Listen to Your Former CEA Chair, Mr. President

Some reporters have already started to ask me what I hope to hear in the State of the Union address President Obama will deliver next week.  I can’t really express my wishes any better than Christina Romer, the President’s former Council of Economic Advisers Chair, did in her New York Times column last weekend.  In particular (emphasis added):

Instead of knowing what is coming, I can write about what I hope the president will say. My hope is that the centerpiece of the speech will be a comprehensive plan for dealing with the long-run budget deficit.

I am not talking about two paragraphs lamenting the problem and vowing to fix it. I am looking for pages and pages of concrete proposals that the administration is ready to fight for. The recommendations of the bipartisan National Commission on Fiscal Responsibility and Reform that the president created are a very good place to start.

The need for such a bold plan is urgent — both politically and economically…

So what should the president say and do? First, he should make clear that the issue is spending and taxes over the coming decades, not spending in 2011. Republicans in Congress have pledged to cut nonmilitary, non-entitlement spending in 2011 by $100 billion (less if recent reports are correct). Such a step would do nothing to address the fundamental drivers of the budget problem, and would weaken the economy when we are only beginning to recover.

Instead, the president should outline major cuts in spending that would go into effect over the next few decades, and that he wants to sign into law in 2011.

Respected analysts across the ideological spectrum agree that rising health care spending is the biggest source of the frightening long-run deficit projections. That is why the president made cost control central to health reform legislation. He should vow not just to veto a repeal of the legislation, but to fight to strengthen its cost-containment mechanisms…

The fiscal commission recommended that military spending — which has risen by more than 50 percent in real terms since 2001 — grow much more slowly in the future. It also proposed thoughtful ways to slow the growth of Social Security spending while protecting the disabled and the poor. And it recommended caps on nonmilitary, non-entitlement spending.

President Obama needs to explain that while these cuts will be painful, there is no way to solve our budget problem without shared sacrifice. At the same time, he should give a ringing endorsement of government investment in infrastructure, research and education, which increases productivity and thus improves both our standard of living and the budget situation over time. And, following the fiscal commission, he should ensure that spending cuts not fall on the disadvantaged.

Finally, the president has to be frank about the need for more tax revenue. Even with bold spending cuts, there will still be a large deficit. The only realistic way to close the gap is by raising revenue. Some of it can and should come from higher taxes on the rich. But because there are far more middle-class families than wealthy ones, much of the additional money will have to come from ordinary people. Since any agreement will have to be bipartisan, Congressional Republicans will have to come to terms with this fact as well.

AGAIN, the fiscal commission has made sensible proposals. It recommended broad tax reform that lowers marginal tax rates and cuts tax expenditures — deductions and exemptions for mortgage interest, employer-provided benefits, charitable giving, and so on. Such tax reform cannot be revenue-neutral — it needs to increase tax receipts. But it can make the system simpler, fairer and more efficient while doing so…

I’m hoping Christina Romer has some inside information on this and not just wishful thinking.  We’ll soon find out!

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