension reform is a smart model.
Larry Katz of Harvard says we need to boost credit to small businesses; can't Ben Bernanke cook something up from the list of creative ideas he never got to at the height of the meltdown? My colleague Michael Ettlinger at the Center for American Progress touts a government-assured market for green energy devices such as solar panels and wind turbines, to get those production lines running.
Toss in some progressive trims to Social Security and Medicare benefits beginning a few years out. And wrap it all up (as I've argued elsewhere) with a new law requiring a supermajority vote in Congress to run deficits higher than 3 percent of GDP whenever unemployment is below 6 percent. Along with the new taxes and entitlement trims, this will convince bond markets we're serious and underscore that we're only running outsized deficits to fight today's output and jobs gaps.
I'm not saying this eclectic package is the only path to nirvana. But it shows it is possible to take ambitious steps that could appeal to Democrats and Republicans alike.
The fact that nothing like this will happen, therefore, is both depressing and instructive. Republicans are content to glide toward November slamming Democrats without offering answers of their own. Democrats who now know the first stimulus was too puny feel they'll be clobbered for trying more in the Tea Party era.
And me? In an odd way this deficit hawk feels like he's channeling Jack Kemp, whose blithe indifference to deficits earned my scorn 20 years ago. Back then, real interest rates were high and could thus come down after Bill Clinton's deficit-busting plan was unveiled; also, there was no debt hangover like we face now, poised to suppress consumer demand for years. In today's very different circumstances, Kemp's logic finally seems unanswerable. "Fix the economy and it's easier to fix the budget," he scribbled to me in 1992, after I'd written him saying he just didn't get it. Keynes, yes; but we also all need to be Kempians now.