Schakowsky Releases Progressive Deficit Reduction Plan

http://news.firedoglake.com/2010/11/16/schakowsky-releases-progressive-deficit-reduction-plan/

Schakowsky Releases Progressive Deficit Reduction Plan
David Dayen
Tuesday November 16, 2010

I’m pleased to see Jan Schakowsky, a member of the Catfood Commission, release her own deficit reduction plan, and in a way I’m also not pleased by it. Let’s give a brief precis on what it entails, first.

Schakowsky has set up a left flank to the right-wing Bowles-Simpson recommendations, and in a negotiation that at least makes some sense. To get to the target number by 2015, she adds 35% in revenues, 31% by canceling tax expenditures, 26% through defense cuts, 6% through “mandatory” spending reductions, and 2% through non-defense discretionary cuts. Most of the non-defense discretionary spending comes from reducing improper payments, mainly through Medicaid. So that’s a waste, fraud and abuse piece, not a cut in services.

Schakowsky manages to get $110 billion annually out of the defense budget, mostly through ending unnecessary weapons systems. She reduces mandatory spending through a robust public option, negotiating drug prices through Medicare and Medicaid, banning anti-competitive “pay for delay” settlements with generic drugs, and cutting farm subsidies by $7.5 billion.

Schakowsky eliminates the tax expenditure that allows corporation to deduct debt interest payments, saving $77 billion dollars. She cuts out tax breaks allowing firms to bring foreign income back to the US, and tax breaks for outsourcing. She eliminates the deduction for meals and entertainment, which is ripe for tax abuse.

On taxes, Schakowsky would treat dividends and capital gains as ordinary income, for a savings of $88 billion. She would add a surtax on corporate income for another $5.8 billion annually. She uses the Sanders bill on the estate tax that adds progressive marginal tax rates at higher levels on estates. She would enact a cap and trade bill for $52 billion in annual income for the Treasury. She would tax high-end bonuses.

On Social Security, she would eliminate the payroll tax cap for employers and up it to capture 90% of income for employees. That takes care of 3/4 of the Social Security shortfall. On the rest, she adds a “legacy tax” on employee earnings over the cap, at a slightly lower rate. That takes care of it.

So this is certainly better than useful idiots like Mark Warner saying “do the math” in order to cut Social Security. And it’s better than the greybeard panels that are stalking horses for entitlements and defenders of the rich. In the main, I like Schakowsky’s plan, though obviously everyone could add and subtract their own bits.

But the problem is that a “deficit reduction plan” doesn’t address what actually causes deficits: namely, recessions. Maybe the DC establishment thinks that the public is being unserious by caring more about jobs than deficits, but they’re actually correct on both counts. It’s not just because one in four Americans are receiving food assistance, though that’s a moral crisis that requires an urgency to act.

If you look over history, reductions in GDP cause deficits to go up, both because of the loss of tax revenue and the increase in automatic stabilizer payments like unemployment insurance and food stamps. So the best way to reduce the deficit really is to grow the economy.

In fact, growing the economy and making the rich pay their fair share will just about do it. We don’t have to wonder about it: that was the Clinton formula in the 1990s. He raised taxes on the rich, and the economy took off. That was enough to balance the budget, and the hole was pretty bad at that time.

In this case, you need to counter-intuitively spend first to increase demand in order to get the growth necessary to cut into the deficit. To her credit, Schakowsky assumes $200 billion in investments in 2011 and 2012, to be spent on measures like the Local Jobs for America Act, which would create a million local government jobs, as well as infrastructure spending and extensions of unemployment insurance and state fiscal aid. But just releasing a deficit reduction plan gives away some of the game. It forces you to play on the turf of the deficit scolds. The plan should be: grow the economy, watch the budget savings, the end.

John Larsen, of the House Democratic leadership, had the courage to say today that the party just didn’t do enough on unemployment, and that’s why a lot of them lost their jobs:

Rep. John Larson (Conn.), the House Democratic Caucus chairman who is expected to keep his position in a vote on Wednesday, said that his party did not do enough in the eyes of voters to help bring down the nation’s 9.6 percent unemployment rate.

“We never did enough in terms of that area for us to have the kind of success we would have,” he said on MSNBC. “We had a Roosevelt moment and responded like Hoover.”

Larson’s comments are a stinging assessment of his party’s efforts to help create jobs during the 111th Congress. Voters, who swept Democrats out of power in the House two weeks ago, consistently named the economy and jobs as the top two issues during the midterm campaign.

Writing deficit reduction plans when there are 15 million Americans out of work contributes to this problem.