Obama’s Deficit Offer as Good as They Get: Jared Bernstein
It’s tempting to call for a pox on both political parties in the deficit debate, but the fact is that President Barack Obama has been willing to give a lot to get an increase in the debt ceiling. His original proposal -- from which he now seems to be pulling back -- called for $2 in spending cuts for every dollar in increased revenue.
History shows that this mix was unprecedented.
According to an analysis by my colleague Kathy Ruffing at the Center on Budget and Policy Priorities, in the past four major deficit-reduction deals, revenue increases made up a bigger part of the package than Obama’s plan -- between 38 percent and 82 percent as the attached chart shows. The deal that contained the biggest portion of revenue was the Deficit Reduction Act of 1984 signed by Ronald Reagan. (The Balanced Budget Act of 1997 is excluded because it had almost no impact on the deficit.)
In the deficit-reduction packages of 1987 and 1990, revenue increases made up 39 percent and 38 percent, respectively, of the packages. The Clinton budget deal in 1993 achieved 62 percent of its deficit reduction through higher revenue.
It’s interesting to consider why Reagan accepted a deal that probably would have gotten him kicked out of today’s Republican Party.
Let’s look at some of the reasons that balanced-budget deals have historically been successful.
First, while taxes have been unpopular in America since the original Tea Party, the Republican Party has embraced the faulty argument that you can never raise taxes by any amount without destroying the economy.
This theory has been tested and proven wrong. Compare outcomes under Bill Clinton’s tax structure with that of the George W. Bush years. Growth, jobs, incomes, inequality, poverty, even stock-market returns -- all performed much better during Clinton’s higher-tax regime than under Bush’s lower one.
Notably, one measure of economic health did a lot worse during the Bush years: budget deficits.
This leads to the second reason that the more balanced approach of the past is proving so unattainable. It has to do with the Republican mantra that we don’t have a taxation problem, we have a spending problem.
Again, the evidence is suspect. Spending as a share of gross domestic product was about the same in the Bush years as the Clinton years -- 20 percent -- and both were about two percentage points lower than during the Reagan years.
If you track federal revenue and spending through the Bush years, you see that the Republicans have it backward. It’s not that we overspent; it’s that we failed to raise the revenue we needed to cover spending that was well within the range of the historical average.
The other reason that balance is missing from the Republican plan speaks to the party’s broader agenda.
Hurting the Vulnerable
Without new revenue, achieving significant deficit savings requires spending cuts so deep that they undermine important programs that protect vulnerable Americans -- the poor and lower-income seniors. Such cuts also would leave nothing for investing in programs that promote social mobility, such as job training and education.
As President Obama has stressed, that’s the reason for taking a more balanced approach. But if your goal is to slash these very programs, to shrink government, to defund social insurance, the last thing you want is new revenue to take some of the pressure off the spending cuts.
At this point, Republicans have all but stopped negotiating and there’s no reason to believe that the spending and revenue record of past agreements will move their negotiators to return to the table. That’s unfortunate, given the fragile recovery and looming debt ceiling. Our nation would be much better off if those blocking the deal would emulate prior Congresses that achieved significant deficit reduction through balanced deals.
(Jared Bernstein is the former chief economist to Vice- President Joseph Biden and is a senior fellow at the Center on Budget and Policy Priorities. The opinions expressed are his own.)
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