Fiscal Policy: New America Events

Change We Can Afford

Communications — Tue, 24 Jun 2008 08:15:00 -0400

A New America Event
06/24/2008 - 12:15pm

On Tuesday, June 24, 2008 the New America Foundation’s Next Social Contract Initiative hosted a panel discussion with Yale Law School professor Michael Graetz; Maya MacGuineas, President of the Committee for a Responsible Federal Budget and Director of the Fiscal Policy Program at New America; and Michael Lind, Whitehead Senior Fellow at New America. Professor Graetz spoke on his new book, 100 Million Unnecessary Returns: A Simple, Fair, and Competitive Tax Plan for the United States. The panelists offered responses to the book followed by Q&A with the audience. Howard Gleckman, Senior Research Associate at the Urban Institute’s Tax Policy Center moderated the discussion.

In his comments, as in his book, Graetz called for a dramatic reform of the American tax system. He pointed out that, while the nation’s overall rate of taxation is relatively low compared to other OECD nations, our high corporate and income tax levies prevent us from reaping the rewards of our productivity--particularly in an ever-more globalized economy. Graetz proposes a value added tax (VAT) on consumption spending as the primary vehicle for reform. He would eliminate the income tax for households earning under $100,000, lower it to 25% for other households, and provide a payroll tax credit to low income earners. He also recommends lowering the corporate tax rate to 15%. The overall package of reforms would, according to Graetz, make US corporations more competitive while maintaining a progressive tax system and provide the political climate for the government to take responsibility for its budget.

MacGuineas praised Graetz’s proposal and agreed with his recommendations on most fronts. She stated that such a dramatic change was necessary in order to restore stability to the tax code—observing that special interests oppose any suggestion of incremental reform, curtailing of tax expenditures or raising tax rates. MacGuineas went even further, proposing the creation of a progressive consumption tax and the elimination of the income tax for all but the wealthiest individuals.

Lind addressed the political feasibility of a consumption tax. He spoke of the Regan and Bush tax cuts as popular “revolts” against tax policy that occurred because people felt sticker shock at the magnitude of their tax burdens. Lind favors a less transparent system that would be more politically sustainable. The consumption tax, as proposed by Graetz, would charge people only in small increments at the time of consumption making it less likely to trigger sustained opposition. In contrast to MacGuineas and Graetz, Lind said he favored the use of tax credits to make economic policy. He suggested that they allow the government to redistribute across barriers of income, race, or location whereas direct entitlement transfers cause political controversy and popular resentment.

-Tyler Ibbotson-Sindelar, Research Intern for the Next Social Contract Initiative

Towards Fiscal Responsibility

Communications — Mon, 19 May 2008 18:00:00 -0400

A New America Event
05/20/2008 - 9:00am

On May 20th, the Committee for a Responsible Budget (CRFB) had an event launching its new project, US Budget Watch, (www.USBudgetWatch.org) and released their first paper, “Twelve Principles for Fiscal Responsibility.” Maya MacGuineas, President of CRFB, welcomed the audience and described the fiscal problem of one of structural deficits, an unsound Social Security system, growing health care costs, numerous looming tax issues, and unsustainable debt projections. To help get the country back on track, the project forwarded a 12-step program to help break America’s debt addiction.

The ultimate goal, she said, is to shine a spotlight on the issue of fiscal responsibility, and to help do that, she turned to the esteemed panel, handing the discussion over to CRFB Co-Chair Leon Panetta.

Panetta, a former House Budget Committee chair, OMB director, and White House chief of staff, characterized US Budget Watch as a “hopeful effort to bring the [fiscal] crisis to the attention of the American people.” He touted CRFB’s bipartisan composition, made up of former Republican and Democratic members of Congress as well as OMB, CBO and GAO leaders who served under both parties. This diverse crowd is united, according to Panetta, by a concern about the budget process and budget discipline. Regarding the current situation in Washington, he said that the concern of many members of the board was only growing. Where, while he was in Congress, both parties demonstrated a commitment to fiscal restraint; the same could not be said about the past eight years. What’s worse, the budget process established by the Budget and Impoundment Control Act of 1974, which worked well for some time, has broken down. We are now in a “borrow and spend spiral,” he asserted. As a result, we do not have the resources to deal with new problems as they arise. The Committee is worried, he said, that the presidential candidates are not taking this lack of flexibility seriously. With so many serious crises on our hands—global warming, health care, and two wars among them—the candidates must acknowledge the need for budget flexibility if they want to accomplish their priorities.

CRFB Co-Chair Bill Frenzel, a former ranking member on the House Budget Committee, spoke next, referring to all of the members of the panel as “veterans scarred in the budget wars.” He explained that CRFB has strived to work with the House and Senate Budget Committees, but, despite their hard work, recent years have produced more “fiscal inebriation than fiscal sobriety.” CRFB’s goal now is to encourage the presidential candidates to acknowledge the problem, speak to it publicly, and provide some suggestions for how they would deal with it. The ultimate goal, he said, is to create a mandate for action akin to the pressure that the 1992 presidential candidates—Ross Perot preeminent among them—generated for action to balance the budget. At present, he said, the Committee is terrified by what they see. By making this issue a priority, he concluded, the candidates can begin to improve the situation.

Chuck Bowsher, former Comptroller General of the GAO, spoke next. His chosen topic was the national debt, and, as a former accountant for the United States government, he has real expertise on the subject. With the debt projected to reach $10.4 trillion by the end of 2009, he said there would be some serious consequences. At present, we pay about $500 billion in interest per year, half of it to government trust funds and half of it to non-governmental entities. If the interest rate doubles—an eventuality that is neither unprecedented nor unlikely—those payouts also double. Moreover, with a war driving up defense costs without a commensurate increase in taxes, the result is increased deficits, and those deficits are becoming a huge problem. With a presidential election coming up, there will be a debate for the president’s mind. In this policy debate, Bowsher insisted, financial issues have to be front-and-center, especially with the dollar falling and financial institutions relying heavily on government help. The situation is dire, he concluded, and must be part of the discussion surrounding this presidential election.

Rudy Penner, former CBO director, spoke next about the tax side of the fiscal equation. He characterized Hillary Clinton’s and Barack Obama’s tax plans as “laundry lists of targeted tax benefits” complemented by a decision to continue the Bush tax cuts for all middle and lower class taxpayers. McCain’s plan, he said, was to keep all of the Bush tax cuts, while adding and elimination of the AMT and an entirely new tax system under which people can choose or not choose to pay their taxes. These plans, he asserted, seem to miss a fundamental conflict: polls suggest that most people think the current tax system is unfairly distributed in favor of the rich, while most economists recognize that the rich pay the majority of taxes. The source of this misalignment is that many wealthy individuals are able to take advantage of large tax loopholes, which allow the tax system to tax people with similar incomes very differently. While the affluent should pay more under any system, Penner suggested, taxation should also be more even within income categories. Such a situation “cries out for fundamental tax reform,” he said. Voters are wary of taxes because they view the system as inefficient at best, and unfair at worst. Fundamental reform could restore confidence, he concluded, but will require bipartisan support.

Former Congressman Charlie Stenholm spoke next on the need to reform Social Security. He argued that Social Security reform has been necessary “for quite some time,” and explained his past experiences working with Congressman Jim Kolbe (who was seated next to him) and others to reform the program. In order to fix Social Security fairly, he suggested, you must put everything on the table. When he first began working on Social Security, the congressman explained, he opposed privatization and Congressman Kolbe supported it. But rather than battle one another, they agreed to smaller private accounts as a compromise. In addition to expressing support for these accounts, Stenholm expressed his belief that the retirement age would have to be increased. He also repeated the old adage that the first rule of holes is to stop digging, and closed by arguing that nothing can or will happen in Social Security except in a bi-partisan manner.

Former congressman Jim Kolbe agreed with this point, and suggested that if there were a thirteenth principle it would be that bi-partisanship is necessary to solve our long-term fiscal problems. He explained that while it may be easy to express support for our principles, it is very difficult to implement the necessary policy changes without bi-partisan support – even if one part controls both Houses of Congress and the White House. Kolbe warned that bi-partisanship isn’t easy, since both party leaders and the media dislike it, but also expressed a sincere belief that one party cannot solve our major long-term problems alone. “People of both parties will have to endorse the type of principles we have suggested,” Kolbe closed, “and they’ll have to follow through.”

Gene Steuerle of the Urban Institute spoke next on some of the budget myths which are preventing us from embracing necessary policies. Included among these myths was the idea that deficits don’t matter, that healthcare is the only cause of our budgetary problems, that tax cuts pay for themselves, that the deficit can be eliminated by getting rid of wasteful spending, that some policies are too important to worry about paying for, and that our economy can grow its way out of our fiscal problems. Steuerle refuted each of these myths, and explained that they are all primarily excuses for not dealing with the deficit.

Bill Hoagland, former staff director of the Senate Budget Committee, was the final speaker, and focused his discussion on the principle of honesty. He said that it was a sad state of affairs when experts must expound on the merits of being honest, but pointed out the frequent use of unspecified pay-fors (termed “magic asterisks), slipping pay dates, and the use of outdated baselines. He also described more subtle gimmicks, like claiming that investments do not count as spending, and that revenue enhancements do not count as tax increases, or using unspecified reductions in wasteful spending to pay for programs. To help us avoid some of these gimmicks, Hoagland argued for budget process reform, although he warned that we need to be careful not to overcomplicate things and make them worse.

Following these speakers was a question and answer session, which MacGuineas opened by asking the panel if there was any good news. The speakers offered several bright points in the current dismal fiscal outlook, including the reinstatement of PAYGO in Congress, growing understanding from the public, and a resilient economy which can handle these problems and deal with them without collapsing.

Another notable question asked the speakers whether the panelists thought it was hypocritical that the government requires the private sector to use present value accounting – where it records its obligations as it makes them – while the government continues to use cash-accounting which doesn’t. Rudy Penner responded by stating his belief that because cash-flow deficits affect the economy directly, they are more relevant and cash-accounting is therefore acceptable. Gene Steuerle, on the other hand, asserted that long-term budgeting is as or more important than short-term budgeting, and so reforms to the accounting process might be considered.

One questioner asked, given the demand to invest and spend on so many important priorities, how we could remain fiscally responsible. Leon Panetta responded to this question by explaining that budgets are all about setting priorities, and deciding how to pay for them. Kolbe followed up by explaining that people who desire government action on important priorities should be supporting entitlement reform, since growing entitlements are crowding out other government spending, as well as general flexibility. Other panelists weighed in as well, ultimately agreeing that it is important to set priorities and make hard choices.

The panel closed with a plea for leadership, which they believed would be absolutely necessary in order to fix the tough problems confronting us.

The Presidential Candidates' Domestic Policy Plans

Communications — Sun, 27 Apr 2008 22:30:00 -0400

A New America Event
04/29/2008 - 8:30am

On Tuesday the 29th of April, the Committee for a Responsible Federal Budget, in association with the New America Foundation, American University and the Tax Foundation, hosted an event concerning the major domestic policy issues facing the nation before the upcoming presidential election. Focusing on the candidates’ policy proposals, the event featured four panels of policy experts. The first three—on climate change, health care, and tax reform—featured independent experts from across the political spectrum, expressing varied and often contradictory views on their issues of expertise. The final panel featured economic advisors from the campaigns themselves, who gave the audience a glimpse of the candidates’ views on these important policy issues.

The first panel, moderated by David Wessel of the Wall Street Journal, concerned climate change policy. The panelists, William Pizer of Resources for the Future, Nikki Roy of the Pew Center on Global Climate Change and Robert McNally of the Tudor Investment Corporation agreed that all three candidates had promising positions on the issue from the perspective of an environmentalist. At the same time, all three expressed skepticism about the candidates’ commitment to the issue. Pizer pointed out that there are four major components to a national environmental policy—cost, competitiveness, allocation and treatment of preexisting state-level climate policies—that will make climate legislation difficult to design and equally difficult to move through congress. Roy complained that none of the candidates were campaigning on the issue, despite supporting it on their websites. Without putting it out front in the campaign, he suggested, the candidates would not have the political capital to push legislation through once they are elected. McNally added that whatever legislation eventually passed would take years to do so, and that eventual success might have to be driven by a small energy crisis, such as widespread brown-outs in major cities. In the end, the panelists agreed that the scientific community had reached a strong consensus, but disagreed about whether the American public would continue to support climate change policy as it drives up energy bills.

The second panel, also moderated by Wessel, featured a discussion on healthcare reform from John Sheils of the Lewin Group, Joe Antos of the American Enterprise Institute, and Len Nichols of the New America Foundation. Sheils spoke first, discussing the employer tax exclusion for health insurance and the problems associated with it. In addition to costing around $250 billion in forgone public revenue, he explained, the exclusion is regressive and leads to over-purchasing of health insurance. It could be improved, he suggested, by replacing the exclusion with a standard deduction or tax credit. Nichols and Antos spoke next, taking turns discussing the good and bad parts of the Presidential candidates’ proposals. Nichols spoke favorably of McCain’s willingness to propose supply-side delivery system reforms and his decision to use the existing employer tax exclusion funds to subsidize individuals through a tax credit, rather than a tax deduction. At the same time, Nichols expressed concerns that McCain’s proposal to allow insurance to be purchased across state lines would leave insurance inaccessible for some Americans, particularly the sick, and disappointment that McCain has not discussed covering all Americans as a goal. Antos liked that the Democrats focused on bringing down healthcare costs and included some elements of consumerism, and was also happy that neither was claiming universal coverage as a free lunch. At the same time, he felt their plans include promises which couldn’t be kept, such as universal coverage and insurance “as good as your Congressman’s,” while over-regulating, overspending, and providing a back-door to single-payer healthcare.

The third panel, on tax policy, was moderated by Rudy Penner of the Urban Institute. Penner gave opening remarks, and then handed the microphone over to Alex Brill of the American Enterprise Institute, Len Burman of the Tax Policy Center and Scott Hodge of the Tax Foundation. All three agreed that tax policy is reaching a crucial point, with the Bush tax cuts expiring, the AMT reaching millions of new taxpayers every year, and the costs of government rising. Both Brill and Hodge supported McCain’s proposal to lower the corporate rate, citing its positive effect on growth and American competitiveness. Burman had few kind words for the current slate of policies the candidates have proposed, reserving particular disapproval for McCain’s gas-tax-holiday proposal, which Clinton has since supported. Following their opening remarks on the candidates’ plans, the panelists discussed the potential for a value added tax (VAT) to help solve some of these problems. All three agreed that it could be a useful tool, with Burman suggesting that it might help pay for health care, and Hodge saying that it could cover some of the cost of lowering the corporate tax rate.

The final panel, also moderated by Penner, featured a discussion between the economic advisors of the remaining presidential candidates, including Brian Deese, Dan Tarullo, and Kevin Hassett of the Clinton, Obama, and McCain campaigns, respectively. All three representatives believed his candidate would be best for the economy, but set out different economic goals. According to Tarullo, Obama’s policies will aim to foster a stable environment for economic growth, relief for the middle class, improved productivity, and a sustainable international economic environment. McCain, according to Hassett, would lower tax rates and improve the tax code to encourage economic growth and international competitiveness, while ensuring that lower taxes are accompanied by smaller government. Deese, finally, explained Clinton’s goals of addressing the “middle-class squeeze,” increasing the international attractiveness, restoring fiscal responsibility, and ensuring proactive and pragmatic executive leadership to address economic problems as they come.

-Marc Goldwein and Paul McLaughlin, Program Associates for the Fiscal Policy Program

Committee for a Responsible Federal Budget Annual Conference

Communications — Mon, 31 Mar 2008 23:00:00 -0400

A New America Event
04/02/2008 - 3:00pm

On April 2nd, The Committee for a Responsible Federal Budget held its 2008 annual dinner at the Hyatt Regency on Capitol Hill. Through a roundtable discussion, a cocktail reception, and a dinner panel, this event brought together many of the nation's foremost fiscal and financial policy experts from both parties. Video of the dinner panel discussion can be viewed at right. For video of the afternoon roundtable, please click here and for an in-depth summary of the roundtable, please click here.

At the roundtable discussion, led by Former Office of Management and Budget (OMB) Director Leon Panetta and Former Congressman Bill Frenzel (R-MN), the assembled experts discussed the relationship between fiscal policy and the current economic crisis. Participants included two current Members of Congress, the sitting Director of the Congressional Budget Office (CBO) and numerous representatives from both Wall Street and the economic policy community in Washington, D.C. The discussion covered a wide range of topics—including the credit crisis, the recent economic stimulus package, likely regulatory changes and the need for budgetary reforms.

Richard Berner of Morgan Stanley opened the discussion by providing a window into Wall Street’s perspective on the current mortgage and credit crisis. Calling the current crisis “very serious,” he noted that fiscal and monetary policy could cushion some of the impact of the erosion of the capital base, but that the downturn would still be painful. Over the next few hours, responses to these basic premises tended to support his analysis. Lawrence Meyer of Macroeconomic Advisors said his organization felt the stimulus was “very well timed” and would spur economic growth. CBO Director Peter Orszag pointed out that, despite being worth only about one percent of annual GDP, the stimulus would have a concentrated impact because it would be delivered over just three months. Without denying these analyses, however, many expressed doubt about the economy’s ability to rebound. Ed McKelvey of Goldman Sachs said that uncertainty in credit markets “tends to stick around,” and many expressed concerns about the level and type of government regulation that would result. Expressing the greatest skepticism of the group, Bill Niskanen of the Cato Institute questioned even the term “stimulus.” He suggested the rebate might deepen the downturn by taking money from investment and pushing it into consumption, though Meyer pointed out that such an assumption holds only in an economy at full capacity.

David Walker, CEO of the Peter G. Peterson Foundation and recent addition to the CRFB Board, began the discussion of long-term issues by suggesting the same forces that caused the credit crisis could eventually cause a crisis related to U.S. federal debt. He cited similarities such as a disconnect between the beneficiaries and the bearers of debt and a lack of transparency in accounting. During the discussion, many echoed Walker’s concerns, with former Congressman Jim Kolbe (R-AZ) questioning how one could compel a Congress always focused on the next election to address an issue that slowly creeps up over many decades. Congressman Paul Ryan (R-WI) said he believed the next few years would present a unique opportunity to solve these problems, and Congressman Frank Wolf (R-VA) highlighted his own solution: a bill, co-sponsored by Jim Cooper (D-TN), to form a bipartisan commission that would propose a comprehensive solution to the entitlement shortfall. The general mood, however, was one of pessimism, with many expressing urgency that the issue be reframed or repackaged in such fashion as to capture the public mind and force Congress to act.

The roundtable discussion highlighted the complexity of both the short- and long-term economic issues facing the nation. More importantly, it brought together a group of highly influential officials in the private and public sectors who generally agreed that the long-term entitlement funding shortfall must be addressed sooner rather than later. Though thoughts on short-term issues were more wide-spread, there was clear concern about the nation’s economic health. Closing the discussion, Maya MacGuineas, CRFB President, said that despite the pervading pessimism among those in the room, the fact that so many intelligent people express such serious concern for these issues gave her hope in an eventual solution.

The next event of the evening was a cocktail reception. CRFB Co-chair Bill Frenzel welcomed the guests and introduced Senator Judd Gregg (R-NH), Ranking Member on the Senate Budget Committee and co-sponsor of the Conrad-Gregg Commission proposal to create a bipartisan solution to the entitlement problem. Senator Gregg used a chart to show entitlements would crowd out all other spending if not addressed. Arguing forcefully that such change would be necessary, Gregg described his proposal, developed with Senator Conrad, to deal with the entitlements crisis. He suggested the plan had strong support in the Senate, and that the next President, whoever it is, will be likely to sign it. His only concern was a lack of support from the House, and he respectfully requested that those in the room do what they can to actively advocate for it.

OMB Director Jim Nussle followed Senator Gregg’s remarks with his own brief address. Humorous, as always, he made a special effort to thank everyone for all the hard work being done to try to improve budget policy. He praised CRFB as an excellent committee to work with, who has done a good job with the issues. He closed by expressing optimism that there could be real change on long-term issues, and hope that it would occur soon.

At the dinner, CRFB President Maya MacGuineas welcomed the guests and thanked the numerous Members of Congress and public officials who had attended the day’s events, including Congressmen Spratt, Cooper, Ryan and Wolf, as well as Senators Voinovich and Gregg and OMB Director Nussle. She also thanked the board members of the Committee for a Responsible Federal Budget. She thanked Jim Slattery for his work on the board prior to leaving to run for Senate and, on a solemn note, lamented the sad passing of Richard Darman, who had been a leader on fiscal issues for decades prior to his death in January. Darman had given the key note address at the 2007 CRFB annual dinner, and will be missed. Lastly, on a happier note, MacGuineas welcomed David Walker, former Comptroller General of the U.S. Government Accountability Office, to the CRFB board, and asked him to give a few remarks to open the dinner portion of the evening.

Walker began with a rhetorical question: how could he say no to an offer to be a board member of the Committee for a Responsible Federal Budget? He didn’t want to be considered irresponsible, so he accepted the offer. Saying he had Peter Peterson’s proxy for the evening, Walker took a few moments to outline the goals of the Peterson Foundation, of which he was the newly named President and CEO. The Foundation will focus on a few issues of key importance to the Committee: 1) the budget deficit, the savings deficit and the balance of payments deficit, which are interrelated; 2) entitlement reform; and 3) health care reform. He said the goals of the organization would be to activate grassroots support and engage the media in order to create a better future for America’s children.

MacGuineas followed Walker by announcing that CRFB would soon be launching a Fiscal Responsibility Initiative that will focus on the fiscal issues in the campaign. In describing this project, she posed this question: whether or not it is possible for elections to be fiscally responsible, given the low political payoff for speaking hard truths and speaking with nuance. To answer this question, she introduced a panel of experts. Moderated by Mark Halperin of Time Magazine, this panel included Leon Panetta, OMB Director under President Clinton, Jim Miller, OMB Director under President Reagan, as well as Gene Sperling, Jeff Liebman, and Doug Holtz-Eakin, economic advisers to Senators Obama, Clinton, and McCain respectively.

At one point, panelists were asked about what they would like to see the next President say about the deficit in their first State of the Union Address. Holtz-Eakin suggested that reducing the deficit is not an end in and of itself, so rather than talking about deficit reduction, the President should talk about all the important issues related to the budget. Sperling agreed that deficit reduction was only a means to an end, but believed the President must set the tone for fiscal policy. Panetta suggested that because the next President is going to face a number of crises which cannot be dealt with unless the fiscal situation is under control, the President must talk about deficits. Liebman felt that, rather than talking about deficits, the President should talk about controlling healthcare costs, which would result in lower deficits. Miller, finally, suggested the President should suggest institutional changes to reduce pork and stop Congress from overspending.

The questions next turned to Social Security. Holtz-Eakin argued that the obstacles to Social Security reform are fundamentally political, and McCain would work with Congress to ensure reform was passed. Liebman explained Obama’s belief that we should act sooner rather than later and that he prefers using the tax cap, while recognizing the need for bi-partisan negotiation. Panetta explained that candor on Social Security was, politically, “a dead-end approach” so he didn’t expect candidates to talk about the finer details of tax or spending changes before coming to office. Once in office, he proposed the future President employ a bi-partisan negotiation which includes entitlements, discretionary spending and revenues.

Halperin then painted a scenario in which the five panelists would have to balance the budget, together, in five minutes. Panetta proposed instituting PAYGO and applying it to spending and tax cuts, enforceable caps on discretionary spending at an agreed upon level and a major reconciliation bill which deals with entitlements. Miller was skeptical that a bi-partisan group could really reduce the deficit, and didn’t agree with applying PAYGO to tax cuts since they can pay for themselves and increase economic growth. Liebman suggested withdrawing from Iraq would be a good starting point to save money. Sperling suggested that to deal with entitlements you need to start with a commitment to mutual sacrifice, and work together to create a universal pension to remove the private account debate from Social Security. Sperling also noted that, as we are seeking healthcare for everyone, we could use the opportunity to make some painful choices to lower healthcare costs. Holtz-Eakin, finally, suggested that the numbers show there is a spending, rather than a revenue, problem, and we need to undertake serious spending reform.

The question-and-answer portion of the dinner gave the many distinguished members of the audience an opportunity to ask specific questions of the panelists. Author and Political Commentator Bruce Bartlett asked the first question. Referencing an article he had written for The New York Times in the preceding week, he asked if anyone on the panel would support using the tax rebate promised in the stimulus package as a “down payment” on the considerable tax money that would be used to deal with the housing crisis over the coming months and years. The panel responded unanimously in the negative, though Sperling said he thought the stimulus should have dealt directly with the housing crisis. Miller said that, while he did not like Bartlett’s plan, he liked it better than the actual stimulus package. Focusing on a similar issue of future spending priorities, Robert Dugger of Tudor Investment Corporation, who had participated in the roundtable discussion, asked what rule each panelist would follow regarding spending. True to the focus of the evening, Panetta insisted that the question is not what the money will be spent on, but rather “are you going to pay for it?” Borrowing, not spending, is the problem.

Maya MacGuineas asked the next question: She asked the campaign advisors how they navigated the tension between taking a clear stand on issues important to voters and avoiding politically dangerous statements. To the former OMB Directors, she asked how one transitions from running on a dream agenda crated by a campaign team to governing on the nation’s agenda created by the exigencies of the moment. To the second question, Panetta said the key was assembling an economic team early and mapping out a tentative budget to plan your battles. To the first question, Liebman said Obama had approached the issue by illustrating the trade-offs rather than standing on one side or the other. Taking a different approach, Holtz-Eakin said it is important for voters to remember that campaigning is not governing, and requires different tactics. What matters in both, however, is character.

Senator George Voinovich (R-OH) then asked the panelists if any of their candidates had made an issue of the national debt on the campaign trail, to which they all replied in the affirmative. Each stated that his candidate had made fiscal responsibility and debt reduction a priority. Following up, David Walker asked if any of the campaigns would consider endorsing the Cooper-Wolf bill or the Conrad-Gregg bill to form bipartisan commissions to solve long-term funding issues. Sperling said that Clinton would consider a commission on Social Security, but not on Medicare and Medicaid. Holtz-Eakin took a broader view, saying that, while McCain had not taken a position on the legislation, he would not recommend that he support it because it is predicated on Congress being dysfunctional. He said he would rather restore the American people’s faith in their government and see the issue addressed through traditional means.

Peter Orszag followed Walker’s policy question with one of his own: “Give me three specific ideas that will restrain either the growth or the level of healthcare spending.” Liebman replied that Obama supported better disease management, increased insurance competition through reinsurance, information technology use and comparative effectiveness research. He said these measures may not lower cost, but would certainly improve outcomes and cost efficiency. Holtz-Eakin agreed with him about insurance competition, and added to the list an effort to balance the playing field so wealthy Americans aren’t receiving unnecessary subsidies. He would also like to change the Medicare payment system to focus on the beneficiary. Sperling added he would like to see reduced payments to HMOs and better use of information technology.

The final question of the evening came from Chris Edwards of the Cato Institute, who asked, “Where are the Democrats on major tax reform?” Sperling replied that tax reform must satisfy three criteria: it must be simpler than the current system, fiscally responsible and equally or more progressive than the current system. Saying he had yet to see such a proposal from conservatives, he asserted Clinton’s tax plan satisfied all three. Liebman said Obama believed in revenue neutral broad-based middle-class tax relief, as well as simplicity through a tax-return-free system for people with simple returns. Holtz-Eakin answered the question from McCain’s perspective, saying he had a pro-competition tax reform plan that represented real change from the status quo, as demonstrated by the attacks it had received from the Democratic side.

With that, MacGuineas thanked the panelists and the audience, and closed the evening’s activities.

For a complete summary of the roundtable discussion, please click here.

To learn more about the Committee and its work, please go to www.CRFB.org.

CA Event: Balancing California’s Checkbook

Communications — Thu, 28 Feb 2008 12:00:00 -0500

A New America Event
02/28/2008 - 12:00pm

Once again, California is facing a budget crisis -- but this is nothing new. The state has faced fiscal difficulties for over 30 years, problems magnified by initiative limitations, competing political objectives, and population growth. Fortunately, today we have bipartisan awareness about the structural nature of the state’s fiscal dysfunction and the need for long-term solutions. Our panel of seasoned political experts will discuss budgetary lessons learned and provide insight into the best course for California’s future.

This event is co-sponsored by the California Research Bureau, the James Irvine Foundation, the New America Foundation, PPIC and the William and Flora Hewlett Foundation.

Rethinking Social Insurance

Communications — Tue, 19 Feb 2008 12:00:00 -0500

A New America Event
02/19/2008 - 12:00pm

On Tuesday, February 19th, the Fiscal Policy Program at the New America Foundation held a joint event with the Heritage Foundation entitled "Rethinking Social Insurance.” At this event, Maya MacGuineas (New America Foundation) and Stuart Butler (Heritage Foundation) released a paper by the same name, which then received comments from former CBO directors Alice Rivlin (Brookings Institution) and Rudolph Penner (Urban Institute).

The event was moderated by Jodie Allen, Senior Editor of the Pew Research Center, who began by noting that the country has been trying to rethink social insurance for a long time, and has been unsuccessful in putting the United States on sound fiscal footing. Allen briefly discussed the conditions which made the 1983 reform to Social Security possible, suggesting that they don’t yet exist today.

Maya MacGuineas, Director of the Fiscal Policy program at the New America Foundation, spoke next. She explained that their paper was motivated by the reality that the United States is on an unsustainable fiscal path, driven primarily by the growth in social insurance. “The political system is not eager to address these challenges,” she explained, “because there is no way to sugarcoat it.” Before discussing the proposal she put forward with Butler, MacGuineas aimed to dispel several myths.

First, even if the Bush tax cuts were repealed and some taxes were raised further (both of which she supports), this would not be enough to solve the fiscal problem. Second, although healthcare poses the largest fiscal threat to the budget, healthcare reforms alone are unlikely to close the fiscal gap. Since Social Security is the biggest program in the budget and it faces serious imbalances, it must be reformed. And finally, Medicare reform must go beyond fundamental healthcare reform, requiring a renegotiation of the promises we’ve made.

MacGuineas went on to explain that unfettered growth in entitlements, even if not paid for through new debt, threaten to both balloon the size of government and to squeeze out other important priorities, especially investment in the next generation. She then outlined the basics of their plan to overhaul the social insurance system, which include three parts:

Mandate savings for routine healthcare costs and basic retirement costs, with the government involved in regulating and subsidizing the savings.
Shifting away from “social” and toward “insurance” by mandating insurance for things like healthcare, long-term care, and unemployment, with the government helping to develop risk pools, subsidize purchasers, regulate coverage, as well as provide cross-subsidization and reinsurance.
Reduce costs of current entitlement programs by scaling back benefits for people who rely on the programs the least, leaving a strong safety net intact.

MacGuineas closed by explaining the paper was written to offer big, bold ideas, rather than the incremental reforms which generally fail and sometimes make the problem worse. MacGuineas believed that her proposal would enhance budget flexibility, make room for other priorities, protect people who need protection most, and increase economic growth.

Stuart Butler, Vice President of Domestic and Economic Policy at the Heritage Foundation spoke next. He began by remarking that it would be impossible to “tweak your way out of this problem,” and that we have to think carefully of our obligations to each other and square it with our resources and our commitments to the young and elderly. Ultimately, he suggested, we must provide reasonable and affordable protections to everyone in a way that recognizes the fiscal restraints we’re under. This would require, in his view, fundamentally changing the way we spend money.

According to Butler, there are two basic budget process problems. First, long-term obligations are hidden from the budget process, and are not factored into decisions. Second, certain programs have a special “mandatory” status which allows them to grow automatically and preempt everything else, regardless of need, fairness, or our national values. To combat these problems, the paper suggested two major changes.

First, they would require a prominent measure of the long-term costs in an annual budget on which Congress will have to vote. Additionally, they would turn all entitlements into “long-term budgeted” discretionary programs with a 30-year budget that must be revisited every five years from adjustment. These changes would balance promises and protections currently offered against other protections and fiscal realities, and would also change the current default so that entitlement programs would have to be voted on just like everything else.

Butler then attempted to answer some questions which be believed would arise. First, he addressed the criticism that changing social insurance will be “breaking a promise”. He responded that the promise we made is unsustainable, and we have an obligation to fulfill promises we’ve made to future generations as well. Next, he turned to the criticism that offering benefits to the upper-middle and upper-class is necessary to maintain support for a program meant for the poor. Instead, he argued that these beneficiaries are actually using their extra resources to expand middle class entitlements to the detriment of the poor. This dynamic, he suggests, is perverse --- and people are starting to notice. Finally, he turned to the question of mandates, which conservatives might be averse to. He agreed that conservatives are wary of mandates to make people do new things, which means the government is taking more control over the public. Using mandates to replace what the government is already doing through taxes and transfers (or spending), though, actually expands individual choice. Butler concluded with his belief that people would be willing to accept reform, as long as it was done in an open an honest way.

Alice Rivlin, a Senior Fellow at the Brookings Institution was the first to offer comments, expressing her delight that the paper was written and her hope that it will spark a serious debate. She did caveat that she did not support many of their prescriptions, including their proposal to overhaul Social Security. Still, she shared the concern that entitlements are on an unsustainable path and the belief that big changes will need to be made. She also expressed her agreement that real reform would require both drastic healthcare and entitlement reform.

Rivlin remarked that the paper provides an “elegant solution...but not a simple solution.” It would involve a lot of regulation on the savings accounts, risk pooling, etc. It also involves a lot of means-testing which could create adverse incentives when added up. She suggested that it might be a good framework for some programs, but not for all programs.

Rudy Penner, Senior fellow at the Urban Institute, spoke next. He praised the importance of the paper in offering more options for budget reform. He expressed his belief that their proposal raises the fundamental question over what we mean by “social insurance”. He agreed with Butler and MacGuineas that it was unnecessary to give benefits to the rich in order to ensure benefits go to the poor. In fact, he suggested, the growth in these entitlement programs actually squeezes out other programs for the poor, and would continue to.

Penner suggested that the proposal was primarily aimed at maintaining the protection of society against “those who would irresponsibly throw themselves into society’s safety net and live at the expense of tax-payers.” This is done through the introduction of savings and insurance mandates aimed to offset the perverse incentives from means-tested programs. Although these mandates are regressive, the proposal tries to compensate for this through progressive subsidies. Penner called into question whether these mandates would truly be necessary, suggesting that more quantitative analysis is necessary to determine how much moral hazard would be caused by means-testing the programs.

Enacting the proposal, Penner contended, would require working out tens of thousands of details. Still, he praised it for offering a lot to think about in a time when our fiscal situation must be addressed seriously.

Paul Hewitt of Americans for Generational Equity offered the first comment during the question and answer period, expressing his concern that “people with college degrees” would be forced to bear all the cost of social insurance reform. He suggested that all income groups and all ages would have to be involved in paying for the entitlement shortfall, since policies such as eliminating the cap on taxable earnings would be woefully inadequate.

Butler responded, stating that Hewitt’s point on removing the cap wouldn’t solve much of the problem proves that major reform is required. MacGuineas also weighed in, arguing that addressing our long-term obligations is fundamentally about trade-offs. She expressed her opinion that the wealthy should be responsible for bearing most of the burden, but that the elderly should not be immune, and would be subject to both means-testing and an increased retirement age.

Tom Miller of the American Enterprise Institute then asked whether replacing tax and transfer policies with mandates results in any real change in the total burden on the economy, or only means of financing and distribution. Butler argued that mandates were, in fact, superior to taxes because they offer individuals more choices, although not total choice. MacGuineas agreed that mandates were more efficient, since people were less likely to view them as a tax. She also underlined that while she and Butler agreed reform should make the system more individualized, transparent, and progressive, they disagreed on how big the government should ultimately be. This, she suggests, will be the biggest dividing line between the left and the right, going forward.

Allen followed up by asking how mandates would be enforced. MacGuineas suggested using employers for automatic withholding and default mechanism, making sure everyone is “banked”, and improving reporting standards could all play a roll.

The next question, from the Office of Senator Dick Durban, suggested that MacGuineas’ and Butler’s proposal is a value-shift from keeping promises to holding onto a fixed amount of spending of GDP. Butler refuted this, explaining that the real value shift is away from offering benefits to everyone, even if they don’t need them, and toward offering protection to everyone who needs it, rather than burdening younger generations.

Joe Anderson of Capital Research Associates asked for some elaboration on how the retirement age would be changed. MacGuineas suggested the retirement age would have to be increased, for both Social Security and Medicare, in order to ease the transition into a new system. This would have to be accompanied, though, with measure to make work more flexible and health insurance more available to the elderly.

The final question came from John Rother of AARP, who suggested that getting our social insurance obligations under control would require fundamental healthcare reform. Although MacGuineas agreed that slowing economy-wide healthcare costs will be the fundamental key, she did not think that lack of progress on healthcare reform should be an excuse to ignore the cost of entitlements on the government. Regardless of the drivers of cost, she argued, it would be unfair to continue giving a part of the budget “most favored status.” Butler closed by warning that raising tax rates to pay for all these costs could result in marginal tax rates upwards of 70%, and that real controls in the public expenditure on healthcare were absolutely necessary.

-Mark Goldwein, Research Assistant for the Fiscal Policy Program.

CA Event: How Do/Should We Tax?

Communications — Fri, 15 Feb 2008 13:34:00 -0500

A New America Event
02/27/2008 - 8:30am

California has a tax system largely fixed in place during the Great Depression, in an industrial economy-setting unconcerned with environmental sustainability. Two questions about this tax system are posed here: First, can California find ways to raise the revenue it needs in the 21st century that are a better fit with our high-tech, service-based economy than is the current system? Second, can California's tax/fee structure be used to meet the state's greenhouse gas emissions under its AB 32 guidelines?

On Feb. 27, 2008, the New America Foundation and the University of California Center in Sacramento hosted a half-day conference with experts discussing these pressing questions. An MP3 audio recording of the full event, as well as presentation materials and conference articles released at this event, are available below.

Patch It or Pitch It?

Communications — Thu, 06 Dec 2007 10:00:00 -0500

A New America Event
12/06/2007 - 10:00am

On Thursday, Dec. 6, the Fiscal Policy Program at the New America Foundation held an event at the Cannon House Office Building entitled "Patch it or Pitch It: Options for Reforming the Alternative Minimum Tax."

Maya MacGuineas, Director of the Fiscal Policy Program and President of the Committee for a Responsible Budget, hosted the event, which featured remarks by House Majority Leader Steny Hoyer (D-MD) and Ranking Member on the House Budget Committee Paul Ryan (R-WI). Following their speeches, there was a discussion featuring:

The Honorable Bill Frenzel, Former U.S. Representative; Co-Chair, Committee for a Responsible Federal Budget
Len Burman, Director, Tax Policy Center; Senior Fellow, Urban Institute
Alex Brill, Research Fellow, American Enterprise Institute
Aviva Aron-Dine, Policy Analyst, Center for Budget and Policy Priorities
Bob Carroll, Deputy Assistant Secretary of Tax Policy, US Dept. of the Treasury
David Wessel, Economics Editor, Wall Street Journal

MacGuineas began the event by welcoming the two Congressmen, whom she praised for doing "much of the heavy lifting" to advance the cause of long-term fiscal responsibility during their tenures, as well as the panelists, whom she called an "all-star lineup." In particular, she praised Congressman Hoyer for his dedication to finding offsets for the cost of the AMT patch, and Congressman Ryan for proposing a tax plan of his own as an alternative to the plans moving in Congress.

Representative Hoyer began with praise for Representative Ryan, whom he lauded as an honest and hardworking Member of Congress, for MacGuineas, whom he extolled as an outspoken advocate of fiscal responsibility, and for Bill Frenzel, whom he said cast his votes while in Congress based on policy rather than politics. He began the substance of his remarks by noting a point of commonality between himself and Representative Ryan: both men agree that the Alternative Minimum Tax (AMT) no longer works as intended. They differ, however, on whether or not proposed fixes for the problem ought to be paid for by offsetting spending cuts and/or tax increases. Representative Hoyer stated that he believed that the decision to patch the AMT without offsetting the cost of that patch was "not only an intellectually bankrupt policy, but also an immoral policy," citing the undue burden it places on future generations to pay for something that benefits current taxpayers.

Hoyer next outlined what he believed to be the widely-held Republican stance on the AMT, which he attributed to both Representative Ryan and President Bush. He said that Republicans view the AMT as a mistake, and feel that they should not have to pay for it because, in their view, it never should have existed in the first place. He likened this position to that of a driver who, after missing a stop sign and crashing into another driver, insists that he shouldn't have to pay for the damage. Someone will have to pay, and if the current Congress decides to pass a patch without offsets, it will be young people who foot the bill, many years down the road.

Next, Hoyer turned to the version of the patch passed by the House on November 9, 2007. Proposed by Ways and Means Chairman Charles Rangel (D-NY), the House patch not only found offsets for the cost of the patch but also cut taxes for millions of middle and lower income families. Hoyer called the bill "one of the best tax bills that I have voted for." The bill locates offsetting funds by closing certain investment income loopholes, raising the ire of many. Hoyer said that the Republican plan, rather than closing these loopholes, was to simply add the cost of the patch to the more than $200 billion funding shortfall already present in the FY 2008 budget. He then closed this analysis by insisting that he would not vote for any AMT patch that did not include methods to offset its cost, "even if I am the only House Member to do so."

Hoyer next praised the Democratic majorities in Congress for reinstating Paygo after several years of absence. Paygo, he pointed out, was first instated through a compromise between President George H. W. Bush and Rep. Dick Gephardt (D-MO). Bush agreed to the legislation after Richard Darman, then-head of the OMB, insisted that current levels of debt accumulation were not tenable. Hoyer then insisted that, over the last 80 months, Republicans have indicated that debt does not matter, and in the process have taken us over $1.6 trillion further into debt. In fact, he pointed out, for 19 years under Republican presidents, the nation ran deficits off $100+ billion. The President, Hoyer asserted, has the power to stop spending, but Republican presidents have not used this power. The Democrats, on the other hand, have employed 80 percent spending cuts, and only 20 percent tax increases, to pay for their new programs under Paygo since 2006.

He closed by saying that he feels that mitigating the effects of the AMT with an annual patch is not good policy, and that the AMT should be permanently eliminated, provided that the cost of that elimination can be offset. Comprehensive reform will not be easy, however, as cutting spending to pay for what you buy requires courage. Still, it may turn out that this effort is the first step towards fundamental tax reform, of which the country is in dire need. Hoyer finished his remarks by saying that he supported such reform efforts and that he believed Representative Ryan would join him in that work.

Congressman Ryan began his remarks by praising Representative Hoyer for his honesty, calling him "a very worthy adversary." He then gave a brief history of the AMT, asserting that its original intent was to force a very small number of people who were legally avoiding paying taxes to pay something -- an admirable goal -- but that it has begun swallowing up millions in the middle class. The AMT, he asserted, is an amazing revenue engine that will automatically increase the size of government significantly if it is not patched. This revenue growth, he went on, was not the purpose of the tax, and should not be permitted, either through the AMT or through another large tax increase that is used to offset the cost of eliminating the AMT. In short, Ryan said, he does not support offsetting the cost because "two wrongs don't make a right."

Ryan said the size of government is so important because, 1) It has an impact on individual freedoms; 2) it cuts down on the pace of economic growth; and 3) increased taxes hurt quality of life. But there is a fourth reason that is new to the argument, which strengthens the case against offsetting the cost of the AMT with higher taxes: globalization. American economic competitiveness is no longer a foregone conclusion, he said, and the federal government must maintain low tax rates in order allow citizens to keep more of their money and encourage risk taking.

Next, Ryan argued that revenue growth of the type represented by the AMT is intimately tied to growth in entitlement spending. These two ideas, in turn, are joined in the concept of the "baseline," a set of economic projections that assume current policy remains fixed, and that are the measuring stick for evaluating whether a bill satisfies Paygo. But while the baseline assumes that spending will continue to grow, we are not obligated to follow those assumptions. The size of government at present is large enough, and need not be augmented further by the AMT or an offsetting tax increase.

Ryan then analyzed Chairman Rangel's Tax Reduction and Reform Act (HR 3970), which has not passed either house but would eliminate the AMT with offsets. Rangel, Ryan acknowledged, is being honest by including a large tax increase in his bill. This tax increase falls primarily on small businesses, which are the engine of American economic growth. Unfortunately, he pointed out, that is what you have to do to offset the cost of eliminating the AMT under Paygo. The alternative is to say that we do not need to offset the cost, that the government should not have these revenues, and that we should not give in passively to the growth in entitlements by generating revenue that sustains it.

Closing his talk, Ryan outlined his tax plan, known as the Taxpayer Choice Act (HR 3818). An alternative to the Rangel bill, it sets the goal of maintaining the size of revenues at its current level of about 18.5 percent of GDP. It gives taxpayers a choice between the current income tax and a simpler system with only two tax levels -- 10 percent for individual incomes below $50,000 and 25 percent for incomes above that level -- and a single, large standard deduction, instead of the host of tax expenditures currently in the tax base. Ryan finished saying that issues with entitlements and the AMT are creating a "perfect storm" for tax reform, an event he welcomes.

MacGuineas then spoke briefly, remarking that she was not convinced that AMT reform should be the top priority of the economy, given that it is "immensely expensive" and that other tax reforms could be both fairer and more efficient, and that the AMT might serve as a political trigger for more fundamental tax and fiscal reform. She then introduced a panel of experts, moderated by David Wessel of the Wall Street Journal.

Len Burman opened the panel, giving a brief history of the AMT. He explained that the tax was introduced in 1967 so that politicians would not have to reform tax shelters in order to force rich Americans from evading taxation. The AMT was terribly designed from the start for a number of reasons, he said. First, its lack of indexing meant that coverage would inevitably grow over time. Second, it has "horrible marriage penalties" because it is more likely to hit taxpayers who have more children, as children are deductible under the standard income tax but not the AMT. Finally, he explained, the AMT has a transition level between around $175,000 and $500,000 where taxpayers are essentially hit with an extra surtax on both earned income and capital gains and thus face higher marginal tax rates under the AMT than under the standard income tax. Burman further argued that the process of having annual patches is terrible policy, because it creates so much uncertainty for taxpayers. It also makes tax-incentives less effective since taxpayers don't know if they are eligible for certain deductions or credits. Burman closed by praising recommendations from the Bush Tax Reform Panel as good policy, but bad politics. He also praised Congressman Rangel's plan to replace the AMT with a surtax as simple and effective, though not "perfect policy".

Bob Carroll spoke next on the importance of enacting a patch as soon as possible. "Every day of delay," he explained, "means that taxpayers who would have gotten their refunds in February or March will now get them later." This means that 17 million people could have to wait weeks or months longer for $40 billion in refunds. If the AMT patch is not passed at all, furthermore, the number of people immediately subject to AMT could increase from 4 million to 25 million. He explained that the uncertainty associated with annual patches is also a problem, as many people fail to estimate their tax burden correctly. He then argued that real AMT reform must be accompanied with regular tax reform. Turning to history, Carroll explained that the real problem with the AMT is that it was not indexed at the same time that the standard tax was indexed in the mid 1980s, resulting in compounding shortfalls between the two taxes over time. In this year, for example, patching the AMT would cost $50 billion -- by 2012 it will be $100 billion and by 2017 it will be $220-$250 billion.

Aviva Aron-Dine offered a background on the AMT, and advocated that reform meet the principles of fiscal responsibility and fairness. Aron-Dine explained that we are currently in a standoff as to whether Paygo should apply to the AMT. Those against applying Paygo, she explained, argued that the AMT is an accidental problem which need not be paid for. However, she explained, around two thirds of the cost of the patch is due to the 2001 and 2003 tax cuts, rather than the lack of indexing with the AMT. In enacting those tax cuts, she explained, policy makers were very aware of the new revenue which would come from the AMT, and used it in order to make the tax cuts look cheaper. She then argued that real fiscal responsibility should dictate that any changes be paid for. She explained that, because of the rising costs of health care, the United States will soon face a choice between keeping historical rates of taxation constant, and maintaining historical levels of government services, as it will soon become impossible to do both.

Alex Brill discussed the geographical implications of the AMT. He explained that a major factor which drives people to the AMT is the amount of deductions they receive based upon family size and state and local income taxes. This results in people from high-tax states being more likely to hit the AMT. In New Jersey, New York, and Connecticut, he explained, between 7 percent and 9 percent of taxpayers were hit by the AMT, yet in Alabama, Tennessee, and Alaska, less than 2 percent of people are hit. Because of these differences, he explains, the AMT is very much a "blue state" issue -- in each of the top 6 states hit by the AMT, both Senators are Democrats. Brill suggested that there is a legitimate argument over whether to use historical tax levels or historical levels of services, but it doesn't make sense to use the result of "do-nothing" policies as the baseline. He closed by suggesting that limiting state and local tax deductions could raise enough revenue to permanently index the AMT.

Former Congressman and CRFB co-chair Bill Frenzel closed the panel. He began by explaining that the AMT was enacted because politicians were unable to get rid of the tax exempt feature of maniple bonds, although they were a major devise in helping wealthy earners from taxation. He argued that the AMT must be eliminated, but that PAYGO needs to be maintained. Although our PAYGO rules are imperfect, he explained, we must cling to them or lose all vestige of control. He finished by commenting on Ryan's bill, suggesting that giving taxpayers a choice might be a little gimmicky, but might also be more politically realistic.

Wessel opened up the Q&A section by asking what political strategies might allow for real reform. Burman suggested that real reform would be hard, but that the expiring tax cuts and creeping AMT might serve as a stimulus, especially if there is Presidential support and a bi-partisan process in 2009. Wessel then asked why the Bush reform panel failed. Carroll suggested that the demand for budget neutrality, coupled with the large cost of offsetting the AMT, created too many powerful losers. Bill Frenzel jokingly remarked that the panel failed because he was on it, and then suggested that there wasn't strong public support for tax reform, nor was there much Presidential leadership on the issue. Wessel's last question was on how panelists felt about the Ryan tax plan, to which Burman replied that the math didn't add up, and that the plan would certainly increase the deficit.

The first questioner in the audience asked why the AMT wasn't being discussed in the Presidential campaign. Burman suggested that most people don't know they could potentially be hit for it, and that this might change if the patch was not enacted for a year. Frenzel agreed, suggesting that the people hit by the current patched AMT can afford it, and so the AMT doesn't create a huge amount of pain. Brill refuted this a little, suggesting that tens of millions are affected by the AMT due to the potential that they will have to pay it, even though only four million actually pay it. Aron-Dine followed up on this by suggesting that although this might be a blue-state/red-state issue for actual payers, potential payers are more evenly divided between states.

The next questioner asked about the distributional consequences of not patching the AMT for the year 2008 (as opposed to well into the future). Carroll explained that the average family of four making over $68,000 would face some new taxes from the AMT. Burman tried to demonstrate that the AMT hits the upper middle class, but not the super rich, who tend to face similar tax burdens with or without the AMT.

Wessel then asked if confusion over the AMT makes a real economic difference, and Burman suggested that it did, especially with regards to tax incentives (the hybrid tax credit for example), which become useless under the AMT. Burman also proclaimed that people should understand how the AMT is affecting them.

Another questioner asked if the benefits of the patch would go to the wealthy. Burman explained that those in the 80th to 90th income percentile would experience on average a 0.9 percent tax cuts, those between 90th to 95th income percentiles would experience, on average, a 1.3 percent cut. Those between the 95th and 99th percentile, meanwhile, would experience an average of 1.8 percent in cuts. The top 1 percent, on the other hand, would only experience an average of a 0.1 percent tax cuts. The patch, therefore, would go to the wealthy -- but not to the super rich (top 1 percent), and the distributional effects of the patch really depend on where the offsets come from. Wessel explained that an AMT patch would not be a way to help the people at the bottom, but a way to stop something from hitting people near the top. Aron-Dive showed that about one third of benefits from the patch goes to those households making between $200,000 and $500,000, around one half goes to those between $100,000 and $200,000, and only 14 percent goes to those making between $50,000 and $100,000. She also notes that the Rangel AMT reform would also expand the standard deduction, the child tax credit, and the earned income tax credit, which all help poorer Americans.

-Paul McLaughlin and Marc Goldwein, Research Associates for the Fiscal Policy Program

Whither the American Economy?

Communications — Fri, 30 Nov 2007 08:30:00 -0500

A New America Event
11/30/2007 - 8:30am

Responding to the damage caused by the slowdown in housing, the subprime mortgage crisis, and fears of a U.S. recession, the New America Foundation held a national policy forum on the need for a new era of public investment on Friday, November 30, 2007.

Despite the recent economic slowdown, New America Foundation board member Bernard L. Schwartz opened the conference with an optimistic message. The dynamism of the American economy, Schwartz argues, bolstered by robust public investment, can overcome present challenges. Schwartz and Economic Growth Program director Sherle Schwenninger outline a strategy for rebuilding the American economic engine in “Public Investment Works,” which appears in the fall issue of Democracy: A Journal of Ideas.

Video of Schwartz's opening presentation is available at right. Videos of the other presentations and panels -- as well as presentation materials, the policy papers released at this event, and other details -- are included below.

Johnson Presentation

Panel 1: How Hard Will the Fall Be?

Lachman Presentation

Panel 2: Shaking
It Off?

Conference Papers

The Macroeconomic Considerations of a Public Investment Strategy
by James Galbraith
James Galbraith examines the depressing effects of the slowdown in housing, the fallout from the subprime mortgage crisis, and the inter-connected problems of failing infrastructure and long-term climate change.

Back to Basics: A Pro-Growth Public Investment Strategy
by Joel Kotkin
Joel Kotkin argues that the era of asset price inflation—the housing and stock market bubbles—has masked a perilous hollowing out of public infrastructure, the key to sustained and equitable economic growth.

Conference Presentation Materials

Presentation Slides from Simon Johnson's Kickoff to Panel 1

Presentation Slides from Desmond Lachman's Kickoff to Panel 2

Participant Spotlight

Saviors of the Citi
by Zach Karabell, Wall Street Journal
November 30, 2007

"The recent announcement that Citibank received a cash infusion of $7.5 billion from Abu Dhabi's sovereign wealth fund was greeted with a mixture of relief and bewilderment by the financial markets." read more (subscription required)

Time to Stand Up to Wall Street
By Steve Pearlstein, The Washington Post
October 31, 2007

"Remember all those stories about how the nose dive in financial markets was the first big test for Federal Reserve Chairman Ben Bernanke, the academic economist who was still developing his feel for the interplay between the central bank and Wall Street?" read more

CBO's Peter Orszag Releases Study on Rising Cost of Health Care

Communications — Tue, 13 Nov 2007 10:15:00 -0500

A New America Event
11/13/2007 - 10:15am

On Nov. 13, 2007, Maya MacGuineas, director of the Fiscal Policy Program at the New America Foundation and President of the Committee for a Responsible Federal Budget, hosted an event featuring Dr. Peter Orszag, director of the Congressional Budget Office. At the event, Orszag released a CBO paper entitled “The Long-Term Outlook for Health Care Spending.” This paper precedes the regular release of the long-term budget outlook, of which health care is a major component.

Introducing Orszag, MacGuineas praised the CBO for taking the lead in developing an understanding of the fiscal impact of the health care system, both in terms of short-term policy options and long-term projections. These efforts give fiscal experts, who recognize the importance of health care to the long term picture but are less certain of the options to address the problems, more substance with which to work. She also praised the CBO for its clear, concise reports, which make a variety of public policy issues accessible to policy analysts and the public.

Orszag began by explaining the new methods of health care cost projections. Health care costs are “the key” to understanding the long-term fiscal outlook. CBO’s projections begin with growth rates based on the past 30 years of cost growth, a window long enough to smooth out one-time shocks to growth and that begins sufficiently after the introduction of Medicare and Medicaid to avoid distortions associated with the ramping up of those programs.

Recognizing that simply projecting those 30-year average growth rates into the future could eventually push overall health care spending above 100 percent of GDP, the CBO next accounts for that fact that as total costs as a share of GDP rise, various private and state-level adjustments will curb growth rates even without a change in federal policy. These non-federal adjustments, in turn, are assumed to some have spillover effects on federal cost growth, through changes in practice norms and technology.

In prior long-term health care cost projections, the CBO had used a 2.5 percent growth rate and a 1.0 percent growth rate to illustrate a range of possible outcomes. The new estimate, taking the spillovers into account, lies between these two estimates. It tracks the Medicare Trustees’ long-term projections for the next couple decades but then winds up significantly higher. Despite the long-term differences between CBO and the Trustees, both projections make the same basic prediction: a continuous rise in health care spending under current law will consume ever-larger portions of the budget and GDP.

Orszag then covered several steps that can be taken to bend the growth curve and get costs under control in the long run. Options included:

basing treatment decisions on reliable information. Comprehensive data from a team of researchers at Dartmouth shows that the variation between high- and low-cost markets arises less from variations in the costs of reliable treatments than the intensity of potentially questionable treatments in the higher-cost markets. It appears that many of these treatments could be scaled down with little if any adverse effect on outcomes;
reforming the fee-for-service system to discourage unnecessary or unproven treatments;
increasing cost-sharing by consumers to encourage more cost-consciousness. This final option would have little effect on heavily-insured catastrophic costs, which make up a majority of total health care costs, but could reduce non-catastrophic costs significantly.

He concluded his remarks by saying that the most auspicious approach to stemming cost growth involves generating information and aligning incentives to produce “higher value care, rather than just more care.”

MacGuineas opened the question-and-answer session by asking how important reforming health care is to fixing the overall fiscal picture as compared with reforming other entitlements or revenues. Orszag responded that he believed the ultimate solution to the overall fiscal problem would be a combination of reforms, but that solving every other problem without touching health care would not fix the overall situation. Health is far and away the most important component of the problem. “We are significantly overinvested in writing books about social security reform,” he asserted, “and significantly underinvested in writing books about bending the curve” of health care costs.

In response to the next three questions, Orszag discussed measures that have not been demonstrated to lower costs, and also addressed the CBO’s method of scoring. Increased longevity, first, does not necessarily lower overall costs, as end-of-life costs remain high. A longer average lifespan could, however, increase tax revenue as people work longer, making it easier to finance a given level of spending. In response to the next question, he asserted that some widely supported cost-saving measures (like preventative care and care coordination) often have little rigorous evidence suggesting that they generally succeed in lowering costs, which is why the CBO is often unable to score them as savings. To the third question, about how the breakdown of healthcare provision was predicted to change in CBO’s projections, Orszag replied that the CBO had assumed that the share of non-Medicare, non-Medicaid spending in the form of employer sponsored health care would remain constant at around 60% of total costs.

The next question concerned the extent of current research into best practices. Orszag replied that current efforts by some insurance companies and a small agency in the Department of Health and Human Services were important, but not nearly as extensive as is warranted or would be beneficial. Since best-practice findings are essentially a public good, insurance companies have little incentive to research them. Incentives are further decreased by customer turnover in the employer sponsored system which may prevent insurance companies from benefiting from best-practices that only pay off in the long term. Federal support may therefore be necessary to encourage such research. Once such research is completed, it would be more effectively applied if doctors were given incentives to choose the proven treatments more often.

MacGuineas asked the next two questions, inquiring whether Orszag had an ideal set of cost-lowering incentives, and whether he favored incentives on the consumer side of the provider side. Orszag replied that financial incentives affect both consumers and providers, and that we can use “both sides of the scissors” to cut costs. He then said that we do not yet have the information or infrastructure necessary to know exactly which incentives will work best.

New America Fellow Shannon Brownlee agreed with Orszag that more best-practice information is needed, but doubted that comparative effectiveness studies could reduce costs in the short-run, and whether they could ever address problems of over-supply. Orszag replied that he felt the problem lay in the payment system, of which the over-supply of medical care was a symptom rather than a cause. Moreover, the political economy of a “command and control” style of health care that statutorily limits care is difficult. The most auspicious course of action, he concluded, is to make the infrastructure and research investments that will put us in a position to reduce costs without reducing quality through evidence-based medicine.

The next question concerned the importance of Health Information Technology (HIT) in lowering costs. Orszag replied that the greatest benefit of HIT is that it provides data on which to base best-practice research. Simply installing an HIT system, however, without including an incentive structure to lower costs, would be unlikely to significantly reduce medical expenses.

The final question concerned how the CBO evaluated the potential for best-practice research to save money. Orszag said that they had brought in experts from Britain’s National Institute for Clinical Effectiveness to help them understand the process. He also pointed out the little noted fact that, while overall American health care costs are higher than those in most European countries, there are many American markets where costs are similar or even lower than in Europe. Following this answer, MacGuineas thanked Orszag, and the talk concluded.

Video of this event is available at right, while an MP3 audio recording, the CBO report and Orszag's presentation slides can be downloaded below.

-Paul McLaughlin, Research Associate for the Fiscal Policy Program