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Boehner’s Plan B Didn’t Fix Our Budget's Biggest Problem—But Neither Will Obama’s

As I write, House Speaker John Boehner is holding a press conference to put the best face on the collapse of his ill-starred Plan B.  This is the kind of drama that Washington pretends to deplore but actually loves. The breathless blow-by-blow coverage of the fiscal cliff negotiations is obscuring the larger significance of the budget debate for the country. Some argue that we risk a Greek-style debt crisis unless we change course. Not so: We’re not like Greece, and we never will be. The real threat is that we’ll end up like Japan—a prosperous but debt-ridden, economically stagnant, politically gridlocked country seemingly condemned to a slow decline.

Two lines of analysis underscore this danger. Writing in Wednesday’s New York Times, Eduardo Porter showed that on either the Obama administration’s proposal or the House Republican alternative, the portion of the federal budget devoted to domestic discretionary spending will shrink by nearly half, to its lowest level since the Eisenhower administration. That part of the budget does two things above all: it assists the most vulnerable Americans, and it funds the public investments that help build a better future for all Americans. Radical cuts in the domestic discretionary budget mean a society that is less decent and an economy that is less dynamic.

Concerning the impact that huge discretionary cuts will have on social decency, I have nothing to add to the analysis that Bob Greenstein and the Center for Budget and Policy Priorities have offered, so I’ll focus on economic dynamism. Public investment is a thread woven through the tapestry of American history: roads, bridges, canals, railroads, and land-grant colleges in the nineteenth century; rural electrification, the Interstate Highway system, the National Science Foundation, the National Institutes of Health, students loans and grants, and high-tech spinoffs from space and defense programs in the twentieth. Intelligent public investment has been and will remain an important source of economic growth. We need more of it, but we’re on track to get much less.

The Urban Institute’s Eugene Steuerle and several colleagues have analyzed a parallel trend pointing in the same direction—the decline of what they call fiscal democracy. From the early 1980s through the first years of the current century, an average of about 30 percent of federal revenues remained after mandatory programs claimed their share and we paid the interest on the debt. During the Great Recession, we got a glimpse of our future: mandatory programs and interest payments consumed more than 100 percent of federal revenues, and the equivalent of the entire discretionary budget had to be funded through borrowing. Even if we return to Clinton-era levels of taxation, substantially higher than President Obama has proposed, spending on Social Security, Medicare, Medicaid, defense, and interest will consume all of federal revenues and then some, leaving domestic spending out in the cold. The part of the budget that allows us to respond to changing needs by making regular choices is getting relentlessly squeezed, with no end in sight.

So when Republicans work to minimize revenue increases and Democrats resist cuts in Social Security and the large health programs, in effect they join forces to threaten the key to our future—the investments in ideas, infrastructure, and people needed to fuel innovation and growth in the coming decades. That’s not the world I want my just-born grandson to live in.

Forget about the historical averages; they are irrelevant to the present, let alone the future. Over the next decade, the federal government’s revenue needs will amount to about 21 percent of GDP. That’s the reality that Republicans will have to acknowledge. But if we don’t act soon to make the kinds of changes in Social Security and Medicare that will reduce the pressure on the federal budget while allowing Americans a decade or more from retirement to adjust, these programs will eat up all the revenue increases, forcing huge cuts in discretionary spending. That’s the reality that Democrats will have to acknowledge.
We should make these programmatic changes as progressively as possible, with strong protections for the most vulnerable beneficiaries. But, to take one example, there’s no reason why upper-middle class retirees should receive subsidies under Medicare. People like me should pay for our benefits; that is, our premiums should close the gap between the payroll taxes we’ve paid and the value of what we receive. For us, unlike our less fortunate fellow citizens, the benefit should be guaranteed participation in the program regardless of our medical status—period. That’s the only way we can begin to free up public funds for public investments.

For me and many others, the fiscal debate has less to do with making the numbers add up than it does about making adequate provision for the future. I want a country in which all students who can profit from a college education are able to afford it; in which the young scientists who can make the next generation’s discoveries can get funding for their research; in which people get to work and goods get to market efficiently; in which our communications systems are world-class and open to all; in which we build the protections we need against the forces of nature we cannot control. The private sector can help, of course. But the country I want won’t exist without a level of public investment far higher than we’ll have—unless we change course.

So no, I don’t want to throw grandma under the bus. But I care just as much about my grandson. If that means asking 50 year olds who make twice or three times the median income to pay more in taxes and accept somewhat lower benefits when they retire, I know where I stand. If it requires a carbon tax, or a VAT, or means-testing for Social Security and Medicare, or an end to tax subsidies for McMansions in Potomac, so be it.

A country that stops providing for its future won’t have one. That’s what’s at stake in the fiscal debate—not who’s up and who’s down, not whether Republicans can stymie the President or Democrats can smash the Tea Party. Along with the majority of Americans, I’m tired of the Washington game. But when will our political leaders realize that this is serious?