The Real Grand Bargain

Will President Obama defend Social Security from the folks who want to plunder it? That's the question Bill Grieder poses [2] in a critically important article in the The Nation magazine.

We'll get an early indication this Monday when the president convenes a "Fiscal Responsibility Summit," designed, as he put it, "to send a signal that we are serious" about America's long-term deficits." The focus will be on "entitlement programs" like Social Security and Medicare. "Everything will be on the table," the budget hawks will get a platform, and rumors [3] now suggest the president may announce a commission designed to "fix" Social Security.

The president is surely right about the need to address America's long-term finances. Doing so now is dicey, for the president has to convince Americans—and the Congress—on the need for more deficit spending: to pay for the bank bailout, finance mortgage relief and eventually a second stimulus to get the economy going. The danger—as Roosevelt discovered in the Great Depression—is to do too little and stop too soon, seeking to balance the budget before the economy regains its feet. But a long-term discussion of America's finances now could help Americans look beyond the crisis, defining where we need to go and how, in the long term, we'll pay for it.

Progressives, of course, are worried about Obama falling for a trap set by the budget hawks, conservatives in both parties, the Beltway establishment and financial elites, personified by Pete Peterson, a billionaire Wall Street baron. Peterson is spending a fortune trying to terrorize Americans about long-term deficits to justify hacking at Social Security and Medicare. Peterson, who made his fortune on Wall Street, never raised a word about the dangers of hyper-leveraged finance houses gambling other people's money. He never expressed qualms about the leveraged buyout artists who were using debt finance to rip apart companies. He didn't fund an all-out effort to stop Bush from raiding the Social Security surplus to pay for tax cuts for the rich. But now he wants folks headed into retirement who have already prepaid a surplus of $2.5 trillion to cover their Social Security retirements to take a cut or work a few years longer to cover the money squandered on bailing out banks, wars of choice abroad and tax cuts for the few.

Will Obama fall for this ploy? Not likely. In fact, his position on entitlements has been spot on. Social Security, he has argued, is basically sound, funded far into the future. If it needs more funds decades from now, lifting the cap that now cuts off payroll taxes at $102,000 would take care of the problem.

The real deficit problem, as Obama has argued, is caused by soaring medical costs. This isn't a problem of "entitlements" like Medicare and Medicaid alone. It's the result of our broken health care system that wastes over a third of its costs on administration, puts no limits on the costs of drugs, and does a terrible job limiting costs. Other advanced industrial countries spend far less of the GDP on health care while insuring all their people and producing better health results. Solve the problem of soaring health care costs and you solve America's long-term federal budget deficits. Fail to solve it and you bankrupt everything—families, companies that provide health care, state and national governments.

Obama gets this. That's why he's insisted on universal health care reform, and why he demanded a downpayment be made in the stimulus on accelerating the transition to computerized medical records and comparative treatment research.

So if the president sticks to his campaign pledges, the summit may provide a platform for the distortions of the budget hawks, but it won't do much damage.

What we really need, however, is a true fiscal summit: a long-term assessment of our needs and our finances to begin framing a real "Grand Bargain" to pay for the investments we need.

That would start with what we consider to be the basics. I'd take the measure of a government that works that Obama defined in his inaugural address: a government that "helps families find jobs at a decent wage, care they can afford, a retirement that is dignified."

Meeting those basic goals will require developing an expanded public social compact to replace the promises that the corporations have shredded—particularly affordable health care and a secure pension above Social Security. It requires expanded public investment in areas vital to a vibrant economy and democracy: notably world-class education, 21st-century infrastructure, and investments to fuel the transition to new energy.

Despite our current travails, this is still a rich country. We can afford to pay for this. Indeed, successful health care reform would save money. The gold-standard Lewin Group estimates [9] that Obama's plan would save some $1.04 trillion over ten years.

New priorities could provide hundreds of billions more. For example, what if we decided to sustain the world's strongest military by only spending as much on our military as the next 10 biggest militaries combined? As Bill Greider reports in his forthcoming book, "Come Home America," that would save an estimated $180 billion a year to invest in areas vital to our future.

Given America's gilded age inequality, which has been worsened because of wholesale tax cuts and loopholes for the wealthy, progressive tax reform is a moral imperative. Reform of the estate tax - with a complete exemption for fortunes up to $2 million per person ($4 million for a couple) would provide $60 billion a year. Repealing the Bush top-end tax cuts for households earning over $250,000, as Obama promised in the campaign, provides another $43 billion a year. A small financial transaction tax on the buying and selling of stocks and other financial products—a vital reform to reduce excessive short term speculation—could generate $100 billion a year. Ending overseas tax havens could generate $100 billion a year from the unpatriotic corporations and wealthy (all figures from Chuck Collins of Responsible Wealth and the Institute for Policy Studies).

This doesn't claim to be the last word. We can and should argue about the elements of any grand bargain. But everything should be on the table, not just "entitlements." What are the promises we will make to one another to create a decent society? What are the investments we need coming out of this crisis to sustain the American dream in a global economy? And then, how do we pay for them in the most equitable and efficient way? Now that would be the Fiscal Responsibility Summit we need.