President Obama created a debt commission—and then rejected its recommendations. As I just wrote in a previous post, the rejection was complete and overwhelming.
And here’s my theory why: The Bowles-Simpson commission recommended a) cutting individual tax rates to as low as 23 percent and b) capping federal spending and revenue at 21 percent of GDP. Keep that in mind as you read this bit from a new op-ed by former Obama economic adviser Larry Summers:
The combination of an aging society, rising health care costs, debt service costs that will skyrocket whenever interest rates normalize, a still-dangerous world in which our allies’ defense spending is falling even as that of potential adversaries rises rapidly, and a growing fraction of the population unable to hold steady work means that in all likelihood federal spending will need to be larger not smaller relative to GDP in the future.
Summers, the White House, and left-of-center economists everywhere believe federal spending will need to be much higher in the future. And consider that it is already 24 percent of GDP and would never go below 22 percent under Obama’s new budget. Obama—if he serves two terms—would be the first U.S. president in history to spend 22.0 percent or more of GDP for eight straight years (and then beyond). Indeed, three liberal think tanks recently constructed long-term budget plans, and their average projection for federal spending by 2035 was 25 percent of GDP—with a bullet.
Bottom line: Obama rejected Bowles-Simpson because it capped spending and taxes (both revenue and rates) at too low a level for the Big Government future he envisions.
Generating the revenue Obama would need to finance all his spending would require sharply higher taxes on the wealthy as well as, most likely, a value-added tax on everyone else. This also explains why we’ve never seen a long-term budget plan from the White House. If Team Obama did offer one, the American public would see that while tax hikes would start with “the rich,” they would eventually trickle down.