It’s not about tax cuts, but the size of government
TEXT OF INTERVIEW
Kai Ryssdal: There’s no shortgage of ideas about what to do to fix the economy: you plow more money in. You cut taxes. You help small businesses. You create jobs. You fix the budget deficit. I could go on; you get the point.
Glenn Hubbard has more experience than most in coming up with those kinds of ideas. He ran the Council of Economic Advisors for President George W. Bush. He’s the Dean of the Columbia business school right now, and he’s also a frequent commentator on this program. And he’s written a new book about our economic distress called “Seeds of Destruction.”
Glenn, good to have you with us.
Glenn Hubbard: Pleasure.
Ryssdal: This is a policy paper as much as it is an actual book, and you’ve got recommendations for everything from trade policy to energy policy to interest rates to entitlements. But if you try to fix everything, you wind up fixing nothing, right? So pick one — is there a key that is going to get this economy going?
Hubbard: Yes. The first thing to do is to realize what the actual problem is — we’re facing long-term structural problems. So the goal is to get the U.S. pivot much more toward a saving and investment society.
Ryssdal: Pivot implies moving with speed, though, and alacrity, not something the American government or the American people do.
Hubbard: No, I think it’s just the opposite. What I argue in the book is if we make a gradual shift toward greater public and private savings, toward more investment for our future, we can pull this off.
Ryssdal: So what’s the first step then, Glenn?
Hubbard: Well I think the first step is a matter of the budget, is to say let’s look at our long-term budget problems and get something going right. What I think is important for the budget is to focus government where government is needed. Frankly I think we need a stronger social safety net. What we can’t afford as a society is a large open-ended entitlement program like we have with Social Security and Medicare. But the guts of these programs for people who need them are essential.
Ryssdal: All right, so I’m going to bait you a little on this one: what about raising taxes?
Hubbard: Well, you know frankly, that’s something we’re going to have to consider. If the American people actually want a government as big as the one we now have, we would have to raise every tax by a very large amount.
Ryssdal: O.K. but wait a minute. You are the guy who helped write the Bush-era tax cuts that Congress is going to be taking up when it gets back, in order to extend them or not. The Congressional Budget Office came out the other day and said, you know what, if we do extend these tax cuts, it will hurt the economy; it will add to the debt and do bad things. So make the case for me then that cutting taxes is O.K.
Hubbard: I don’t think that’s what the CBO says. You look at one side of it, which is the debt; there’s no doubt about it and simulations from almost all economic forecasters would have positive benefits of the tax cuts. But it’s not the right question. The real discussion is not whether to extend the tax cuts, but what’s the size of government? If we really want the government that’s in President Obama’s budget, we need to repeal all of the 2001, 2003 tax cuts and then some. We probably need a new tax system.
Ryssdal: Say that again: repeal those tax cuts? Did you really just say that?
Hubbard: If you want a government that big — I don’t. But if the American people say, we would like a government that’s running 5 — and the out years — up to 10 percentage points of GDP more than we’re raising in revenue, yes we have to raise taxes. The difference I would add from the administration is you can’t kid yourself into thinking you only have to raise high-income people’s taxes. We have to raise all taxes, everybody, to close the gap.
Ryssdal: So if smaller government, then, means doing something about Social Security, and doing something about Medicare, get specific for me. What do we do? Do we cut people’s entitlements?
Hubbard: A simple place to start would be to say, what are your principles? And if we’re going to have to make adjustments, the adjustments ought to be borne by the most well-off among us, not by the least well-off. So tangibly, what that would mean for Social Security is strong minimum benefits for Americans, but very slow growth in benefits over time for upper-income households. There are many ways to do that, but most of those ways would have actuarial balance in Social Security that is not the big unfunded deficits and liabilities that we have now.
Ryssdal: Glenn Hubbard is the dean of the business school at Columbia University. He’s also an occasional commentator for this program. His new book is called “Seeds of Destruction.” Glenn, thanks a lot.
Hubbard: My pleasure, thank you.
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