Commission Would 'Railroad' Cuts To Deficit

While the idea of a special commission to address the federal deficit is gaining traction in Washington, it also has its critics. One of them is Dean Baker, co-director of the Center for Economic and Policy Research in Washington, DC. He tells Deborah Amos that he's concerned the commission would 'railroad cuts' in Social Security and Medicare — cuts that are extremely unpopular and would probably be never passed by Congress.

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DEBORAH AMOS, Host:

As the federal deficit grows, so does the talk about creating a Congressional commission to deal with it. We heard yesterday from Senators Kent Conrad and Judd Gregg, the top Democrat and Republican on the Senate Budget Committee. They're proposing this commission to make the hard decisions necessary to slash the national debt. But the idea isn't popular with everyone. Dean Baker is an economist and co-director of the Center for Economic and Policy Research in Washington, D.C., and he joins us in our studios. Good morning.

DEAN BAKER: Thanks for having me on.

AMOS: What are your concerns about the creation of a Congressional commission?

BAKER: Well, this seems to be an effort to railroad cuts in social security and Medicare, cuts that would - are extremely unpopular, would never be passed by Congress in ordinary circumstances. It creates this unusual procedure without really any precedent when there's really no call for it.

The fact of the matter is we do have serious budget issues, but they're not caused by a reckless Congress. What they're caused by, on the one hand, was a war that, for whatever reason we've opted not to pay for - I should say wars - and more importantly, an economic collapse caused by a housing bubble. And it wasn't reckless spending by Congress.

AMOS: In your opinion, do you think the deficit is bad and must be addressed?

BAKER: Well, the deficit in 2010 is actually good. We would have higher unemployment rates. So if I could snap my finger and get rid of the deficit tomorrow without raising anyone's taxes, I wouldn't do it, 'cause we would have a more serious downturn than we currently have. In fact, I would actually say, at the moment, we would like to see a larger deficit. That would help get the unemployment rate down, and that's really a scandal, in my view.

Now over the longer term, we absolutely do have a deficit problem, but that comes from exploding health care costs. Our health care system is way more expensive than anyone else's in the world, and that translates into a deficit problem because we pay for roughly half of our health care through the public sector.

AMOS: We heard from members of the Senate Budget Committee yesterday and the chairman of that committee, Senator Conrad. This is what he had to say about cutting entitlements.

KENT CONRAD: Some have been criticizing us, saying, well, we just want to go out and cut Social Security and Medicare. I would say if they're saying the answer is do nothing, they're the ones that threaten Social Security and Medicare.

AMOS: And are you suggesting to do nothing or to do some of the trends, but not just as much?

BAKER: Well, I'd say we have a normal Congressional process, and there's really no evidence here that it's failed. We could say that we've had failed regulation in allowing the housing bubble to grow and create this collapse, but there really is no evidence that the normal Congressional process has failed.

Now, should we raise more revenue? I'd like to see us raise more revenue. One of the things I've done some work on is a financial transactions tax, taxing speculation on Wall Street. I think that would be a really good idea. There are places we can look to cut spending. It's not urgent. I wouldn't really recommend it for 2010, 2011 when the economy is very weak, but further out, absolutely.

And again, I would highlight military spending. And then again, over the longer term, as I said, we have to fix health care. Hopefully, President Obama's plan will be a first step in that direction, but there's clearly a lot more that we have to do.

AMOS: Let me ask you about entitlements, because this seems to be one place where you do get some agreement. One of them raised the retirement age. Another is a means test for benefits that, you know, someone who retires on $100,000, as opposed to someone who retires on $25,000, actually should pay a little bit for Medicare. Those ideas actually seem to have some majority behind them.

BAKER: Actually, I'd be very surprised of that. Certainly among economists, I really doubt you'd find that agreement. When you talk about raising the retirement age, certainly when you talk about Social Security, we're looking at a cohort of baby boomers who've just seen most of their wealth destroyed with the collapse of the housing bubble. They have very little to depend on other than their Social Security.

And I should point out, most people start collecting benefits at age 62. So raising the retirement age is simply a way of cutting benefits. And since most people have little other than their Social Security to get by on, that would make things even worse for them. When you talk about Medicare, health care expenses, of course, are very high for people age 66, 67. If we were to raise the Medicare eligibility age, that would be a very big difficulty for people in those years.

And when you raise the issue of means testing, when you start talking about a realistic means test, you have to start hitting very middle-income people. And, again, I don't think that's the sort of thing most people want to do. It's certainly not the sort of thing I've heard many economists advocate.

AMOS: Most people do want to address the debt. So how would you do it?

BAKER: As I keep saying, fix health care, fix health care, fix health care. The other part of the story, if we need more revenue, which I think we do, the best place to start is taxing the people that gave us this downturn. The financial transactions tax could raise well over $100 billion a year. I think that's a really good place to start. We may need more, but that's a really good place to start.

AMOS: Thank you very much.

BAKER: Thanks for having me on.

AMOS: Dean Baker is the co-director of the Center for Economic and Policy Research in Washington, D.C.

(SOUNDBITE OF MUSIC)

AMOS: This is NPR News.

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