Capretta v. Weinstein

Capretta v. Weinstein

POLICIES FOR THE NEXT ADMINISTRATION. PART 8: FEDERAL BUDGET

Authors from Part 8 of our policies series respond. (Previously: James C. Capretta, "Fiscal Policy After the Election;" Paul Weinstein Jr., "Making 'Fiscal Space' for the Clinton Agenda.")


Response to Paul Weinstein Jr.

By James C. Capretta

Paul Weinstein is right that, if elected president, Hillary Clinton would be best served by addressing the deteriorating fiscal situation early in her term. That could give her the fiscal room she would need to pursue aggressively funding for the many new spending initiatives she has promoted during the campaign, such as a new infrastructure program and additional subsidization of higher-education and pre-school programs.

Mr. Weinstein is also right to note that the most important source of potential savings in the federal budget can be found in the major entitlement programs, not the accounts that are funded annually in the appropriations process. There is also some potential for bipartisan agreement on a corporate-tax reform plan.

As Mr. Weinstein notes, next year could provide the legislative window for taking action on a budget plan. The debt ceiling will expire at some point next year, and the sequestration cuts that both parties so despise will be reinstated in fiscal year 2018 if nothing is done to turn them off again. So it is possible that events may converge to give both parties a reason to compromise on a large budget framework.

Still, it is hard to be overly optimistic. Hillary Clinton has campaigned on an agenda of full protection of entitlement spending, expansion of many federal programs, and higher tax rates on wealthy Americans. Meanwhile, Republicans have seen their agenda thrown into disarray by the rise of Donald Trump and his populist impulses. While it is possible that a larger deal on the federal budget could occur, it seems more likely that the big issues will be set aside, once again, in favor of smaller deals needed to keep the government open and functioning. In that context, it is possible that Clinton would pursue small increases in her favored programs, such as infrastructure and education, perhaps paid for with offsets acceptable to some Republicans as well as Democrats.

Given the very deep differences between the parties on fiscal matters, small agreements of this type may be all a Clinton administration could hope to achieve with divided government.

(For the opposing view, see Paul Weinstein Jr., "Making 'Fiscal Space' for the Clinton Agenda.")

 

Response to James C. Capretta

By Paul Weinstein Jr.

James Capretta’s piece is, as always, thoughtful, and his argument is well laid out. I agree with him on several key points. First, the long-term budget outlook for the U.S. is deeply troubling and that “the budgetary math is inescapable and cannot be wished away.” Second, it is in the interest of not only the country, but also the next president and Congress to act sooner rather than later. Third, continuing to target Defense Discretionary and Non-Defense Discretionary spending for cuts is counterproductive — that approach has indeed “run its course.” And, finally, entitlement reform must be on the table if we are to get our long-term fiscal house in order.

But there are a number of key differences between us. Just as my former boss Bill Clinton should not get all the credit for the surpluses of the 1990s (the first President Bush deserves a lot of praise for the 1990 budget deal), it is unfair to place all the blame on President Obama for the record deficits starting in 2009. The financial crisis and subsequent recession, which started under the second President Bush, are the main culprits. And it is important to note that Republicans have controlled Congress for most of President Obama’s tenure, and so they should get an equal amount of criticism. 

On the policy side, Mr. Capretta’s solution to our fiscal imbalance falls almost solely on Medicare, Medicaid, support for the low-income Americans, and Social Security and ignores revenues and other mandatory spending. I believe Democrats will come to the table on entitlements, in particular if the focus is solvency — but they will not support efforts to use entitlement reform to undermine the core mission of those programs. It is also important to expand the list of entitlements needing to be addressed, including farm subsidies. Finally, I will throw another idea out there: Get tough on colleges and universities. By pushing schools to help students move through college at a faster pace, we can save students and taxpayers billions.

Finally, while I understand Republicans will not support higher tax rates (and most, if not all, of the ideas put forth on tax policy by candidate Clinton), the Simpson-Bowles Commission proved you can lower marginal tax rates, help close the tax gap, and increase revenues by reducing or eliminating most of the over $1 trillion in tax incentives currently littering the tax code.

(For the opposing view, see James C. Capretta, "Fiscal Policy After the Election.")

 

James C. Capretta is a resident fellow and holds the Milton Friedman chair at the American Enterprise Institute.

Paul Weinstein Jr. is a senior fellow at the Progressive Policy Institute and directs the Graduate Program in Public Management at Johns Hopkins University.

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