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Battle Of The Budgetary Nerds

As the presidential campaign wears on--particularly if it continues to look like Barack Obama is headed for victory--it will be interesting to see whether the tension between centrist deficit hawks and more liberal fiscal types that bubbled up in the wake of Jason Furman's hiring becomes more pronounced. One piece of evidence that it might be: Today the liberal Center for Budget and Policy Priorities held a conference call to highlight its response (pdf) to the centrist Brookings Institution's "Taking Back Our Fiscal Future" paper (pdf), which (though somewhat equivocal) seemed to call for reductions in entitlement spending in order to prevent massive budget deficits in the coming decades.

The CBPP paper makes a couple of good points. In particular, it notes that upper-middle-class and wealthy households get lots of handouts from the government, too--it's just that they take the form of huge tax deductions rather than entitlement programs. The federal government spends $900 billion a year on these tax expenditures, like the writeoff for employer-provided health care and mortgage-interest deduction, which go overwhelmingly to the affluent. If there's a budget crisis looming, these expenditures should be on the table for cuts just like entitlement programs should be. And CBPP is also right that there shouldn't be procedural mechanisms that give an artificial preference to spending cuts over tax increases; they should both be on the same political footing.

That said, in other respects the CBPP response isn't very convincing. It repeats the common liberal argument that since the budget crunch is driven primarily by spiraling health-care costs (which makes Medicare and Medicaid more expensive), it doesn't make sense to look for savings from Social Security, which is close to being solvent on its own. I've never understood this line of reasoning. Suppose one of your major household expenditures--say, transportation or heating--is rapidly becoming more expensive. Part of the response, clearly, is to try to conserve in order to spend less on that item. But you'd also want to look for savings elsewhere, since it's probably not realistic to think you can get your budget back into balance solely by addressing that one component of your spending. Maybe you'd start working more to bring in more revenue, or take fewer vacations, or hold off on a kitchen remodel. You definitely wouldn't say, "Gee, the rest of my budget is still solvent, so there's no need to make any changes there!"

Similarly, the federal government should certainly respond to skyrocketing health care costs by looking for ways to bring down health spending (without compromising quality, to the greatest extent possible). But isn't it just common sense to look over the entire federal budget for areas to cut costs? It seems to me that things like reining in farm subsidies and pork, eliminating huge Cold War–era defense systems, and reducing (not eliminating!) Social Security benefits for affluent future (not current, or even soon-to-be) retirees are all promising avenues for savings.  As Mickey Kaus has pointed out, if the alternative is raising the payroll tax on these very same individuals, leaving you with marginal tax rates potentially well above 50 percent, why not just cut back somewhat on their benefits instead, which is both more feasible politically and less distortionary economically?

At the end of the day, though, I'm not sure the gap between CBPP and Brookings, at least in the short term, is that significant. Both are committed to maintaining (and potentially expanding, in some ways) a robust social safety net for the poor and middle class. Neither one supports making the Bush tax cuts permanent. Both believe that reducing health-care costs must be a major component of any realistic deficit-reduction strategy. There's plenty of common ground for what Obama's immediate budgetary priorities ought to be, if elected.

--Josh Patashnik