the deficitâcaused, in part, let us not forget, by the necessary government spending in the aftermath of the financial meltdown. The rationale here is that those responsible for the financial crisis should pay for its cleanup, while at the same time we would be discouraging the market volatility that works against the small investorâwho, in a world of high-frequency algorithmic trading, doesnât have much of a chance on his own.
Have senior citizens so traumatized our politicians that we will never duplicate the achievement of the 1983 National Commissionon Social Security Reform? Have politicians become so afraid of the electorate that they wonât raise taxes, even on the rich? Are there no broad-based tax increases that the majority of Americans would support? Has the fear of terrorism become so great that we canât cut even those weapon systems and military-force structures that were meant for the Cold War? Are there no additional reforms of Medicare or Medicaid that could lower the trajectory of healthcare spending? The answer to those questions will determine whether we remain perilously vulnerable to the decisions of our foreign creditors or seize control of our own destiny.
In the summer of 2010, Esquire magazine convened four former U.S. senators: Republicans Jack Danforth and Bob Packwood, and Democrats Gary Hart and meâall of us colleagues for many years in the Senate. We were given three days in which to balance the federal budget by 2020. Our negotiations were intense, but we did it. The big-ticket items were large defense cuts reflecting our current security needs instead of those of the Cold War; a dollar-per-gallon increase in the gasoline tax, phased in at fourteen cents a year for seven years, along with incentives to increase vehicular fuel-efficiency standards; reduction of most farm subsidies and implementation of a means test for those farmers who make $500,000 or more a year; and reform of the Social Security system by raising the retirement age to seventy by 2057 and changing the way cost-of-living increases are calculated. We improved the current tax codeâs progressivity by allowing itemized deductions only against the 28-percent rate, and we retained the top rate at 35 percent. Each of us got something in the negotiation. Danforthâs major objective was to get agreement that when the budget was balanced, taxes would not exceed 20 percent of GDP (historically theyâve been 18 percent; today theyâre at 15 percent). Hart wanted to trim the defense budget of its Cold-War fat. Packwood wanted to keep the top tax rate at 35 percent. I wanted (a) to make the tax codemore progressive, (b) to establish an interim disability program for manual laborers if we raised the retirement age for Social Security, (c) to assure a higher miles-per-gallon standard if we raised the gasoline tax, and (d) to avoid any cuts in Obamaâs healthcare plan. Our interactions resembled the reunion of a string quartet that has played together for many years. Each of us knew how to interpret the othersâ movesâwhat was a bluff, what was the bottom line, what each of us said we cared about and what we really cared about. Each of us had to compromise. Each of us knew that without compromise we could not balance the budget by 2020. Our three-day exercise showed that where there is respect and good will, a deal can be struck. Politicians simply need to put country ahead of re-election. The alternative to this course leaves America where it has never been and where no American should ever want it to goâbankruptcy, decline, and rapid loss of world leadership.
The Historical Perspective
For those who wonder what will happen in America given our current political gridlock in the face of truly dangerous economic times, there is no better clue than understanding what happened at other times in history when nations faced large debt issues.
Professor J. Rufus Fears of the University
Have senior citizens so traumatized our politicians that we will never duplicate the achievement of the 1983 National Commissionon Social Security Reform? Have politicians become so afraid of the electorate that they wonât raise taxes, even on the rich? Are there no broad-based tax increases that the majority of Americans would support? Has the fear of terrorism become so great that we canât cut even those weapon systems and military-force structures that were meant for the Cold War? Are there no additional reforms of Medicare or Medicaid that could lower the trajectory of healthcare spending? The answer to those questions will determine whether we remain perilously vulnerable to the decisions of our foreign creditors or seize control of our own destiny.
In the summer of 2010, Esquire magazine convened four former U.S. senators: Republicans Jack Danforth and Bob Packwood, and Democrats Gary Hart and meâall of us colleagues for many years in the Senate. We were given three days in which to balance the federal budget by 2020. Our negotiations were intense, but we did it. The big-ticket items were large defense cuts reflecting our current security needs instead of those of the Cold War; a dollar-per-gallon increase in the gasoline tax, phased in at fourteen cents a year for seven years, along with incentives to increase vehicular fuel-efficiency standards; reduction of most farm subsidies and implementation of a means test for those farmers who make $500,000 or more a year; and reform of the Social Security system by raising the retirement age to seventy by 2057 and changing the way cost-of-living increases are calculated. We improved the current tax codeâs progressivity by allowing itemized deductions only against the 28-percent rate, and we retained the top rate at 35 percent. Each of us got something in the negotiation. Danforthâs major objective was to get agreement that when the budget was balanced, taxes would not exceed 20 percent of GDP (historically theyâve been 18 percent; today theyâre at 15 percent). Hart wanted to trim the defense budget of its Cold-War fat. Packwood wanted to keep the top tax rate at 35 percent. I wanted (a) to make the tax codemore progressive, (b) to establish an interim disability program for manual laborers if we raised the retirement age for Social Security, (c) to assure a higher miles-per-gallon standard if we raised the gasoline tax, and (d) to avoid any cuts in Obamaâs healthcare plan. Our interactions resembled the reunion of a string quartet that has played together for many years. Each of us knew how to interpret the othersâ movesâwhat was a bluff, what was the bottom line, what each of us said we cared about and what we really cared about. Each of us had to compromise. Each of us knew that without compromise we could not balance the budget by 2020. Our three-day exercise showed that where there is respect and good will, a deal can be struck. Politicians simply need to put country ahead of re-election. The alternative to this course leaves America where it has never been and where no American should ever want it to goâbankruptcy, decline, and rapid loss of world leadership.
The Historical Perspective
For those who wonder what will happen in America given our current political gridlock in the face of truly dangerous economic times, there is no better clue than understanding what happened at other times in history when nations faced large debt issues.
Professor J. Rufus Fears of the University
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