There was much to criticize in the Paul Ryan-House GOP budget, from delaying Medicare reform to using a completely arbitrary and unnecessary balanced budget target to assuming an unlikely repeal of Obamacare. But at least Team Ryan recognized the need for a) structural Medicare reform, b) structural tax reform, and c) getting the national debt on a downward trajectory toward historical norms. (Both charts in this post are from the Committee for a Responsible Federal Budget.)
Now the Senate Democrats have taken — finally! – their turn at laying out a medium-term budget plan. But in no way does this long-awaited blueprint give any sense that Washington is in dire need of a major fiscal revamp. Americans waited nearly four years for this? The Dem solution: Raise a nearly trillion dollars on the usual targets — business and higher income Americans — while with a hand wave cutting nearly a trillion dollars in defense spending, payments to medical providers — along with unspecified healthcare savings. Accounting — whether realistic or not — substitutes for vision, unfortunately.
One budget argues federal spending is a serious problem; one does not.
One budget argues the US has an anti-growth and uncompetitive tax code; one does not.
One argues for getting debt back to pre-Great Recession levels; one does not.
Here’s just one reason why it is important for Washington to formulate and pass a realistic, pro-growth debt reduction plan. The St. Louis Fed just released a paper looking at why US companies are holding record amounts of cash. One possible reason is that companies want more financial flexibility due to increased global competition and technological change. But here is another possibility:
There is a structural factor, the increasing importance of multinational corporations, that seems to be important because of the current taxation of the income generated abroad that domestic corporations bring back to the U.S. Here, fiscal policy may be playing an undesirable role, and its modification in the coming years could boost domestic investment and help overcome the slow recovery from the Great Recession.
There is also another role for fiscal policymakers in the near future. Although the magnitude of the effect is not clear, it seems that designing and communicating a long-run plan to deal with the increasing fiscal deficit would reduce uncertainty about future taxes, reduce abnormal cash holdings and potentially favor private investment.
Washington is the problem. And while the House GOP budget may outclass the Senate Democratic budget, we’re grading on a curve here. Both are ultimately insufficient to the challenge.