Three liberal think tanks — Demos, the Economic Policy Institute, and the Century Foundation — have joined together to produce Our Fiscal Security, a left-wing alternative to the deficit commission recommendations. And so far liberals seem to like it.
The plan’s authors believe that it would be possible to balance the budget by 2020 without engaging in austerity measures in the short-term, while stabilizing the debt at about 90 percent of GDP by 2025. As you can see in this figure, that would be an improvement over both current policy and Obama’s policy, insofar as Obama has defined his own preferences:
After 2020, however, health care cost inflation means that entitlement spending will overrun the federal budget, even if the primary budget is balanced beforehand. Our Fiscal Security acknowledges that point:
If there is no slowdown in health care costs and other government spending keeps pace with the overall economy, by 2045 debt held by the public under Our Fiscal Security’s path would reach 136.6% of GDP, 72 percentage points below the current policy baseline and 38 percentage points below the Obama policy baseline.
However, our path also contains proposals that would likely reduce the growth rate of health care expenses and hence reduce the growth of Medicare and Medicaid spending.
The proposals for reducing the growth rate of health care expenses include a public option and other reforms that won’t convince conservative critics — and the proposal already includes a lot of presumed savings from Obamacare that are not likely to materialize.
If the plan’s recommendation’s for curbing health care cost growth don’t pan out, there won’t be too much room left for fiscal adjustment on the revenue side in 2020: in addition to letting the Bush tax cuts expire for high earners, the Our Fiscal Security plan calls for instituting a financial transactions tax, reinstating a death tax, enacting cap and trade or a carbon tax, increasing the Social Security payroll tax for high earners, and raising the capital gains tax. The plan would also cut defense expenditures while increasing spending on other budget items, such as early childhood education and transportation.
The authors of the plan specify that the government could raise further revenues by creating a new millionaires’ tax and raising the gas tax. But at that point, if not long before, they probably would reach the limits of soak-the-rich-ism.
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