Christina Romer's recent piece in the New York Times is worth reading. See C.D. Romer, Cutting the Deficit, with Compassion, New York Times at BU5 (Sept. 9, 2012).
Now, I generally have found Romer too willing to advocate austerity economics and too unwilling to support progressive tax policies. But nonetheless, this piece hits some good notes. For example, while arguing that reducing the deficit needs to be a priority, she acknowledges that it must be done "in a way that does as little harm as possible to people, jobs and economic opportunity." Similarly, she recognizes that requires going slowly--" a comprehensive, aggressive deficit reduction plan [should be passed] as soon as possible, but the actual spending cuts and tax increases should be phased in as the economy recovers." Why? Because "[a] crude rule of thumb is that every $100 billion of deficit reduction will cost close to a million jobs in the near term." A big price to pay that makes it reasonable to consider not only LONG-TERM deficit reduction plans but also SHORT-TERM job creation measures.
ASIDE: And in case you wonder, tax cuts for the wealthiest amongst us, as advocated by the Romney-Ryan team--are NOT job creation measures. The Romney-Ryan budget proposes to achieve revenue neutrality, huge tax cuts for the rich, and no tax cuts for the middle class by not proposing any specifics. The reality is that the Romney-Ryan plan is just politico-wishspeaking: there is no plan that will do what they claim, because they depend on the now-well-disproven idea that huge tax cuts for the wealthy will generate more tax revenues while creating more jobs. Nope. Neither likely nor even possible. And by not specifying what they'd cut, they are merely trying to fool the people.
Here are what Romer proposes, with some commentary:
1) tax credits for businesses that actually increase employment
Not a bad idea to replace the endless suggestions of business tax cuts, but any accountability will have to be long-term--i.e., payroll will have to increase over a period of 2 years and the particular jobs created will have to stay in place for at least 2 years before any tax reward should be available
2) "well-designed tax reform that raises at least some additional revenue" and "let[s] the Bush tax cuts expire for those earning more than $250,000 a year [while] [i]ncreasing rates on top earners" and "lowering tax expenditures" including "the low tax rate on capital gains and dividends"
Hmmmm.The clarion call for tax reform has consistently been used by DC lobbyists to push for tax CUTS for the wealthy and big business. It is not so clear that we need a huge tax reform. What is usually meant by tax reform is "simplification," which is just another way to justify unneeded tax cuts .We do not need to cut the corporate tax rate. We do not need to reduce tax regulations.
But I do agree with Romer's notion that we need some tax increases. My preference would be to allow the entire panoply of Bush tax cuts--passed by a Congress that unfortunately and wrongly believed the Laffer lie that cutting taxes would increase revenues--to expire as the Republicans originally purported to intend. Let the sunset happen. And then come next year, think about what, if any, of the cuts make sense. Perhaps a cut to the income tax rates of those who make less than $100,000 a year. But an increase for those that make more than that, and a significant increase for the top two quintiles, would be in order. We should raise rates on the wealthiest by creating additional tax brackets for those making 500,000 to a million, 1-2 million, 2-10 million, and above 10 million. We could reasonably examine the many tax expenditures/subsidies in the Code and begin to cut back on them--starting with the capital gains rate preference, and moving through the exorbitant support for wealthy mortgages (limit it to an interest deduction on the first $250,000 of mortgage interest and phase that out for anyone with an income above $500,000) and including the R&D credit (rather than deduction), the "active financing exception" and the subsidy for moving active businesses offshore (and along with that, eliminating any idea that there is such a thing as a "profits" partner who isn't taxed on a "transfer" of a partnership interest at the time the interest is provided).
3) slowing spending growth for government health care spending- by reducing overpayments to health care providers (as the $716 billion cut misrepresented by the GOP does); by increasing those cost-cutting reforms to find other ways that we are inefficient; by "making the wealthy pay a larger share of their Medicare costs and gradually raising the Medicare eligibility age"
Here we see the problem that no one in government dares to say what must be said--that until we move to a single-payer system like the rest of the advanced world, we will see private parties continuing to rip off rent profits from providing health care. We must eventually expand to "medicare for all"--and we should do that soon. In the transition, it would be reasonable to have a means-adjusted payment scale, so that the Medicare tax is higher for those with more income (corresponding to the increased brackets for the income tax). And it might be reasonable to have a few major categories of jobs for determining base retirement age--workers in steel plants who work in 115 degree interiors when it is 90+ degrees outside likely should retire earlier than workers in academia who work at their desks in air-conditioned offices. But that won't be easy and will need to be developed by consensus over some reasonable time, rather than through partisan, anti-worker politics.
4) cut other spending--protecting children, displaced workers, and wounded veterans in the process,as well as money for education (including Pell grants) and infrastructure and scientific research--but cutting "agricultural price supports and subsidized crop insurance programs that mainly benefit large commercial farmers," the Pentagon's budget, and high-speed rail.
We certainly can cut a lot of waste and warmongering out of the Pentagon's budget, which is one reason that I'm all for letting the sequester approved by Republicans go through. We could save a great deal there that could be used for infrastructure and other spending that builds opportunities and jobs instead of supporting the military-industrial complex. I'd also support cutting most of the agricultural subsidies, which primarily support Agribusiness that produces tasteless food at a high environmental cost. But I disagree strongly on high-speed rail. If we don't as a nation invest in transportation infrastructure that moves us beyond the costly highways (costly in human lives, dollars to build and maintain, and environmental degradation), we will not advance our economy as we must.