The Left and the Budget

Liberals didn’t like the Simpson-Bowles deficit plan largely because neither Simpson nor Bowles is a liberal so their proposal doesn’t encapsulate liberal thinking. Today the Our Fiscal Security coalition, comprised of Demos, the Economic Policy Institute, and the Century Foundation have released their fiscal blueprint which shows you would that liberal take would look like.

First and foremost that means explicitly situating the “budget” problem in a broader economic context. You see this two ways. One is the heavy (and appropriate) emphasis in the short term on mobilizing excess capacity to increase growth and decrease unemployment rather than austerity budgeting that will only increase resource-idling. The other is the principle they call No Cost Shifting, namely “Policies that simply shift costs from the federal government to individuals and families may improve the government’s balance sheet but may worsen the condition of many Americans, leaving the overall economy no better off.” This is really an important point. You could have K-12 public schools start charging $1,000 annual tuition and offer low-income families “school affordability tax credits” to ensure they can send their kids to school. It would be very superficial to look at the consequences of that measure primarily in terms of its impact on public balance sheets. The main point is that you’d be raising marginal tax rates on the poor (as the affordability credit phases out) and transferring resources from parents to non-parents.

At any rate, they show that medium term balance can be achieved basically entirely on the tax and defense sides:

For the longer-term, like all long-term budget plans they need to rely heavily on fairly speculative assertions about health care costs. But I think that if you dig into it, you’ll find that OFS offers the least hand-waving on this point of any plan I’ve yet seen, though that’s not to say there’s no hand-waving. If you read between the lines of OFS and Rivlin-Domenici you can begin to see the faint outlines of a debate between price controls (OFS) and rationing (Rivlin-Domenici) as a preferred approach to reducing the growth in health care costs.


This chart from OFS is an excellent illustration of what the Social Security debate is about:

Note that the bottom 40 percent don’t live as long as richer people, so the impact of raising the retirement age is especially regressive.