The progressive approach to fiscal responsibility

Fiscal responsibility, the code word for balancing the budget, is on everyone's lips in Washington these days. With a federal budget deficit close to $2 trillion inherited from the Bush administration, the Obama White House is eager to build a consensus in Congress for reducing the deficit, shifting budget priorities and reforming the process of federal government appropriations.

This push for 'fiscal responsibility' has progressive activists both concerned and primed for an opportunity to bring far-reaching reforms in health care and other fiscal matters.

Concerns

When the White House announced its intention to hold a 'fiscal responsibility summit' this month that included a wide range of political leaders, think tanks and activists, progressives grew concerned.

Among the invitees, for example, were representatives of the Peter G. Peterson Foundation, a $1 billion endowed group that pushes for Social Security privatization and gutting Medicare. As expected, groups like the Peterson Foundation and the conservative Heritage Foundation along with Republican politicians at the summit called for raising the retirement age for and the privatization of Social Security, eliminating Medicaid, keeping the Bush tax cuts for the richest Americans, slashing the budget for Medicare and so on.

While people on the right saw the summit as an opportunity to lash out at the social safety net, progressives raised different questions.

In the lead-up to the summit last week, economist James K. Galbraith questioned the necessity for a 'fiscal responsibility summit' in the first place. The economic and financial crises need to be the 'paramount public policy concerns. We're not returning to the normal world any time soon,' he told reporters. Talk of balancing the budget sends an inaccurate signal that the economic and financial crises have been addressed, Galbraith suggested.

Former Labor Secretary Robert Reich agreed with this point of view in a recent blog post. Large amounts of government spending is needed to create the demand in the economy in order to turn it back towards growth. The push for a balanced budget 'doesn't make much economic sense,' he wrote, citing the effort in 1937 by President Roosevelt to balance the budget that created a mini-recession within the Great Depression.

In today's recession, which appears to be worsening, '[t]he biggest challenge is to ramp up aggregate demand,' Reich wrote. That requires heavy borrowing and government spending; it may even require a second stimulus package down the road, he declared. Balancing the budget should be the last thing on anyone's mind at the moment.

Roger Hickey, co-director of the Campaign for America's Future, which was also represented at the summit, stated that long-term fiscal balance is a laudable goal. He added, however, that in its 'effort to get bipartisan consensus [on budget issues] the White House could get locked into a path of austerity as the way to achieve long-term budget balance.'

Hickey offered an alternative 'progressive path to long-term fiscal responsibility.' For this, he suggested a strong Social Security system combined with universal health care reform that controls costs, high levels of public investment to promote continued economic growth, and a plan to match federal spending with 'a responsible level of progressive taxation.'

Are entitlement programs even the real problem?

Right-wing advocates of 'fiscal responsibility' typically target 'entitlement programs' like Social Security and Medicare as the main cause of the country's financial problems. They prefer 'market solutions' to questions of retirement security and health care coverage. To accomplish this privatization agenda, they promote the mistaken notion that both Social Security and Medicare are in crisis and are unsustainable.

In doing so, however, they ignore or distort some basic facts, progressive economists say. Advocacy groups and think tanks like the Campaign for America's Future, the Economic Policy Institute, the National Committee to Preserve Social Security and Medicare, the Center for Economic Policy Research and the Center for American Progress tend to agree that Social Security is not in any imminent financial danger and that Medicare's problems are not inherent but are related directly to the general crisis of health care in the country.

Take Social Security, for example. Social Security will have a $5.5 trillion surplus by 2027 and will be able to pay all benefits promised under current law, through 2041. In addition, Congressional Budget Office estimates show that if no changes are ever made to the Social Security program, in 75 years, the program will be able to afford to pay retirees better benefits than they receive now.

By comparison, if no changes are ever made to the health care system, in 75 years the cost to the country will equal about 99 percent of current Gross Domestic Product.

Nancy Altman, an economist and former advisor to Federal Reserve Chair Alan Greenspan, concurred. Of all federal programs, Social Security is the most 'fiscally sound,' she noted. If predictions are correct and the program does experience budget shortfalls in 75 years, they will be 'manageable.' By comparison, she noted, predicted deficits in the program 75 years from now will be less than the cost of the Bush tax cuts for the richest one percent of Americans.

Altman added that according to federal law, saving money in the Social Security program does not automatically translate into savings in the federal budget or in anyway help balance the budget.

At a time when Americans have lost $2 trillion in housing value and $6 trillion in retirement savings as a result of the market crashes, this is no time to privatize or gut the social safety, these progressives argued.

'We don't have an entitlements crisis,' economist Dean Baker, co-director of the Center for Economic Policy Research, added, 'we have a health care crisis.' The word 'crisis' should not be used to described Social Security's financial situation either. Social Security is not 'in anything that any reasonable person can call crisis.'

Medicare's long-term sustainability is tied directly to the need for reforms in the health care system as a whole. 'The root of the deficit problem is health care costs. Our leaders must get serious about improving our health care system. A concentrated effort by policy makers to control health care expenditures will help American business compete internationally and free resources for other pressing needs,' read a joint statement this week by Hickey, Baker and Lawrence Mishel of the Economic Policy Institute.

Where are Obama and the Democrats?

While it tried to provide a space at this fiscal summit in which differences could be aired, civility promoted and bipartisan approaches presented, the Obama administration appears to be pressing a 'fiscal responsibility' agenda the promotes cutting back on Iraq war costs, eliminating the Bush tax cuts for the richest Americans and ending wasteful spending.

At the fiscal reform summit, Obama told the gathering that his administration will emphasize the importance of health care reform. 'Over the longer run, putting America on a sustainable fiscal course will require addressing healthcare,' he said.

Other members of the administration spoke directly to the general concern for entitlement programs. Lawrence Summers, director of the White House Economic Council, told his break-out group that in light of 'the events in the market the last couple years, the sense of the need for government to take a core public responsibility for Social Security ... has been strengthened.'

White House Office of Management and Budget Director Peter Orszag added that the sustainability of programs like Medicare and Medicaid are tied to the general sustainability of the entire health care system. 'To my fellow budget hawks in this room and in the rest of the country,' he noted at the summit, 'let me be very clear: healthcare reform is entitlement reform. The path of fiscal responsibility must run directly through healthcare. We also must recognize that reforms to Medicare and Medicaid will only succeed in the context of slowing the spiraling growth of overall healthcare costs.'

Other administration officials expressed support for strengthening Social Security's financial situation by raising the income cap on payroll deductions. Economist Nancy Altman estimated that 94 percent of working families would see no additional payroll deductions as a result of this type of change. And higher income earners would see additional Social Security deductions from their paychecks amounting to only about one week per year.

The White House Web site further expresses 'strong' opposition to privatization, raising the retirement age or cutting benefits for the program's beneficiaries.

Opponents of Social Security and Medicare have also called for a special 'entitlements commission' to push privatization schemes through Congress and avoid the traditional legislative process.

As she left the fiscal summit, Nancy Pelosi rejected the idea. 'We believe that elected officials of the land, the Congress of the United States, should review this in a bipartisan way in our committees,' she said. 'If people want commissions they can have commissions, but that doesn't mean we're abdicating our responsibility to keep Social Security solvent, and we are committed to doing that.''

Fiscal responsibility

In his speech to a joint session of Congress, Tuesday, Feb. 24, President Obama offered some additional assurances that his approach to budget policy will focus on saving taxpayer dollars without undermining the social safety net and harming working families.

Obama targeted health care reform. '[T]he cost of our health care has weighed down our economy and the conscience of our nation long enough. So let there be no doubt: health care reform cannot wait, it must not wait and it will not wait another year,' he told Congress.

Obama's agenda for fiscal responsibility looks to other places for savings. He said, 'In this budget, we will end education programs that don’t work and end direct payments to large agribusinesses that don’t need them. We’ll eliminate the no-bid contracts that have wasted billions in Iraq, and reform our defense budget so that we’re not paying for Cold War-era weapons systems we don’t use. We will root out the waste, fraud and abuse in our Medicare program that doesn’t make our seniors any healthier, and we will restore a sense of fairness and balance to our tax code by finally ending the tax breaks for corporations that ship our jobs overseas.'

In a statement following the speech, Barbara Kennelly, director of the national Committee to Preserve Social Security and Medicare, said, 'The President is right, comprehensive healthcare reform is the best way to strengthen Medicare for the future and that healthcare reform should come sooner rather than later.'

Comprehensive health care reform that controls costs, provides universal access and offers public options in addition to private options to consumers will reduce overall costs of health care and ease the burden on taxpayers over the long haul.

Experts in the health care field believe that Obama's reference to waste in Medicare targets the issue of overpayments to insurance carriers implemented under the Bush Medicare privatization law in 2005. They suggest that a reform in this area alone could save billions annually. The White House Web site specifically calls for 'eliminating subsidies to the private insurance Medicare Advantage program,' which could produce a savings of about $15 billion.

Joel Wendland is editor of .