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Yes, you can have an ambitious domestic policy agenda and a nearly balanced budget. You can, at least, if you are a think tank and not running for public office.
That’s the bottom line of the latest fiscal policy exercise sponsored by the Peter G. Peterson Foundation. The foundation asked seven policy shops, ranging from the conservative to the progressive, to come up with plans aimed at putting the US on a more sustainable fiscal path. Only one got the budget to balance by 2049. But most got deficits down to 2.2 percent of GDP or less by mid-century. And all—even the two that would maintain deficits at about 4.5 percent of GDP—avoid the explosion in the national debt that will occur without changes in the law.
Not surprisingly, the groups took very different paths. Some would hold tax revenues roughly at levels projected under current law. Others wanted to raise taxes—in one case significantly. Some would slash federal health care benefits. Others would expand them.
But there also were some areas of high-level agreement. Six proposed a carbon tax, and the seventh backed the idea in principle, though not to reduce the deficit. Five would boost Social Security payroll taxes, and five would cut Social Security benefits for some older adults.
The participating groups were the right- of-center American Action Forum (AAF), American Enterprise Institute (AEI), and the Manhattan Institute (MI), the centrist Bipartisan Policy Center (BPC), and the left- of-center Center for American Progress(CAP), Economic Policy Institute (EPI) and the Progressive Policy Institute (PPI). Peterson asked the Tax Policy Center to serve as the scorekeeper for their revenue proposals and incorporate macroeconomic effects. Barry Anderson, a former acting director of the Congressional Budget Office (CBO), umpired the spending plans.
The size of government
The groups’ philosophy of government could not be more different. By 2049, EPI envisions a federal government that would spend 35 percent of Gross Domestic Product (GDP). AAF would spend roughly half as much—only about 19 percent—which is somewhat less than the nearly 21 percent the federal government spends today. But EPI would raise taxes to about 33 percent of GDP, leaving a deficit of only about 2 percent of GDP. AAF would raise taxes to about 20.6 percent of GDP, a bit higher than under CBO’s baseline. That combination would produce a surplus of 1.7 percent of GDP in 2049.
All the groups favored long-term military spending of 2.0-2.5 percent of GDP but they varied widely when it came to big social programs. For example, AAF would spend about 4.5 percent of GDP on federal government health programs while EPI would spend more than three times as much.
When it came to taxes, there also were big differences. In general, the conservative groups tried to keep taxes to about 20 percent of GDP, though that still would be a significant increase from today’s level of 16.5 percent. The progressive groups were willing to raise much more.
AEI would lower individual income tax rates by 5 percent across the board. All three progressive groups would raise top income tax rates to levels ranging from 44 percent to 50 percent. AAF would lower the corporate income tax rate from 21 percent to 20 percent. AEI and MI would freeze the corporate rate at 21 percent while the other groups would raise the rate. EPI would restore the 2017 corporate rate of 35 percent.
Individual income tax preferences had limited support among the think tankers. All the groups would either eliminate most deductions entirely or replace them with tax credits. Some groups, such as EPI, would eliminate nearly all tax expenditures. Four of the groups would ditch the Tax Cuts and Jobs Act’s special 20 percent deduction for pass-through businesses such as partnerships and sole proprietorships.
Four of the groups, AAF, BPC, EPI, and PPI, favor immigration reform, which would raise new revenues since more workers would pay more taxes.
Reducing the debt
You could get discouraged reading this cacophony of ideas, which seem to mirror the nation’s deep divisions. Some groups are motivated by small government and low taxes. Others see expansive government funded by high taxes. Some would greatly expand government’s role as provider of health insurance. Others would turn Medicare into a voucher that would shift the risk of growing health care costs on to participants.
Yet the groups generally achieved their disparate goals in fiscally responsible ways. All reduced the debt as a share of GDP far below what it would be under current policies. Though some were willing to accept higher deficits than others, they mostly found ways to pay for their own vision of government.
Fiscal rectitude should not be the only, or even the primary, goal of government policy. But it ought to be a minimum standard. If only politicians were as willing as think tanks to take the steps to get there.
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