cc
executive director of the Wisconsin Academy of Sciences,
Arts, and Letters, and welcome
The Post 9/11 Economy: Getting this Wisconsin Academy Evening,
Reduction, Civilized About Deficit
She's the chief economist of the featuring Diane Lim Rogers.
DC, a nationwide nonprofit Concord Coalition in Washington,
advocating generationally responsible fiscal policy.
Rogers also writes the blog,
as one of the top economics Econblogs by the Wall Streetoted
Journal.
column, "Taxes for a Civilized She writes, also, a tax notes
And at the Concord Coalition, she writes policy briefs,
gives speeches and provides general expertise on the
economic effects of the federal budget and tax policy.
She's worked in Washington
Prior to working at the Concord fCoalition, she held many
prominent positions on the hill,
of the House Ways and Means Committee, Senior Economist with
President Clinton's Council on
She received her BA in Economics Economic Advisors, among others.
her MA from Brown University, and her PhD from the University,
of Virginia.
Diane Lim Rogers. Please[applause]elcome
Thank you.
Am I on? [applause continues]
Thank you so much, Margaret. Yes.
Wisconsin Academy for inviting And thank you to all of the
That is not my first slide, however.
Let's see.
That's okay. Here we go.
I'm from the Concord Coalition. If you've never heard of us,
we've been around since the early 1990s.
I'm very pleased to be here today.
This is actually my very first
It's hard to believe since, you know, I went to a Big Ten
school, that I never got over here for a football game.
I'm a Midwest girl, so I hope we
I was born in Chicago, can relate that way.
I'm speaking. mI grew up in a Detroit suburb.
My sister has never left
She's an engineer for Ford, so Michigan.
industry, and a fondness for I have a fondness for the auto
chemistry professor at Wayne academia, because my dad was a
So I come from an academic State University in Detroit.
household. background in an academic
after I received my PhD, was I The first part of my career,
University for five years. was a professor at Penn State
time in DC, at George Washington I still teach to this day part
But I'm here to talk about the University.
I want to point out that the deficit today.
I was able to start when I left reCapitol Hill and was finallych
allowed to speak my own mind
reporters were no longer told that no, you can't talk to
Diane.
economist working for a Democratic staff is you end up
being the most conservative person on the Democratic staff,
and you also end up saying
like, you know, well if you don't like President Bush'ss
proposal for reforming Social Security, why don't we just come
up with a better one? That was my response.
And I didn't learn that the answer was no.
Just say no.
So, as soon as I had reached a Just say no.
couldn't take anymore on Capitol level of frustration that I
working for the party in charge and I was still frustrated, and
I realized this was a problem,
Bixby, who's the executive was I started talking with Bob
Coalition. director of the Concord
Coalition while I was at the I had worked with the Concord
I had been part of the so-called Brookings Institute.
Brookings representative. I enjoyed that opportunity so
much, and I enjoyed the Concord Coalition's mission and believe
in it so much that I was very excited when Bob Bixby told me I
could come work with Concord, like as a real staff person for
Concord.
is a blog that's my perspective as an economist and as a mom.
I am a babyboomer.
a babyboomer. I'm aI have four children.t I'm
My oldest two are in college
My baby is 13. now.
next few days, I have four So, right at the moment, for the
oldest is turning 20 this teenage chweekend.because my
So, have sympathy for me and be nice to me, because you know
that I have a lot of stress in
My perspective on the budget my life.
I'm both an economist and a mom. deficit has always been because
the budget deficit is something Andthat we all worry about,st,
Liberal, Conservative, all
budget deficit, because there are reasons to worry about it
both from a long-term economic
shorter-term economic stability perspective, in terms of, you
know, when you're in a
have to worry about the deficit, recessionary economy, you still
As a mom, I'm concerned because I'm worried about my kids'
economic future.
solving our problems and paying our bills, because I know you
can't put it off forever. Chances are that my kids are
going to end up paying for a lot
willing to pay for now, in the of the bills that we're not
for it either in the form of form of, they're going to pay
government services, because we won't be able to afford those
services anymore. Or, they'll just pay for it
indirectly in terms of an overall weaker economy.
They won't be able to find jobs,
jobs. oSo, because I'm a mom, I'veng
really worried about this issue of fiscal responsibility for
many years. When I worked for the Clinton
administration, I was there for the very last year of the
Clinton administration. When you work for the CEA, the
Council of Economic Advisors, your primary responsibility,
your biggest assignment during
council, is to produce the the year that you work on the
so-called Economic Report of the president's economic report, the
While what the president President.
it's like the one big cover himself wriletter.very short,
The whole thing is labeled the
President, and it's signed by him, but we on the staff of the
Council of Economic Advisors
report beyond that first page write the letter.est of the
I was tasked that year with writing about President
Clinton's legacy in terms of
of turning our budget situation wharound, our federal budgetts
situation around from record
of his administration. deficits to surpluses by the end
all, with the strength of the What deconomy at the time.if at
I concluded, after doing a lot
wasn't a coincidence that we had of research that year, that it
back to surpluses, that we had turned our budget deficit around
1990s, despite the fact that raised taxes, yes, in the early
on middle class tax cuts, he President Clinton had campaigned
that campaign promise, because ended up kind of reneging on
that, to follow through on those deficits were too large to do
It wasn't a coincidence that we had very strong economic growth.
It wasn't entirely due to fiscal
And I have to admit now, because policy.
first draft of that chapter, I I can, that when I wrote the
combination of good policy explained that it was a
There was a little luck there. choices and good luck.
edited the chapter, the luck Well, when the White House
It was all "good policy." But I can say with confidence
today, it really was a
It wasn't just good luck. It wasn't just good policy.
We were fortunate that
good economic fortune happened good policy and good luck,
In the late 1990s, we were at the same time.
revenue surprises in DC. getting repeated what we call
Congressional Budget Office was projecting what tax revenues we
would raise by the end of the year, it always turned out to be
a lowball estimate. We always ended up getting more
revenue than what we had
So those were revenue surprises. expected.
surpluses, or smaller budget We ended up with larger budget
were expecting. defiWhy did that happen?n we
Well, we were gaining a lot, we were collecting a lot in capital
gains and dividends, tax
market was booming. There was what Alan Greenspan
referred to as the irrational exuberance of the marketplace.
It was associated with the high tech bubble, right, all the
computer technology, the
So, all of that created this Internet.
virtuous circle in the economic report of the president, that we
had this wonderfully strong private sector economy, and we
were saving in the private
But we were also saving in the sector at a decent rate.
We were positively saving. public sector.
to national savings was actually The public sector's contribution
Clinton administration. In other words, we weren't
running deficits anymore. We were running surpluses.
When you raise national saving, national saving is one of the
surest ways to ensure strong
So, the Clinton administration economic growth over time.
I came out of that, I did stay years were a good experience.
the Bush administration, and by the way, that is traditional.
When you go to the CEA as a staff member, it is a
non-partisan job. Most of the staff at the Council
of Economic Advisors are
for a year leave. pYou come to the staff of thea
CEA, and you work on real research in preparation for the
report that you're going to produce at the end of the year,
the economic report of the
So it is a non-partisan job. president.
be able to, without problem, The idea is you're supposed to
administration, it's a summer to stay for, even at the end of an
You stay through, even if it's summer appointment.
administration, you stay at the end of the administration and
continue with the new administration until the
following summer. I was the senior economist,
however, for tax and budget policy.
If you might recall, that was a rather unusual election.
The Gore versus Bush election.
was going to be. And I didn't know who my boss
Gore, or President Bush. Was it going to be President
difference in terms of tax There was a little bit of a
[laughter] policy going forward.
was a very stressful time in my career, in that I didn't know
what I was supposed to say from one day to the next.
You're supposed to stay non-partisan.
It's hard to stay non-partisan
represent the new administration when you get sent abroad to
that you don't really believe and speak abin. a tax policy
So, just as a warning, if there's anyone in the audience
that loves the Bush tax cuts, you're going to hate me after
tonight, okay?
about it. If you go to my blog, you'll
think this woman is obsessed
She's got to let it go. You know, it's been over a
decade, just give it up.
But that has been my number one They'reobsession. away.
It started from a position from where I had to write about
Clinton's tax policy. Clinton's tax policy was hugely
different from George W. Bush's tax policy.
I had to write why Clinton's
economy. tax policy was good for the
of Clinton's tax policy was a little difficult for me.
I only lasted the first hundred days of the Bush administration,
when I was supposed to stay until the summer.
To be honest, I ran over to Capitol Hill to go work for the
Democrats.
I have always been the most conservative person on the
Democratic staff of a congressional committee, so
I didn't fit in very well there,
Concord Coalition has been my either,perfect home.saying.
I'm finally kind of home with the Concord Coalition.
What I'm about to do is go
talk. The Concord Coalition, we have
an organization of about a dozen
counts our accountant and our of ucomputer tech person.that
So our policy staff is actually very small.
There's like six of us
and do chart talks. But my colleague Sara Imhoff is
the Midwest field director. She's based in Iowa, and she
comes to Wisconsin all the time.
tonight that you're dying to So whatever you hear from me
and you should contact us hearand see if Sara can comeby,
give a talk for your group, to your, you know, maybe smaller
more local group. I'm going to tell you a little
story about the deficit in just maybe a dozen charts tonight.
The current fiscal situation, this is a picture of our deficit
this fiscal year. Our deficit is $1.3 trillion.
That's a very high deficit, because it is something that is
approaching maybe 9% of our gross domestic product.
That's considered too high. Why do economists consider that
too high? Because you can think of the
deficit as the annual increase
of money we owe. in the debt, which is the stock
economically sustainable as long And economists consider a debt
the economy. as it's not growing faster than
You can think about it as akin Right?
consumer debt, would you worry to what if a family's got debt,
or incurring a debt load? No, not necessarily, as long ast
the debt wasn't growing faster
right? than their means to pay it back,
families? Well, I borrow right now a lot
for college education, for
I view that as a worthwhile thing to borrow for, because I
believe that it increases the income potential of my children,
so I won't have to give them as much money in the future if I
borrow some money today.
believe is going to pay off. It's an investment that I
to buy a house? SMaybe because you believe that
the value of your house will
too? rise, and your income will rise
a few years ago. That got some people in trouble
why we've always believed that But you know, it's the reason
buy a house, right? It's because homes appreciate in
value, hopefully, eventually, and your income grows.
You typically buy a house when
right? you're young in your career,
will increase in value over time So, borrowing to buy things that
capital or income for you is and will produce a source of
It's borrowing to buy things okay.
potential in the future that's that don't raise your income
That's how you get into this not okay.
Unfortunately, if we run unsustainable problem.
is that we're not, if we kept running deficits this large, the
problem would be that we would
enough to keep up with the not be growing our economy fast
This annual increase in the debt rising debt.
rate of the economy, which has is faster than the annual growth
over the past few decades. averaged maybe 2%-3%, you know,
too big a deficit. So, economists consider this
because this is unusual. But it's not a bad thing,
year, because we're still We recovering from a very badis
recession.
where we're not operating at the Any time we're in a recession,
government spending is going to go up, and government revenues
are going to fall.
business cycle effect on the That's sort of a natural
So, whenever you're in a deficit.
that deficits get bigger. But you should also expect that
once you recover out of that
something closer to what recession, once you get back to
employment, a full-employment economy, then the deficit should
go back down to something that's
the economy, ideally. loThe problem is that this is of
unusual, yes, but it's not
before it starts getting worse expected to get much better
So, I would not be worried-- again.
the $1.3 trillion deficit I'm not tethis year.ried about
What I'm more worried about is the fact that even after
economists are projecting that
employment, that over the longer our economy will be back to full
up again to levels that are again, greater than 3% of GDP,
which means greater than the
This is a graph that shows our growth rate of the economy.
projection going out to 2021. The projection shows two sets of
lines.
Shall I use this? So, two sets of lines.
I love technology, by the way.
Baseline. I explain more about this in the
next slide, but these purplish
Coalition's plausible baseline. Those are the lines that look
kind of bad, right, because the gap between spending and
revenues is our deficit.
We're already translating it This is at the percent of GDP.
to the growth rate of the into a gap teconomy.can compare
The green lines are what the
Budget Office, baseline officiprojections are.ional
Those are based on current law. Like, if literally followed
what's written in current law,
the spending levels and revenue levels that CBO projects we'll
achieve.
There's a deficit still, because This doesn't look so bed.
revenues, but you notice how spending is greater than
looks to be stabilizing here, at that gap is really narrowing and
to three percent of GDP. least for a while, at maybe, two
actually. That is considered economically
sustainable.
difference between current law, literally taken, and thisg
projection, that we call the
Baseline? CoWell, hold that thought.e
I forgot about a slide. This is how those numbers
translate into deficits.
top line. Deficits of 3.5 trillion dollars
over ten years. That's a ten year total.
That's not bad. You see that the deficit is
falling.
because these are negative That's why the line is going up,
So this is the negative surplus, numbers here.
Here is the deficit under also kncurrent law.eficit.
Here is the deficit under what
Plausible Baseline. wIt is triple the size of the
current law projections.
Well, here's the bad news. What is the difference?
that's not current law. You know, current law has all
the tax cuts in place.
tax cuts. The Bush tax cuts, I told you Ie
was going to say I hated the
The Bush tax cuts were very expensive when they were first
passed. They haven't gotten any cheaper.
They've actually gotten more
When they were passed, they were expensive over time.
the end of 2010. passed with an expiration date,
of the budget window when they Even though that wasn't the end
The end of the budget window were passed.
budget window at the time was fiscal year 2002 to 2011.e
At the time the CBO was saying
ten year window of 5.6 trillion we would rundollars.es over that
Surpluses!
interesting, if you go back and read that economic report that I
helped write, in it we mentioned
completely paid off by 2012. that the debt would be
I mean gone. I don't mean reduced.
about what does that mean to pay We were starting to worry
If we don't have treasury bonds, off the debt completely.
investment in the economy? what's going to be the safe
about that. We had to write a section called
"Life After Debt."
That section never was published [laughter]
President, because politically, it was viewed as, why do we have
to bring up that there might be a down-side.
That we have to worry about running these big surpluses.
It turned out that was a good point.
[laughter]
We passed the Bush tax cuts in Here's what happened.
The weekend that President Bush signed the tax cuts into law was
Memorial Day weekend 2001.
backyard that weekend. My golden retriever died in the
It was the worst weekend of my I kid you not.
I mean, I kid you not. life.
passed with an expiration date When they were passed, they were
That was to artificially, but not a lot, hold down the cost of
the tax cuts. So that instead of close to two
trillion dollars over ten years,
a half trillion dollars in cost it was oover ten years. one and
That, by the way, that was kind of a gimmicky cost because it
didn't include a ten year window.
It also doesn't include the cost
higher debt. of interest in servicing a
we are running surpluses. Even if we are running surpluses
in total with the federal budget, and your funding
tax cuts without paying for them, without cutting other
spending or raising other taxes,
You're still reducing the surplus and there's an interest
cost associated with that.
interest on the added debt. It also didn't include something
called Alternative Minimum Tax
The Alternative Minimum Tax is Relief.
tax system that, if you are on this weird, sort of, parallel
on the AMT but not really the realize how it works.ou're
Especially if you use Turbo Tax.
a little adjustment to your It makordinary income tax.s just
If fact it's wiping out your
saying, scratch that. Start over with this calculation
that dis-allows many of the major deductions.
It's a much broader base tax
rate, but it was designed to system with a lower top marginal
wouldn't get away with so many make sure that very rich people
and loopholes and shelters, that special deductions and credits
in taxes. tSo we designed this, kind of,ng
brut force tax system to layer
makes tax payers go through ontheir ordinary income taxat
calculation, calculate the taxes
broader based calculation, the out, then go through this
then whichever is higher is the Alternattax you pay.Tax, and
Well, here's the problem with the Bush tax cuts.
We passed the Bush tax cuts without making any change to the
Alternative Minimum Tax.
taxes under the ordinary income tax and you don't change the
Alternative Minimum Tax?
are going to have higher Suddenly a lot more households
tax then under the ordinary tax. liability under the alternative
suddenly going to be put on to So a lot more households were
even though these were not the Alternative Minimum Tax,
Who are these households? These are households that would
otherwise benefit the most from the Bush tax cuts.
So families with lots of
where, because the state and children in high tax states
dis-allowed under the Alternative Minimum Tax.
The households that would have
Alternative Minimum Tax tended been shifted onto the
households, but more middle to to be not the very richest
I am an AMT household, with my upper class households.
It's really easy to-- you know, all of the sudden the Bush tax
cuts were passed, I was put on
a dime in terms of the tax the AMT and my kids aren't worth
You know? Here I am borrowing right now to
pay for their college educations.
The Alternative Minimum Tax would have swallowed a lot more
households and it would have
they weren't really rich seemed kind of unfair because
What did we do? Every year we passed alternative
minimum tax relief. We kind of did a brut force
correction on this brut force tax and we just raised the
exemption level every year. And how did we pay for it?
We didn't pay for it. We deficit financed it, just
like the Bush tax cuts. So what happened?
We only temporarily fixed the AMT year after year.
We always had this expiring set of Bush tax cuts.
Now we have, in current law,
assume AMT relief is gone after the one or two year extension
that has always passed. Assume the Bush tax cuts go
away. Everyone know what happened to
the Bush tax cuts at the end of 2010.
They were extended. For how long?
This is a really savvy crowd. [laughter]
How did we pay for them?
I feel like I should sing the Mickey Mouse song now.
[laughter]
Here's the CBO baseline, Here's a little shocker.
This is a ten year total. 3 and a half trillion dollars.
Not bad.
Coalition Plausible Baseline. IPlausible means possible.rd
I don't like to think that
a lot of people in D.C. plthink that's what it means.but
They think, in fact, it's a done
A lot of policy makers believe deal.
changing policy, you are talking that if you are talking about
Plausible Baseline. aThey haven't yet realized that
their legislators and their job is to change things relative to
current law.
I'm about to show you into their They bake all this stuff that
baseline they should be working projectionfrom.what is the
The cost of permanently extending the tax cuts over the
next ten years, so beyond their current expiration of 2012,
would be almost three trillion
Right there you've almost doubled the deficit.
But if you add the cost of
that same period of time that peradds another 1.7 trillionver
dollars.
should say Bush/Obama tax cuts. I noInsert Bush/Obama.this
They are now President Obama's
You can see I'm a little bitter tabout that..
[laughter]
the AMT is another 1.7 trillion. The effect of permanently fixing
other expiring tax cuts adds The effect of extending all
This seem just like a pittance, but this is the payroll tax cut
that has been proposed as ongoing stimulus efforts.
Small!
Relative to these other changes. Small potato's, right?
more in deficits. If you add some adjustments to
spending, like, assuming
the rate of the economy,is what discretionthis means.g grows at
Keeps pace with the nominal GDP.
Why do we have to adjust it this That's another 2.1 trillion.
Well, because CBO assumes the discretionary spending grows
only with the rate of inflation,
the economy. not with the full growth rate of
difference. But CBO also has to project that
war cost continue at their
Instead of acknowledging that, recent pace.
gradually over time. perhaps war cost will slow
optimistic view. That admittedly might be an
costs downward, because that's It's only fair to adjust the war
what's in current law, extended verses what might be moren
plausible.
call the Doc Fix in D.C. This is a little thing that we
in current law scheduled to happen that we have repeatedly
postponed.
We didn't. How did we pay for those?
The total outlay changes are 1.2 You're catching on.
Notice how small of a difference, most of it is
revenues, between the Plausible Baseline and the CBO baseline?
It's mostly revenues. That's because we're talking the
next ten years. Tax policy is really a huge
factor in the next ten years. If you go out over the longer
term the spending on Social Security and Medicare gets to be
a much larger factor, but over
really the huge factor. thIt's the difference between is
running what is economically
is clearly an unsustainable sustainbudget deficit.and what
Here's a picture of mean by unsustainable.
For some reason all the numbers fell off the chart.
This is percent of GDP debt held
This is that stock. It's the cumulative total of
deficit.
150%, right? This is supposed to be 50%, 100%
II. And I have a nice hint up here.
This graph is not entirely
1940-2040, so here's 1940 and devhere's 2040.ng.
Here we are today.
what this graph means. There are at least some clues to
higher levels of debt. You can see that we were are
of GDP debt. Today we're at 70%, almost 70%
It's not the highest we've been. That's pretty high.
of World War II. We've been over 100% at the end
end of World War II and now is The big difference between the
of our debt was financed by at the endAmericans.War II all
Okay? If you looked at foreign
holdings, I think they
can't see it in the data. existed, butOkay? so small you
We issued war bonds.
the war we borrowed from When we borrowed for the cost of
The difference today is that American investors.
currently held by foreign over halfinvestors.ries are
At the beginning of the Bush
treasury bonds were held by adminforeign investors.% of
How is it that you can go from
50% in such a short span of 30% held by ftime?n investors to
Well, it means that almost all
almost entirely by foreign additions to debt were financed
Why? investors.
saving. Americans didn't have thet
savings to invest in treasury bonds.
Foreign investors had a savings glut.
So globally there was actually a
A lot of economists say we are savings glut.
foreign investment pouring into lucky ttreasuries.so much
Why does that make us lucky?
Wow, you don't need me here. It keeps the rates down.
You guys are great. Yes, it kept rates down.
That's good, right? It reduces the cost of
borrowing.
too excited about it. It's good unlRight? get a little
Cheap money.
government finances. It got us into trouble with the
financing is almost like free It money to the government,it
certainly to policy makers that have very short time horizons
and don't have to worry about paying back the debt later.
Right?
of office. Because they'll be long gone out
private sector. TCheap mortgage rates made ite
seem like it was almost free to get a huge house.
You don't really think about the
interest rates go up or if your lonincome doesn't raise. if
The exact same problem that faced American families, faced
the federal government. Unfortunately, at the very same
time. So we were all borrowing like
crazy over the past decade. This is our projection.
This is what we get.
chart. A lot of Liberals hate this
"The sky is falling! This is Chicken Little.
I'm here to tell you, don't believe this chart."
This cannot happen. If I had this scale up here this
would be 100% of GDP, 200% of GDP, 300% debt GDP by 2040.
That is no economically possible.
We will not get there.
what if you just take the accounting projections and just,
keep going. Keep counting the projected
spending and the projected
calculating the deficits and the revenues and just keep
You go out in the projections of debt.
If we extend all the Bush tax cuts, the deficit financing, the
growing discretionary spending
economy. at the rate of growth of the
you would get, but we would not This is thget there.GDP ratio
I'm here to tell you, yes, don't
It wouldn't happen. Somewhere on the way from here
to here the economy is going to give us the signal that things
are going to be too painful to
What is the natural market break let this trend continue.
like this? on deficits running up
What would cause is to not get What is the break?
[inaudible] What was that?
The lenders give up.
rates when the lenders loose And what happens to interest
They go skyrocketing. That is the beauty of the
invisible hand, as Adam Smith tells us, that we won't get
there because prices will naturally signal that this is
not sustainable.
too high and we'll stop The priborrowing so much.ll get
The scary part is that, even
don't know where along this path though this won't come true, we
We don't know how dramatic a it will suddenly not come true.
that forces us to stop borrowing correction it's going to be,
In other words, when do we reach so much.
suddenly our foreign investors that tipping point at which
ability to honor our debts and loose all faith in our
skyrocket. interest rates start to
sudden and dramatic will be the Hpull out of our investors, wew
don't know. That's the scary part.
Here's a picture of-- How am I doing on time,
everyone? I've got to wrap it up.
Sara's telling me, I've got to
Here's the unsustainable wrap it up.
This is not a lie though. This is projected Medicare and
Medicaid spending.
going out past 2050. This is over the longer term,
is raising so rapidly is because The reason why Medicare spending
primarily retirement-aged we have apopulation.e benefits
There are more of us
retiring relative to the numbers babyboomers who are going to be
The working age population of the children that we had.
retirement-age population. shrinks relative to
Security because it's not just Medicare grows faster the Social
health costs that are rising. We're trying to figure that out
right now.
spending down. How to keep per capita health
That's the huge problem in Here's interest.
Interest compounds when you're a debt.
It's the curse of compound debtor.
It's unsustainable because our interest when you're a debtor.
entitlements and interest. revenue can't keep up with
We all know that healthcare spending is the biggest factor
in terms of the long-term pressures on the budget.
It's not tax policy.
system to keep up a little bit We could probably reform our tax
still going to rise over time. better, and health costs are
the fact that each person is Due to demographic factors and
care for. gettiWe're projected to seey to
continued dramatic increases
and that's even with healthcare in federal hreform.re spending,
Let see, this was 2009
Here's 2010 projection. The dotted line is 2010
projections without healthcare
You see it's very small. reform.
figuring that out. We've just gotten started
and the question is, is our society going to be willing to
make even harder choices in terms of healthcare reform to
keep costs down.
other policy levers. We have to keep pulling the
are the biggest factor for the Just because healthcare costs
let all the other levers alone. This graph shows debt held byn
the public as a percent of GDP. Under the status quo, where
discretionary spending grows
economy. with the growth rate of the
extended in deficit finance Averse the CBO baseline which
assumes that spending only
And tax cuts expire under increascurrent law.ation.
I should point out that tax cuts
They could be extended, but just don't have to literally expire.
So anytime you see a projection that's based on the tax cuts
expiring, you don't have to think it's just a projection
based on literally letting all
It could be letting them be extended in more fiscally
responsible manner and paying for them for a change.
Paying for what we want to keep.
change course. Here's what can be done to
this list really quickly. I'mThe President's Fiscalugh
Commission had two goals, sustainable deficits by 2015
which means something at 3% of
of GDP now. GBecause our latest projections%
of economic growth do not look
expecting us to get back to an really rosy in terms of
Longer-term sustainability means average 3% per year growth.
the long-term fiscal outlook. weThat means we have to pursuee
reforms of the spending programs, Social Security,
Medicare, Medicaid. Not just tax reform.
But for the first goal, within
many options outside of tax the next fewpolicy. there aren't
I strongly believe that the first thing we have to figure
out is, what are tax cuts we
and how are we going to pay for really think them.orth keeping,
Are we willing to pay for them? If not, they are not really
worth keeping.
to the benefits. The cost is too great relative
the bipartisan commission's Trecommendations, both on tax
reform and on Social Security and Medicare reform.
What they had in common, in terms of tax reform is that they
all recommended that we reduce
tax code. tThat's the special deductions,
exceptions, credits,
If you think about our income tax system, it's like a piece of
Swiss cheese. It's like saying, we would do
better to raise more revenue by filling in the holes in that
Swiss cheese tax system.
without having to raise tax That way we crates.aise revenue
If we just raise tax rates, the problem with that is that just
increases the distortionary effect of the tax system on
economic decisions. It increases the difference
between being a taxable activity, verses being one of
those holes in the tax system.
and Liberals should like this. There are reasons Conservatives
commissions all recommended this That's why the bipartisan
It's very easy to reduce tax strategy.
just preserves the progressivity expenditures in a way that, not
actually increases it. of the income tax system, but
are able to broaden the base, Alsyou actually increase theyou
economic efficiency of the tax
You might even be able to pay for some marginal tax rate
reduction, which Conservatives
It's, kind of, standard supply-side tax policy.
But broadening the tax base is
spending entitlement. This is a list of the biggest
tax expenditures under the
The exclusion of employer provided health care, the
mortgage interest deduction, the
capital gains, the exclusion of retirement contributions,
state and local income tax
towards savings, defined deductions, tax preferences
of capital gains of death, contributions plans, exclusion
deductions. Are these things that we're
going to be willing to
Probably not. What I would encourage you to
think about though, is we don't have to outright eliminate them.
We could decide to pare them
One of President Obama's own tax down in a progressive manner.
in every single one of his proposals that he has presented
value of itemized deductions to budgets thus f28%.s to limit the
That's an example of reducing itemized deductions for only
those households that are above the 28% bracket.
Is that a coincidence that he picked 28%?
Well, if you know anything about
the people who are above the 28% the structure of the tax system,
households that have around $250,000 worth of income.
or higher.
So, you know, it's not a middle class tax increase if you limit
the itemize tax deductions to 28%.
It's also still preserving the
Not just for the bulk of bulk of the benefit.
part of the benefit for higher households, but also a large
You're just limiting it. income households.
Let me stop there. You're no eliminating it.
I'm happy to take questions Sorry I blabbfor-- so long, but
30 minutes. >> 30 minutes?
That's a long time. [laughter]
That's fun. Okay.
So ask me more questions about
[laughter] the Bush tax cuts.
Medicare. >> Sorry>> Okay.s about
In May Dr. Rita Redberg, a
printed an Op.Ed. piece in the New York Timesan, had
called "Squandering Medicare's
numerous procedures and devices Mothat Medicare pays for, forted
which there is absolutely no
I deliberately emphasized that. What do you think are the.
chances of Medicare not paying
worthless? for procedures that are
what you've identified as what >> Well, it's tough because,
abuse in the Medicare system, but what I've learned in the
federal government is that there
absolutely everyone in charge of is no such thing as wasteful to
That's the problem. What seems like waste to one
person, there might be someone
those services. That even if they are proven, or
close to proven, to be medically
who's loved one is suffering ineffective, if you're someone
doctor says, here's a test that fwe can do, or a procedure.e
Even if you don't know if it
some small probability that it will do any good, if there is
still want that. might help, and not hurt, you
procedure. You still want that test of
unlike most other areas of the I think the healthcare area is
to be a rational consumer and economycomparison shop.ry hard
I've written about this on my blog before, I think that people
shop for medical care a lot like
I don't do this marginal benefit I spend my money on my kids.
The calculus I do in my head verses marginal cost thing.
positive marginal benefit from is, is there any chance of a
buy for them. tMy second question is, can I
afford it?
today? Do I have the money to buy it
When it comes to my kids I spend I'm very irrational that way.
that I'm sure are not cost way too much money on things
their own utility. effective, even in terms of
them. But I have this tendency of not
weighing cost against benefits. I think, with healthcare,
because most consumers don't
fully understand, the benefit of understand, and maybe none of us
It's very hard to say that a certain health services.
benefit to anyone. medical procedure has no
it? >> BuThat's the question.y for
That's a good question. Right.
I agree with that.
that's important. It's not like we're going to
prevent people from paying for
That's a very good point. I think that the distinction has
to be emphasized in healthcare
forward. reform discussions going
between allowing any private There's a difference
There will always be really rich citizen to spend the money.
any medical procedure if people who will throw money and
of it doing any good. tThey should be allowed to do
that, certainly.
distinction. So that is a very important
subsidize those procedures that are clearly not cost effective?
No, but I think that's a
That's a really good challenge for our policy makers.
Thank you for clarifying that. distinction.
Aftershock. It's written by two economists
who got their economics Ph.D
Anyway, their saying that fthere's going to be a bubble
bursting in our national debt.
trigger a mega-depression Their sayworldwide. going to
Do you believe in the same
I believe it could happen, prediction?
The problem is-- yes.
that tells this story, that it I think it's my boss, Bob Bixby,
the roadrunner over the cliff. sort of like the coyote chasing
legs like this and he doesn't realize that he's off the cliff
until it's too late.
He keeps running and he's over Right?
drops. the cliff and all of the sudden
that's the problem with our debt A lot of economists believe that
We're not going to know we have run off the cliff until we're in
a free fall, basically. You know, you will hear a lot of
economists talk about, when we're asked the question, what
is a sustainable level of debt? What's a good goal to try to
stabilize the debt to GDP ratio at?
A lot of economists say 60%.
just a made up number. I'm here to tell you, that is
It's a number that's close to where we are now, right?
We're almost at 70% of GDP in terms of our debt right now.
So talking about stabilizing it at 60% suggests that we need to
start reducing deficits and keep
sustainable level, so that the deficits down to an economically
the 100 or 200% of GDP. dDo economists know that if youo
get to 100% of GDP debt that
implode? suddenly the economy's going to
is. We don't know where that level
of debt is where all of the sudden those investors loose
confidence in the US
the debt. So why do economists talk about
60% or 70% of GDP?
we are now, and we know we're Because still okay now.nd where
Honestly? We know we're still okay right
now.
that I showed you that went up We don't know where on that path
reach the point where we're off to 300%, wthe cliff.e going to
Honestly, we don't know.
stabilize it right where we are So the safright now. to try to
That means, get the deficit down
of growth of the economy. to someNot eliminate it.the rate
Notice that I'm not saying
Concord Coalition news flash, we balance the budget today.
organization at all times. are not a balanced budget
long-term, that's what we'd like You know, ideally over the
On average, over the to see.
But at any point in time you longer-term, we pay our bills.
budgets. don't have to run balanced
questions on mic. >So wait until I bring thee
microphone to you.
finance out deficits in the past >> You said that we were able to
people willing to invest in our bonds, and therefore we could
have low interest rates tied to that.
And because we have low interest
inflation low at the same time. If that starts to grow, what we
see is deterioration. It won't be off the cliff.
It will be a slow bouncing down a decline, let's say as interest
rates have to be higher, so people finance the debt, and
inflation rises accordingly.
don't worry about of kids and Oour grand kids, we'll just,
inflate that debt away. But I don't really see that
happening.
of it? Could you comment on that aspect
scenario for-- Yeah. >> That's not a really good
worry our kids and grand kids? Did you say we didn't have to
No, I mean, that's not really a cure because that still erodes
that value of our resources.
So it hurts our real long-term Right?
It is not avoiding having the burden placed on our kids and
grand kids in terms of a weaker economy in the future.
I forgot to mention another factor that has kept interest
rates low.
investors have so much savings It's not just that foreign
It's also that, during the years to lend to us.
past decade, monitory policy was of the Bush tax cuts over the
Very accommodative, like the fed accommodative.
to keep interest rates low. keSo it was like this perfect,in
awful storm of things that came together to keep interest rates
and the cost of borrowing really
mortgages were there. lIt was just everything was
keeping interests rates low.
Americans yet another reason to You borrow too much.ive
You know? It's like the
live-for-the-moment-American
money. didn't need to be given cheaper
that same concept. >> Okay, kind of working off
debt to GDP was 108%, but at the At the end of World War II our
weren't any other functional end of World War II there
How does US ratio of debt to economies in the world.
start looking at places like income balance out when you
they're only at 9% growth this China, who's worried because
And the whole EU business where they're going to be going off
the cliff in the same business
What's the relative way to come as to--ce.
Well, okay, that's a great
Over the past decade we did have question.
savings rates globally. sSo that there were somehe
countries that had very high
we actually had a negative savings rates and here in the US
rate, for a while. savings rate, overall saving
Our national saving rate I mean private plus public.
years in the Bush actuallyadministration.for a few
That is leveling out a little bit now because we actually see
less of a savings glut now
ago. globally than we did ten years
worried. So that's why economists are
continuing the attract global capital, there's less global
capital around now. Some of these other economies
are faced with the same problems
It's sort of like globally we are.
just within the US anymore. Everyone knows, economists all
know, that there is not this
We've been sort of behaving over infinite supply of capital.
infinite supply of capital the past decade as if there's an
it from abroad. bBut even the global supply ofng
capital is limited. That's why we've got to be
keeping up our space program, I guess.
[laughter]
limits in terms of global I capital and people have tour
realize we are now bumping up against the glob el capital
constraint, not just the US capital constraint.
The good news is, the good news is that, I think Americans are
starting to realize that
borrowing is high and is interest rates, the cost of
Even if it's not high right now, dangerous.
dangerous path that we're on. >> I don't know if you used the
word stimulus in your talk or not, but I'm interested in that
idea. I noticed that Conservatives
would argue that tax increases
effect, a depressing effect. would have a counter-stimulus
borrowing, at least in the short Liberals would argue that more
effect. tDon't you have to talk aboutg
those ideas in making these predictions?
What are your thoughts about
Right, so the CBO projections are based on, they include, an
economic forecast underlying
Some of the recovery of the deficits, like in that chart
that I showed you, the
longer-term projections, or the projections going out over the
next ten years, a big reason why
deficit to that narrowing is we go from this open jaw of
recovery. There's some assumption built
into the CBO budget projections of the economy getting back to a
full employment economy over the
That is an assumption, right? It's a projection.
At CBO budget projections are not just an accounting exercise,
they also include a forecast, an
them. economic Stimulus.underlying
There is good deficit spending. Not all deficit spending is bad.
At the Concord Coalition we have
possible to do effective deficit emphasized that it is entirely
stimulating demand for goods spending in the name of
fiscally responsible. aNot just over the longer term,
but today.
responsible tax cut, and there My definition of a fiscally
cut that has a very high really is such a thing, is a tax
Which means that it is going to stimulate demand enough to be
worth it's cost in terms of deficit financing.
How do get a tax cut that's not worth it's cost in terms of bang
per buck? You give a tax cut that goes to
households don't consume most of
You know, you want to stimulate demand in the short term.
You want people to go out with
and buy good and services. their tax cuts, or transfers,
purposes would be one that goes mostly to high income households
that will not spend it. And one that gets put in place
permanently when the purpose was
short term. to stiHow do we go from ain the
justification on deficit
stimulate the economy to spending in the short-term to
cuts that are bad for the long-term growth of the economy?
A lot of politicians think that there's no distinction there.
That if deficit spending is good
of deficit spending is good now. now, it must mean that any kind
it would actually be possible to At Concord we have stressed that
have more effective stimulus. reIn other words, take deficitd
spending out of the forms of
not done very well at stimulating demand, put it into
the forms of spending, or tax cuts, that we know are better at
stimulating demand. You could reduce the deficit and
get a better effect on the
And you wouldn't be committing short-term economy.
that might be completely, or to permanent deficit spending
We have stressed deficit relatively, wasteful.
short-term. we do not want to see a balanced
budget this year. We have never said we wanted a
balanced budget during a
We want effective deficit spending in the short-term that
doesn't commit us to permanent
ultimately hurt the longer-term degrowth of the economy.ll
When the federal deficit was
it's been around that long, there was an idea that there was
a salutary effect of national debt, or a theoretically
efficient level at which you
Do you have a sense of that, or an outline of that?
It is great that the federal
You know, look what happens to government can run deficits.
have to run balanced budgets. statIt's very constraining. that
It's very limiting in terms of
policy. whYou can't really invest inc
things that have up front costs and longer term payoff.
So it's great that the federal
When the state and local government can run deficits.
government should be there to godeficit spend when deficital
spending is needed to keep the
activity where unemployment is economy at a level of economic
Deficit spending is good. Economists like the ability to
run deficits because the was we call it allows you to smooth
consumption over time.
We don't like that our income fluctuates or is uncertain, so
when a household is able to borrow, in tough times, it's a
good thing, if you know you're
your income is going to go back going toup next year.t year or
It's really good to be able to
It's nice to be able to eat, keep up your consumption.
The federal deficit is a good thing, the ability to run
deficits. The only problem is that when
you get to a level of deficits
not sustainable. that are too high, then they're
good level of debt, most Your question about is there a
an important role of the federal economists believe that there is
Treasury bonds are still debt.
investment. cIt is good to have something
safe to invest in.
investment that the world can Iturn to and relay on it'se
return. But there's a difference between
keeping some amount of debt, and
Life After Debt section that by the way, when we wrote that
the Clinton economic report, our never saw the light of day in
government should probably keep some level of debt around.
There were things that we could keep borrowing for.
What did we say?
for things like longer-term We saidinvestments, likeorrowing
infrastructure. That's a good reason to borrow.
We argued in that section that
we should keep some amount of debt around and we should borrow
to fund infrastructure or longer-term investments.
We knew that those would pay
That's a good reason to borrow. Borrowing is not bad per se,
it's when you borrow too much and when you borrow for the
wrong things. It's just common sense.
Like when families decide whether it's worthwhile for them
to borrow.
as long as you don't do it too It's great to be able to borrow
reasons. much and you do it for the right
need to do in Washington. We need to get to that mind set
that I think a lot of families
Question over here. >> I was a member of Concord
Coalition in the early years. >> Yeah?
I discontinued that.
You've got high-profile bipartisan people who are on
that organization and economic
target. senWhy is it that the Concordon
Coalition has so little influence, at least from our
vantage point, on public policy?
and we're a grass-roots >> Becaorganization.y small
I like to think that we are having a little bit more
influence these days because
aware of the deficit issue. We're a very small group and we
rely on public
Our strategy is not top down as edumuch as bottom up.h.
We're a grass-roots organization
way we can influence meaning that we believe the best
people that vote for them very policy makers is by making the
aware that there are good reasons to borrow money and bad
reasons.
ask the politicians that are It's mobilizing the masses to
they promise things that are too campaigning for your votes, when
them, how are you going to pay good to be true, you should ask
What about the deficit? Is this really free money?
What does this mean for my kids'
government that they can expect when they're working-age adults?
Why don't we have more
Well, I wish I knew that answer and could just snap my fingers
and change things, but you know,
organization. Life is getting easier for us.
You know why? Because of the Internet.
There's a lot that we can do
important issue for the young through--people.s such an
We're actually doing a lot of great things on the college
campuses, trying to fire up college kids about this.
It's their future that really is
We are trying to mobilize a lot gomore and network.d.
You know, we do the whole Facebook thing and the twitter
thing and, yeah.
actually work for us and know how to do these things so it's
wonderful.
If any of you are on Facebook, We do need more membership.
Honestly it's a great way join outo keep--k group.
We do have thousands of members right now on Facebook I think,
and we do post all of our issue briefs and we ask that people
spread the word to their
communities. families and friends, their
We even provide chart talks, It's very easy.
these charts and go talk to your like if you want to take some of
PTA or your Kiwanis Club, you can take these charts which we
can provide to you. We have them up on-line.
There's a whole section on
help. CHonestly, we rely on very costn
effective means of influencing
It's mostly getting people aware policy makers.
politicians start doing the more enough to start demanding that
thing. fiscally responsible kind of
You had a lot of comments and >opinions on the Bush tax cut.e.
I was curious if you had
Herman Cain's 999 tax plan? anything s[laughter]say about
I got into a little trouble on my blog about what I said
about Herman Cain's 999 plan. Let me just clarify for the
record that if you label a tax
doesn't mean you're labeling the policy as Neanderthal, it
policy. person t[laughter]ed that
Contrary to what is being written out there about me on
Conservative blogs, I am not a
If you listen to Herman Cain racist.
plan, I think that's all you himself speak about the 999
[laughter] need to know about it.
for very fundamental tax reform. To be serious, it's a proposal
out there who'd like us to move Theto a consumption-based taxves
system and to a system that's much flatter in the distribution
of burden.
There are some people who Tbelieve that the tax system is.
too progressive, the rich bear
it penalizes savings. tThey want to switch to taxingt
consumption instead of income.
Cain plan. That's the philosophy behind the
this point. >> There's a question over
here too. I think there's a question over
here. There's isn't question over
here, but there is a question down here.
Sorry.
federal government revenues they >> When people talk about
but payroll taxes are a similar sepercentage of the federales,
government revenues.
less than $100,000 per year, pay People such as me, that earn
income. What's the logic behind not
collecting payroll taxes on incomes above, whatever it is,
$107,000? What's the logic behind not
collecting payroll taxes on them?
The logic was because it
The idea is that it's payments funds the Social Security.
Because the benefits are into the Social Security system.
proportionately, the taxes are distributed closer to
Does it make sense from an closer to proportional.
No. ovI mean a lot of people thate?
propose changes to the Social Security program and to tax
policy suggest that one way to
is to eliminate or raise the do it without reducing benefits
Security so that more of labor taxable maximum under Social
Right now, what that does, with a cap of about $100,000, it's a
proportional tax. In other words, it's the same
fraction of income collected
but if you're over $100,000, the from everyone up to $100,000,
percentage that payroll tax higheburden is for you.r the
A lot of people believe that
least at the rich end of the that's a regressive tax, at
One way we could both collect more revenue into the federal
system over all and do it in a
raise the payroll progretaxable maximum.be to
There are Liberals who don't
fully. like-- I don't understand this
lot of enemies on the Liberal side because I talk about the
need to reform Social Security. I even get hate mail when I talk
about raising the payroll tax cap.
I've been told that that makes
and that when you make it seem it seem like a welfare program
increasing the progessivity of like a welfare program by
system that it undermines the thepolitical support for thethe
program.
Social Security if I suggest So I'm not being a friend to
I have a lot of enemies all around, is what I'm saying.
I can't seem to come up with a
admittedly small Social Security way to suggest fixing the
fiscal gap. I cannot suggest that without
getting someone really mad at me.
Even more mad at me then when I suggest to let the Bush tax cuts
expire, to be honest. >> Okay, there's a question
back here.
I see that as part of a much >> You talked about Medicare and
expensive medical system that does not provide us with the
best care.
any proposals for reforming the system such as the single-payer.
We have spoken positively about aspects of healthcare
reform that would help contain
I have to say, we never endorse, costs.
proposals. at Concord, any specific policy
like budget rules. Unless it's something simple
example of something we are not shy about saying, yes, you
should pay for things as you go along.
If you want to extend a tax cut or expand spending you should
try to find a way to pay for it first.
But we do not endorse specific
confused about Concord that way. proposals and people are
to be political, and we find I think that we really try not
on very specific proposals that have been introduced by specific
members of congress gets us caught up in the political spin
of things.
is extremely important. WAnd that we should be doingm
things to not just expend coverage, but we believe that's
important, but we can't just
We have to be willing to make reforms that actually control
per capita costs over the longer-term.
Those involve tough choices.
many enemies is we can never The reason Concord always has so
painless. We can't just say, yeah, let's
just expand health coverage and stop there and somehow costs
will take care of themselves
better care of themselves. because people will be taking
I wish I could believe that were I wish that were true.
We don't think it is. So we cannot just endorse the.
policies that everyone thinks sounds great.
We always have to muck it up by mentioning that we have to raise
these taxes and we probably have
The path that we're on in terms tof healthcare is a scary.
trajectory we're on, and we don't have a lot of experience.
We've kind of never been here before in terms of raising
health costs. I frankly don't know that our
society is willing to make some of the sacrifices that it might
take to hold down spending to something like-- A lot of people
mentioned Europe is so good at
costs, well, that doesn't come it, at holding down health
They don't have access to quite as much technology that we do.
They may have to stand in longer
It's never true that you can get lines to wait for services.
That's a universal problem in this federal budget debate.
Question. >> Given your perspective, do
you believe that the resolution of the Great Depression in the
1930's was more because of
it. In other words, were Roosevelt's
programs beneficial or not? >> Okay, well, personally I
think they were beneficial. That's not an official position
of the Concord Coalition. I don't know what our position
on Roosevelt's policies are,
[laughter] actually.
good reasons to borrow money and Yeah, like I said, there are
spending and worse forms. I would prefer, as a mother,
that we would do more government
economy over the longer-term. spenI would like to see more the
government investment in
not flourish without public insupport, because they have ae
public goods aspect to them.
like a cleaner environment or Anybetter health care or to,
better education. Those are things that have
spill-over benefits, what economists call external
benefits. That the benefits aren't just to
the private person who buys those goods and services but to
society more broadly. If you just rely on the private
sector, the idea is that we tend
That's a role of government, is tto fill in where the private.
economy needs a little
resources there. encouragement, to divert more
of public subsidy, is in the That, in my mind, is a good area
But, like I said, I don't want areas of public goods.
Coalition on behalf of to speak for the Concord
policies specifically. addressing the Roosevelt
>> We hmore questions.e or two
Could you speak a bit about the costs of military spending
and two very long wars? >> The questions about military
spending, obviously, that worsened the outlook.
We obviously didn't have the
projections at the end of the cClinton administration.r
I actually don't know what the
I think of that war spending as maybe a trillion dollars over
ten years.
Maybe a trillion and a half over
think the original estimate was Ymaybe 150 billion dollars or
something.
expense. So yeah, that was an unexpected
baseline extend that spending Ththroughout the rest of ther
ten-year budget window. Most people are fairly
optimistic that that spending is
over the next ten years. gradually going to draw down
that worked in a positive Tdirection between the currents
law baseline and the Concord
Yes, it didn't help. adjusted baseline.
money-- It's not just the fact A lot of people argue that was
but that it diverted resources that it added to the deficit,
productive-- Yeah. toward war rather than
that now and we can, you know, Hopefully, we're getting past
do have at our discretion after do betthe cost of the war.hat we
I haven't heard a word
I think most serious experts, including the International
Energy Agency, expect a downward
Or at least a greatly less curve of energy availability.
availability which most experts expect some kind of serious cost
increase over the next decade.
the '73 and '79 crises. It would seem to me that you're,
sort of, vague ideas of what we might need to spend money on,
really aren't so vague at all.
starting now to adjust to this We need a major re-adjustment
probable than global warming. hiPerhaps you could comment onre
that. >> If we're concerned about
rising energy costs and energy
address both the fiscal challenge and the energy policy
challenge, and that is to become
A lot of economists who believe lthat the government needs to
have a stronger role in environmental policy and energy
policy, and at the same time we have to reduce the deficit, have
suggested turning more toward environmentally motivated taxes
that European countries rely
does. mThat is typically thrown in toS
lists of different sources of revenue that we might consider
in the future.
reforming our income tax. We should look at our current
tax system first and then think about what additional tax bases
we might need to add to provide more revenue and be consistent
with other policy goals apart from just reducing the
deficit.
Over here. >> Time for one last question.
Can you give me two or three of >> your favorite accountingn.
gimmicks that the government
look out for? uses that w>> Okay. be on the
The easy one is expiration. It's weird that you can just
propose something and then just arbitrarily say it will go away
after a few years.
You should never believe that a Ttax cut is temporary unless it.
is so obviously a temporary tax cut designed to stimulate the
economy.
feel like a payroll tax cut or That's why a lot of economists
would be so obviously a holtemporary measure, that itg,
actually might be more fiscally responsible.
The perversity of that, if you
Like, make it big enough that it catch it.
Then it will really go away. has to be just temporary.
Another gimmick is putting in place a program that collects
revenue at first and pays out benefits later.
You collect the revenue to fund the program early in the budget
window, and then you pay out the
window. cThen it looks like it reduceset
the deficit when, over the
increases the deficit. long-term, it actually way
Act, which was part of the For example, the so-called Class
Secretary Sevilla, the HHS healthcare reform bill.
it's non-workable. secretary just declared that
expected to collect premiums up front and then not start payinge
out benefits until over the longer-run.
Over the ten-year budget window it looked like it reduced the
deficit.
going to increase the deficit. Over the longer-term it was
out that program. They, literally, within the last
few days, announced that they weren't going to go through with
it. Roth IRAs.
Conversion from a deductible IRA
In a deductible IRA you deduct to a Roth IRA.
the IRA immediately but you pay the costaxes later on.its into
A Roth IRA you don't get to exempt the initial contributions
but the returns are tax-free
If you suddenly allow a bunch of later on.
IRAs you switch the timing. Even though over the long term
it's no different.
revenue because higher returns You actually might loss more
But if you allow more IRAs to be in the future wouldn't go taxed.
deduction to longer-term converted from up-front
the deficit, when over the exemptions, you actually reduce
increase the deficit. lThat was two gimmicks.y
Sunsets, and the timing of
I don't know. Sara, can we think of a third?
Trust fund. Yeah, oh god.
Do we have to raise that now, when there's one minute left?
[laughter]
fund's a gimmick, but the I money's not really there.st
We wrote it down somewhere that the money's there and we are
honoring that.
That should count for something. [laughter]
lock up the money and that's the For trust funds we don't really
If we go back to candidate Gore, problem.
lock box proposal, but I loved a lot of people made fun of his
I said yes, yes, yes! Lock it up!
That's exactly what we should do
We didn't and there it went. with the surplus.
That you couldn't count surpluses-- What would you do
with the money? You'd actually invest it.
You'd actually hold it in an
It wouldn't just be an account.
You would not be allowed to run deficits that borrowed from that
amount of money.
Yeah, you would hold real treasuries with it.
That's what we have, isn't
Or any other kind of it?
I wouldn't even have to be investment.
A trust fund could hold real-- treasuries.
real treasuries? >> Doesn't a trust fund hold
[inaudible] >> IOh, no!IOUs.
We need another whole three hours for that.
[laughter]
Thank you very much. [applause]
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We are not austerity people. on TV.
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If you would go on our site and give us feedback and let us know
if you want us to come out to your community and speak.
Sara is closer by than me most
Thank you so much for having me. of the time.
audience. You guyThank you.awesome
[applause]