By Robert Kuttner March 12, 2010
PRESIDENT OBAMA has bowed to pressure from deficit hawks in Congress and on Wall Street by agreeing to their longtime pet project, a commission charged with reining in the federal budget.
The concept behind the creation of the National Commission on Fiscal Responsibility and Reform was invented on Wall Street. For more than two decades, private-equity billionaire Peter G. Peterson and an array of Peterson-affiliated groups such as the Concord Coalition and the Committee for a Responsible Federal Budget have been warning that deficits and “unfunded liabilities’’ would crash the economy. Funny thing, though, when the actual crash came it had nothing to do with projected public deficits and everything to do with excesses in private financial markets.
According to Peterson’s billion-dollar foundation, “Washington is broken,’’ and it will take an extra-legislative commission to provide the fiscal discipline that Congress has failed to achieve. In fact, however, the Clinton administration put the budget into surplus. It wasn’t “Washington’’ that pushed it back into deficit, but the Bush tax cuts and two off-budget wars.
Obama’s large deficits are mostly the result of the legacy of the Bush tax cuts and the depleted revenues resulting from recession, not the stimulus program. Before Obama took office, the projected deficit for 2009 was already in excess of 8 percent of GDP.
Since Republicans have made clear that they will oppose tax increases, the general assumption is that the 18-member commission, with six presidential appointees and the remaining 12 to be appointed by Congress, will recommend mainly cuts in Social Security and Medicare. This is quite a message to the American people:
Abuses in private financial markets whacked the value of your home, your retirement savings, and your job. Now, in order to pay for the costs of bailing out the banks, we will also have to cut back the two public benefits you can count on that were not tainted by private-sector excesses: your Social Security and your Medicare.
The commission’s members are mostly part of the club that supports deep cuts in social insurance. Five out of the six members appointed by Obama are basically deficit hawks. Peter Orszag, Obama’s budget director, is a longtime supporter of the commission and helped sell it to Obama.
The Republican co-chair appointed by Obama, former Senator Alan Simpson of Wyoming, was a longtime crusader for Social Security privatization. Only one of Obama’s six appointees, Andy Stern of the Service Employees International Union, is a strong Social Security defender. Just one of the Senate appointees, Senator Dick Durbin of Illinois, is opposed to cuts in entitlements.
House Speaker Nancy Pelosi has yet to name her three appointees, but at least one is likely to be a deficit hawk. So the deck is pretty well stacked before the commission even begins.
But, wait, aren’t deficits a real problem? Well, the Congressional Budget Office projects that the deficit will plateau at about 3 percent of GDP late in this decade. That’s about a point too high — if the deficit were 2 percent of GDP, the debt ratio would subside. A temporary spike in deficits is no reason to cap or privatize Medicare and Social Security, which is the real agenda of many of the deficit hawks. With unemployment projected to stay above 7 percent until 2014, it’s premature to obsess about deficits. If anything, we need bigger deficits and more public investment in the short run to bring about a stronger recovery. With more people employed and paying taxes and a higher growth rate, revenues would increase and we would not need such heroic measures to cut the deficit.
And if we restore progressive taxation, we can have both a responsible fiscal policy and the increased social investments that America needs without taking it out of Social Security or Medicare. That conclusion, alas, will be the minority report of Obama’s fiscal commission. It should be the majority report.
Robert Kuttner is co-editor of The American Prospect and a senior fellow at Demos. His forthcoming book is “A Presidency in Peril.’’
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