issue: Fiscal Policies

A First Glance at the Quadrennial Defense Review

Posted on by The Progressive Policy Institute

Flipping through the 2010 Quadrennial Defense Review, a report prepared by the Defense Department every four years for Congress, an image of Ricky Ricardo telling Lucy that she has a lot of ‘splainin’ to do comes to mind.

It’s not that the Quadrennial Defense Review (or more precisely, its executive summary that I’ve just torn through) is “bad” per se. But it certainly requires a bit of context to understand the coded defense-ese. In its purest form, the QDR is supposed to be a review of the Pentagon’s strategy and priorities. In short order, strategic priorities are turned into budgetary ones, as billions of dollars pour into programs that execute the top-tier missions.

The good news is that in this year’s version, certain strategic priorities are credibly enshrined. The Pentagon articulates Secretary Gates’ highly sensible focus on the wars we’re in. (That might seem like a no-brainer, but read the 2006 QDR, where Rummy essentially ignored Iraq and Afghanistan, choosing to focus on pie-in-the-sky “transformation” issues instead.) Other “new” priorities like counter-insurgency, climate/energy, and caring for America’s service members also get deserved top-billing and, eventually, new defense dollars. Reforming the acquisition process also gets a significant nod – but more on that in a second.

As for broad strategies, umbrella priorities like “Prevent and deter conflict” and “Prepare to defeat adversaries on a wide range of contingencies” are necessary missions that the Pentagon has to undertake. I mean, who’s going to do it? You, Lieutenant Weinberg? And certainly, because future conflict and contingency operations will take on unknown forms, their presentation in the QDR has to permit for both continued dollar flow to needed weapons programs while allowing room for unanticipated spending to mitigate new and emerging threats.

The I Love Lucy parallel was triggered only when I dug down within those blanket priorities. Lurking in the fine text is language that suggests the Pentagon continues to evade hard choices. Most glaringly, the QDR continues to include one little phrase with huge implications: U.S. military forces must maintain “the ability to prevail against two capable nation-state aggressors.” Many experts expected this long-held doctrine to be cut from the 2010 QDR because the “two theater” approach — considered almost a placeholder in the strategic void post-USSR, pre-9/11 — was essentially out-of-date in the 21st century. With America preoccupied with a new range of threats arising from rogue and failed states, maintaining this nebulous mission was of dubious importance.

This language distorts priorities. On the one hand, continuing the “two theater” approach is an invitation to defense contractors to pitch too many potentially unnecessary weapons systems, at the expense of new ones better suited to the conflicts we’re actually embroiled in now.  And because this is how the Pentagon has always done business, we’ll probably buy more than we really need. On the other hand, this QDR is clear about the need to reform defense acquisition — and has highlighted cuts in the F-22, Future Combat Systems, and the DDG-1000 — even though it doesn’t state how to institutionalize the reform. (If you’re looking for a place to start, Jordan Tama’s memo to the president is a good one.)

And that’s a central tension in the QDR — can the Pentagon continue to add missions without scaling back others? There is no question that the Defense Department needs to maintain a healthy defense industrial base to do what we need to defend America’s interests. But Pentagon officials need to think harder about how to align that vital goal with the new threats of unconventional warfare. In short, the QDR has to make a clean break with outdated strategic assumptions so that our finite military resources can go where they’re needed most.

On Budget, Obama Must Walk a Fine Line

Posted on by The Progressive Policy Institute

As President Obama prepares to deliver his first State of the Union Address tonight, he is being tugged in conflicting directions. His dilemma is simple, and familiar: independent voters want different things than liberals.

Independents and moderate Democrats worry about big government and deficits. Liberals want more government spending and regulation, and they think fiscal discipline is the death of progressive reform.

These tensions were on display yesterday as the Senate squelched a bipartisan proposal, endorsed by President Obama, to set up a special commission to tackle the nation’s growing fiscal crisis. Offered as an amendment to legislation increasing the debt ceiling, the proposal by Senate Budget Committee Chairman Kent Conrad (D-ND) and Ranking Member Judd Gregg (R-NH) attracted a bipartisan majority of 53 votes. But under the Senate’s tyranny of the supermajority, it needed 60 to pass.

To the independents who have been defecting from Obama’s winning 2008 coalition, it looked like yet another victory for the status quo in Washington. The defeat sets up a confrontation with Senate moderates, who have threatened to vote against raising the debt ceiling unless Congress empowers a commission to rein in the nation’s runaway deficits and debt. It may also prompt President Obama to revive his idea for setting up the commission under executive order. House Blue Dogs yesterday endorsed a commission as part of their plan for fiscal reform.

On the other side of the fiscal divide, many liberals have recoiled from Obama’s call for a three-year “freeze” on non-security discretionary spending, seeing it as a cave-in to budget hawks that will crimp progressive ambitions and possibly forestall economic recovery. Since the bill envisions only modest cuts in spending ($250 billion over the next decade) — none of which go into effect until 2011 when it won’t hinder the recovery — such fears seem overwrought. And Obama cushioned the blow by unveiling a new package of middle-class tax cuts.

Nonetheless, the president has a fine line to walk tonight. He must convince the country that he is taking decisive action to control government spending and deficits. And he must convince his party that big progressive reforms can advance within a framework that restores long-term fiscal stability.

Even as the commission went down, the Congressional Budget Office yesterday released new budget forecasts that underscore why Congress must begin laying the groundwork for a return to fiscal discipline in Washington. CBO projects this year’s deficit at $1.3 trillion. At 9.2 percent of GDP, that is slightly less than last year’s whopping 9.9 percent shortfall, which was the biggest in U.S. peacetime history. But while these short-term deficits are enormous, the more fundamental problem is the nation’s cascading national debt. CBO sees the debt nearly tripling from $5.9 trillion to $15 billion by the end of the decade, or from 53 to 67 percent of GDP, and that estimate is based on very conservative assumptions.

America piled up a similar load of debt after World War II, but at least we owed the money to ourselves. Unchecked, today’s borrowing binge means more dependence on Chinese and other foreign lenders to keep our economy afloat, more tax dollars siphoned off to service our debts, and a growing squeeze on public investment as automatic spending on the elderly crowds out everything else.

Given the magnitude of the problem, Obama’s proposed freeze is exceedingly modest. What’s more, it’s a flexible freeze, not an indiscriminate swipe of the budgetary ax. Congress can boost vital public investments – say in technological innovation and clean energy, as long as it is willing to pass offsetting program cuts. As Ed Kilgore has pointed out, the proposal would basically restore the budget “caps” that effectively restrained spending during the Clinton years.

The deficit commission is a bigger deal because it aims at the core of America’s long-term fiscal challenge: the automatic and unsustainable growth of spending on Medicare, Medicaid and Society Security. Congress, polarized along lines of party and ideology, and intimidated by pressure groups, has repeatedly shown itself incapable of slowing entitlement cost growth. Hence the Conrad-Gregg proposal for a bipartisan commission to develop a package of tax and spending changes, and present them to Congress for an up or down vote.

The president tonight should challenge both anti-tax conservatives and pro-spending liberals to get serious about entitlement reform. And he should use the occasion to spell out for skeptical independents why health care reform is indispensible to controlling public spending. Coupled with a strong message on jobs, a forceful presidential commitment to restoring fiscal discipline in Washington will boost economic confidence and help to bring independents back into the progressive fold.

Cold Confusion

Posted on by The Progressive Policy Institute

The news that the president is going to propose a three-year “freeze” on appropriations for non-defense discretionary programs (with veterans and homeland security programs exempted) is creating a lot of consternation among progressives today.

But folded into this consternation is a significant amount of confusion. The term “budget freeze,” long the default-drive Republican fiscal austerity “idea,” usually connotes an across-the-board flatlining of spending in non-exempt accounts, a total commitment to the budgetary status quo that neatly allows its proponents to avoid separating sheep from goats and offending any constituency for any particular program. If that’s what Obama was proposing, it would indeed be inconsistent with any new jobs initiative, or indeed, with key elements of the “middle-class relief” agenda the administration just announced. But that’s not what he is proposing; it is instead really an overall spending “cap” under which specific programs could be increased or decreased, presumably depdending on their usefullness in creating jobs or other worthy social goods. It’s an approach that Bill Clinton, back in 1992, called “cut and invest.”

Since it’s Congress, not the administration, that will actually make appropriations decisions, and since members of Congress and the committees they chair which often serve as the most powerful constituencies for programs with little real justification, it can definitely be argued that any real “freeze” would look more like the across-the-board variety (indeed, that’s what happened to Clinton’s “cut and invest” budget when Congress got its hands on it in 1993). Alternatively, it can be argued that the whole thing is mainly rhetorical, given public concerns about government spending.

But in conjunction with the president’s push for a bipartisan “deficit commission” that would be empowered to make recommendations on long-term budget savings that would be submitted to Congress for an up-or-down vote, the “freeze” proposal, whatever it actually means, will definitely upset progressives fearing that Obama is “going Hoover” in economic policy. And make no mistake, there’s one objection to the “freeze” idea that’s not based on confusion: if you really do believe that the federal government needs to be running larger short-term deficits in order to provide Keynesian stimulus to consumer demand, then any domestic spending limits, however selective in application, will strike you as a very bad approach.

This item is cross-posted at The Democratic Strategist.

A Game Plan for Infrastructure

Posted on by The Progressive Policy Institute

A Game Plan for InfrastructureIt’s a sign of the times when “our bridges and roads are falling apart” gets cited as an issue more pressing than college football’s annoying Bowl Championship Series (BCS) on ESPN.

And, while the president hasn’t fulfilled his promise to set up an eight-team playoff yet, he’s taken the issue of infrastructure head-on. The administration’s focus on infrastructure investment is good for both long-term growth and generating jobs through the quick start-up of “shovel ready” projects.

However, one-time disbursements like those outlined in the Recovery Act or the president’s announcement earlier this week fall short of fixing more fundamental issues.

On the heels of Obama’s speech at Brookings on Tuesday, Rep. Keith Ellison (D-MN) is at the same venue today pushing a much more sustainable approach.

Ellison is a co-sponsor on Rep. Rosa DeLauro’s (D-CT) National Infrastructure Development Bank Act, a good start on developing sustainable infrastructure funding the country so desperately needs.

DeLauro and and Ellison’s bill builds on the work of a bipartisan commission chaired by former Sen. Warren Rudman (R-NH) and titan of finance Felix Rohatyn. The bill envisions $5 billion a year from the federal government to capitalize the bank and a government debt guarantee of up to $50 billion.

But even Ellison and DeLauro’s idea can be improved upon. As outlined in Jessica Milano’s PPI policy memo, “Building our 21st Century Infrastructure,” an American Infrastructure Bank (AIB) seeded with a one-time investment at the federal level — a potential use for the TARP funds the president announced this week — and stakeholder buy-ins from the states would be a more effective way to fund a bank dedicated to financing infrastructure programs.

An infrastructure bank would offer a way to leverage much larger private sector investments from a strapped public budget. The bank would raise inexpensive funding for infrastructure projects by issuing debt on the capital markets backed by the U.S. government’s credit rating. By backing these bonds with the revenue or assets of the projects they are financing, taxpayers would not be left to pick up the bill. These projects would be determined according to strict criteria that promote economic development while being fiscally and environmentally sound.

After the President’s remarks on Tuesday, Gov. Ed Rendell of Pennsylvania — an infrastructure bank supporter — said the president had “essentially” endorsed the idea of an AIB. But while the president sounded open to the idea this week, he hasn’t gotten behind the legislation needed to get it done. President Obama endorsed an infrastructure bank back when he was candidate Obama. But, much like his promise of reforming the BCS, this threatens to become another campaign promise that falls by the wayside. Now’s the moment for the president to come off the sidelines and lead a sustained drive down the field.

States Undermining Stimulus

Posted on by The Progressive Policy Institute

It’s reasonably well understood that this year’s federal economic stimulus legislation helped (though not as much as it might have) cushion state and local governments from a fiscal disaster attributable to falling revenues, automatically increasing entitlement expenditures, and balanced budget requirements. The rationale for this federal aid — to keep states and localities from counteracting the stimulative effect of federal spending via tax increases and spending cuts — is less well understood. So, too, is the fact that the continuing fiscal crisis around the country continues to undermine the impact of federal stimulus.

That’s the departure point for an important new article by Harold Meyerson in The American Prospect. Aggregating the numbers, Meyerson reaches a startling but entirely justified conclusion:

[H]ow much does the government’s stimulus come to when we subtract the amount the states and localities are taking out of the economy from the amount the feds are putting in? The two-year Obama stimulus amounted to $787 billion, of which $70 billion was really just the usual taxpayers’ annual exemption from the alternative minimum tax, and $146 billion was actually appropriated for the years 2011 to 2019. That leaves $571 billion that the federal government is pumping into the economy during 2009 and 2010. Subtract the amount that state and local governments are withdrawing from the economy (they have a combined shortfall of around $365 billion, but let’s say they do enough fiscal finagling so that the total of their cutbacks and tax hikes is just $325 billion), and we’re left with $246 billion.

At $787 billion, the stimulus came to 2.6 percent of the nation’s gross domestic product for 2009 and 2010 — not big enough, but a respectable figure. At $246 billion — the net of the federal stimulus minus the state and local anti-stimulus — it comes to just 0.8 percent of GDP, a level lower than those of many of the nations that the U.S. chastised for failing to stimulate their economies sufficiently.

In other words, most of the debates we’ve heard about the size and impact of the federal stimulus effort have ignored the actual net spending once you aggregate federal, state and local government actions. That’s a pretty big omission, and that’s why the University of Chicago’s Harold Pollack and I argued earlier this year that we need to start thinking comprehensively about intergovernmental coordination:

[F]ederal budget debates should expand to include the national budget, the sum total of spending, taxes and policies that implement and finance national governance. At a minimum, the Office of Management and Budget and the Congressional Budget Office should routinely scrutinize the financial impact of proposed federal policies on every level of government.

Meyerson goes on to examine other damaging aspects of our federal system with respect to economic policy that are well worth reading. But what’s most interesting and alarming about his analysis is that it’s so unusual. Most policy discussions in Washington either ignore state and local governments, treat them as an unimportant sideshow, or assume that the many parts of the intergovernmental system move roughly in coordination, and in the same direction. Now more than ever, it’s time to understand that the left hand of our system may be working at active cross-purposes with the right.

RIP Compassionate Conservatism

Posted on by The Progressive Policy Institute

The Republican message on extending health care coverage can be summed up in two words: “Bah, humbug.”

In taking a purely obstructionist stance, the GOP has evinced scant empathy for tens of millions of fellow Americans who lack basic protection against illness or injury. So much for compassionate conservatism.

On Saturday, not a single Republican voted to allow the Senate to even consider a bill to expand coverage and reform health insurance markets. When the House passed its version of health reform, just one Republican voted aye. He is Rep. Joseph Cao, a freshman from normally Democratic New Orleans.

Republicans, of course, are under no moral or political compunction to support Democratic proposals for health reform. But since they haven’t offered any credible alternatives of their own, it’s reasonable to conclude that they don’t care all that much about fixing America’s broken health care system.

Sure, House Republicans proffered their version of “reform” earlier this month. It would spend just $61 billion over 10 years and leave the percentage of uninsured Americans in 10 years exactly where it is today – at 83 percent. Thanks to population growth, there would actually be more uninsured people than today.

In opposing serious efforts to expand coverage, Republicans say they are trying to protect Americans against runaway deficits, not to mention death panels, publicly financed abortions and other confected horrors. They rail against President Obama and the Democrats for proposing to pile a costly new health care entitlement atop others we don’t know how we’ll pay for.

That’s actually a valid concern, one that progressives should take more seriously. But the GOP’s newfound fiscal piety would be more convincing if President Bush and party leaders had not muscled through Congress a massive new Medicare drug entitlement just six years ago.

Showing their customary solicitude for America’s haves – Medicare offers all seniors the basic health coverage the uninsured lack – Republicans insisted on creating a universal entitlement, rather than targeting help for truly needy seniors. At first projected to cost $534 billion over 10 years, revised estimates in 2005 put the bill’s price tag at $1.2 trillion. That’s several hundred billion dollars more than the bill passed this weekend by Senate Democrats. David Walker, former U.S. comptroller general, called the 2003 prescription drug bill “probably the most fiscally irresponsible piece of legislation since the 1960s.”

In contrast, the Senate Democrats’ bill is paid for. In fact, the Congressional Budget Office estimates that it would cut the federal deficit by $130 billion in the first decade and by more than $500 billion in the second decade.

But there’s a hitch, and it’s a big one. Cutting future deficits refers only to the public costs of expanding medical coverage and reforming U.S. health care markets. That’s not at all the same thing as “bending the curve” of health care cost growth. Slowing the unsustainable pace at which medical costs in America are growing requires confronting the perverse incentives and inefficiencies that plague health care delivery. It also means rebalancing the big entitlement programs, as retiring baby boomers swell the number of people receiving Medicare benefits.

This is the big piece of unfinished business facing both health care reformers and President Obama. The Senate bill expands coverage and cuts the federal deficit. According to some leading budget analysts, however, it doesn’t do enough to slow down the rising health costs that plague the vast majority of U.S. workers and that handicap many U.S. firms in global competition.

They deserve some compassion, too.

A Chart That Should Keep Progressives Up at Night

Posted on by The Progressive Policy Institute

In my last post, I noted that progressives need to turn their attention toward the medium- and long-term fiscal crisis the country faces. How massive is the challenge we face? The following chart, from Keith Hennessey, an ex-Bush policy advisor, says it all:

taxes-and-spending-long-term-trends 2

Obviously the first thing to jump out is the escalating divergence between federal spending and revenues in the decades ahead. And the spending projection in the chart is from 2007, so it doesn’t include the stimulus or spending on the financial crisis (or the projected cost of health care reform). That’s scary enough. But the scariest part may not be evident at first glance.

The red line shows federal taxes as a percent of GDP going back to 1945 and projected outward to 2080 by Hennessey based on its historic growth. The yellow line shows federal spending as a percent of GDP. The chart makes clear that the level of federal taxation has actually varied little since World War II (which says nothing about how marginal tax rates faced by different groups have changed). You can see the last build-up of deficits that occurred from the 1970s through the mid-1990s. You can also see the build-up of the Bush years.

Historic Shortfalls

The kind of budget shortfalls we are looking at in the future dwarfs anything we’ve ever seen. There are two ways to close the fiscal gap – cut spending or increase revenues. What Hennessey’s chart makes clear is that the level of taxation it would require to meet projected spending needs is far higher than anything the country has ever seen-slash-tolerated. Indeed, even closing half the gap through higher taxes would necessitate historically unprecedented taxation levels.

Progressives, in short, are going to be caught between a rock and a hard place: we will either have to find a way to convince the electorate to go along with massive tax hikes, with all of the electoral risk that entails, or we will have to come up with a plan to make equally massive cuts to entitlements that are likely to also be unpopular and that may do significant harm if not thought through carefully.

It’s true that the right will also be caught in this dilemma, but its situation is not quite as severe for two reasons. First, as the chart implies, their preferred path to fiscal sanity (spending cuts) starts off a much easier sell than tax hikes, given historical patterns. And second, the right has little programmatic interest in permanent spending hikes. The Reagan and Bush years showed that there is a constituency on the right for greater defense spending, but unless we really end up permanently at war with radical Islam, it can be expected that the Pentagon’s budget will rise and fall as global circumstances dictate. Progressive goals, on the other hand, such as greater federal education spending, expansion of child care assistance, more generous safety nets, and broader social insurance constitute costly and (ideally) permanent spending increases that will exacerbate the fiscal gap in the above chart.

The Upshot for Progressives

What does this mean for the progressive agenda? First, it is vital that we prioritize our goals, a process that is going to require us to drop many of them, as difficult as that may be. Second, we need to come to terms with what “higher taxes” is going to mean in practice. U.S. taxation is actually as progressive as in Europe because we have taken so many families off of the income tax rolls. The added boost to raising taxes on “the rich” is much smaller than the revenue that could be raised by broadening the tax base so that we were not so reliant on upper-income families to pay for the benefits of government that everyone enjoys.

Third, we need to look for ways to achieve progressive aims that do not cost the federal government so much. That could include certain types of regulation, but it could also include a shift toward progressive cost-sharing in social insurance programs. Rather than trying to raise taxes to give people the benefits they say they want, we could move toward a paradigm where people gradually incur increasing costs of these benefits privately, forcing them to directly confront the trade-offs and efficiency concerns that social insurance tends to hide. Those with limited incomes could receive federal assistance but would still be incentivized to use benefits efficiently. (I will suggest what such programs might look like in future pieces here.)

Some progressives may object to the idea of progressive cost-sharing because it shifts costs and risk onto individuals. But they are going to incur the costs one way or another, whether through higher taxes or greater out-of-pocket spending. And given the impracticality of paying for future benefits solely out of taxes, risk is also likely to be privatized either way — whether by a thoughtful policy framework or through massive cuts in existing programs.

But let there be no doubt — the long-term prospects for significantly expanded progressive government are dim, and in fact, a retrenchment in coming decades is inevitable. President Clinton was wrong — the Era of Big Government is not over. But it will be soon. As progressives we must lead the process of winding it down in a responsible and fair way.

On Health Reform, Cost Containment Remains the Missing Piece

Posted on by The Progressive Policy Institute

President Obama’s push for health care reform has provoked so many political sideshows that it’s easy to lose track of the main plot. The most important debate – how to slow the inexorable growth of health care costs – has scarcely begun.

Instead, Democrats spent months wrangling over the public option, which is basically a proxy for the endless debate over the proper size and role of government. Now they are tussling over abortion, that hardy perennial of the culture wars. And the Senate may add immigration to the already combustible mix.

These are, of course, large and important issues in their own right. But they distract progressives from what health reform is really supposed to accomplish. What most Americans want is relief from constantly rising health care costs and the nagging fear that they could lose coverage altogether if they get sick or lose their job. The public also wants a system that leaves no one out, though polls show mounting worry about the cost of guaranteeing universal coverage.

The House bill passed last weekend passes the coverage test. Through a mix of insurance market reforms, public subsidies and a mandate on individuals to buy insurance, it extends coverage to 39 million Americans. That’s as close to universal coverage as we are likely to get, and by itself a major progressive achievement.

But it comes at a stiff price: $1.2 trillion over the next decade. At a time when the federal deficit has tripled in just a year, many Americans think that’s a lot of money to spend. According to the Congressional Budget Office, the House bill includes enough offsetting savings to pay for health reform without adding to deficits. To his credit, President Obama has vowed to veto a bill that isn’t deficit-neutral.

But if it doesn’t aggravate America’s short-term fiscal woes, the House bill fails to deal seriously with the long-term challenge of reducing the unsustainable pace at which health care costs grow each year. That is what drives premiums up for working Americans, helps to price U.S. businesses out of global competition, and escalates spending on Medicare and Medicaid.

Today’s New York Times reports on a “growing revolt” among some Democrats and prominent health care experts over the lack of strong cost controls in the House bill or others under consideration. “My assessment at this point is that the legislation is heavy on health and light on reform,” the Times quotes Sen. Ron Wyden (D-Ore) as saying. He’s exactly right.

As the action now shifts to the Senate, Wyden and pragmatic progressives need to insist on adding credible measures for “bending down” the health cost curve. The menu of plausible options includes a Medicare Commission with real powers to reduce payments for low-quality or ineffective health care, and strict limits on the federal government’s open-ended tax subsidy for employer paid health plans.

It goes without saying that real cost containment will meet resistance from powerful interests, from doctors to organized labor. Against that, Democrats must weigh the dismal prospect of a health care “reform” that merely makes a deeply flawed system bigger and more expensive, without changing the incentives and behaviors that lead to runaway medical inflation.

Defense Authorization Bill a Good First Step

Posted on by The Progressive Policy Institute

In a February address to a joint session of Congress, President Obama promised to “cut Cold War weapons systems we don’t use.” By signing today’s $680 billion defense authorization bill, it’s remarkable at how well he succeeded.

Trimmed from the budget are more F-22 fighter jets, VH-71 presidential helicopters, and Air Force search-and-rescue helicopters. In short, we own an acceptable quantity and/or quality of these systems to achieve their stated missions, freeing money that could more efficiently be spent elsewhere. The simple message comes down to this: In the middle of two major military deployments, spending on weapons we don’t need makes America weaker because we’re short-changing those involved in our current fights.

The president has made a solid first step in breaking the iron triangle of defense contractors, Congress, and the Pentagon. However, the war is hardly over. If you want to dunk your head in a bucket of cold water, read Winslow Wheeler’s reality check:

In 30 years on Capitol Hill, I never saw Congress mangle the defense budget as badly as this year. Despite that, I see signs that we might be on the cusp of a change for the better.

This past week, as the Senate debated the Department of Defense (DOD) appropriations bill, a tiny bipartisan group of senators stood up to fix an important part of the gigantic mess in our defenses. This minuscule bunch lost at every turn when the votes were counted, but for the first time I can remember, senators revealed previously unrecognized aspects of their colleagues’ appalling pork-mongering — and took action against it. In the process, a few supremely powerful senators who have been corrupting the process were exposed as contemptible frauds. Now, if only the press would notice.

Wheeler is referring to a new budgetary trick used by a group of senators — led Sens. Inouye (D-HI) and Cochran (R-MS) — to raid the “Operations and Maintenance” account, a little-noticed fund that pays for things like pilot training and basic equipment upkeep, to finance home-state weapons projects that even the military says it doesn’t want.

Reforming the weapons acquisition culture is like turning an aircraft carrier 180 degrees. The White House and Secretary Gates have started, but the next several Pentagon budgets will show us where we really are.

Build This: A Real Infrastructure Policy for America

Posted on by The Progressive Policy Institute

Imagine boarding a sleek new bullet train and rocketing from Washington, D.C. to Richmond, VA in under an hour. Imagine creating thousands of durable new blue-collar jobs to build and maintain railways, construct and fine-tune railcars, and help design the electrical grid that would support high-speed rail. Imagine a new architecture for concentrating development around sophisticated new urban centers — and a hungry new customer for clean energy.

Imagining high-speed rail in the U.S. has often just been the province of dreams. The idea has been bedeviled by various lobbying groups hostile to sustainable transportation, beset by internecine warfare between different states and federal agencies, and bereft of a long-term infrastructure policy. As one grizzled and skeptical railway executive told me at a conference held last week by the new U.S. High Speed Rail Association at the H.W. Marriott Hotel in Washington, D.C., “I attended my first high-speed rail conference thirty years ago.”

But these dreams are about to leave the ether and descend to earth, in the form of concrete, steel, and electrical lines, as the U.S., thanks to the Obama administration, prepares to invest $8 billion in actually building high-speed rail. On the heels of the administration’s announcement of $3.4 billion in grants to drive the creation of a “smart grid” in the country, the time is right to think about an infrastructure policy not just for next year but the next generation.

The U.S. High Speed Rail Association is a broad coalition of domestic and international partners working to drive American investment in high-speed rail. There’s good reason to think it’s an idea whose time has finally come, after eight years of the George W. Bush administration, during which federal funding for rail was essentially scaled to zero. The challenge will be to ensure that the initial $8 billion is not frittered away in a series of pork-barrel pilot projects, but instead becomes the first investment in the long-term infrastructure strategy the U.S. has been sorely lacking.

The organization estimates that a fully functioning, 17,000-mile, national high-speed rail system would cost at least $600 billion over 30 years. In his panel presentation, Gov. Ed Rendell (D) of Pennsylvania, a long-time advocate of high-speed rail, urged participants to take the long view on such an infrastructure investment. “We need a capital budget run through an infrastructure bank,” Rendell urged. “It’s the only way to do this.” Rendell emphasized that thousands of “tough, blue-collar work” would be created by high-speed rail, citing an estimate by a Pennsylvania steel plant that makes rail ties that its work force would triple if high-speed rail were to become reality.

John Krueger, a staff attorney with the U.S. Public Interest Group who advocates for new federal budget priorities on transportation, argued that grassroots public opinion will ultimately change our infrastructure policies. “Why high-speed rail?” he asked the conference. “It’s what the people want….The opposite of NIMBY (Not In My Backyard) is PIMBY—Please In My Backyard.” Over 220 states and localities have submitted applications for the $8 billion the Obama administration has allocated to high-speed rail. And in the budget request for 2010, the House of Representatives approved an additional $4 billion of high-speed rail funding, surpassing an initial administration request of only $1 billion.

Presenting on the second day of the conference, Norm Anderson, who heads the consulting group CG/LA Infrastructure, emphasized a series of gaps in the nation’s long-term infrastructure strategy. He highlighted the urgent need for a clear focus on the competitiveness and job creation dimensions of high-speed rail. With competitive nations such as China aggressively investing in high-speed rail, we risk losing our edge in technology, concentrated urban development, low-carbon transportation, and a stable employment base for thousands. Anderson also emphasized the need for a strong funding mechanism — the national infrastructure bank also advocated by Gov. Rendell — and a federal entity that would “own and understand” infrastructure, opening it to both competition and public-private partnerships.

Inspired by events such as the U.S. High Speed Rail Association conference and the Obama administration’s $8 billion commitment, the Progressive Policy Institute’s new E3 Initiative in the coming months will be developing and driving policy proposals on infrastructure and other areas central to rebuilding the nation’s economy around clean technology. It’s an exciting time — and we need to ensure that the excitement does not fade into a passing fancy, but rather leads to real steps that revitalize the U.S.’s economic dynamism.

This item is cross-posted at The Huffington Post.

At State, a New Budgeting Plan Takes Shape

Posted on by The Progressive Policy Institute

The State Department is involved in a massive project — the Quadrennial Diplomacy and Development Review — that is designed to address a serious “funding imbalance” between the civilian and military institutions involved in American national security.

Says Anne-Marie Slaughter, Director of Policy and Planning at the State Department and in charge of the review:

“This is not an abstract planning exercise that goes into a report and sits on a shelf,” she said. “It’s a planning exercise that does connect to the budget, that’s very important, but the implications go far beyond the budget. The budget is the tool to implement what we’re going to come up with. This is really what I think secretaries of state should be doing, which is a kind of farsighted look into how the United States is going to implement its foreign policy agenda in the 21st century.”

It is designed to roughly model the Pentagon’s Quadrennial Defense Review, which similarly connects threats to strategies to resources to budgets.

What’s more, it’s exactly what the State Department needs — with a budget hovering around $40 billion, or well less than 10 percent of the Pentagon’s, it’s quite fair to say that in 2009, Foggy Bottom is responsible for well more than 10 percent of the national security of the United States. Now it just needs the bureaucratic proof to justify that need to Congress. Et voila — the QDDR!

Defusing the Debt Bomb

Posted on by The Progressive Policy Institute

When it comes to federal spending, America faces a dilemma that St. Augustine might have appreciated.

It was the young Augustine who prayed that God would make him chaste, only not now. Likewise, Washington must rein in its galloping deficits and debt, but not now — not when nearly 10 percent of Americans are jobless, long-term unemployment has reached new highs, and many have stopped looking for work altogether.

This isn’t the moment to impose fiscal austerity. But, as a group of smart Senate Democrats insist, it’s not too soon to start laying the groundwork for a return to fiscal responsibility once the economy recovers. Otherwise, our mountainous public debts will drain capital from the private economy and quite possibly scare off the foreign lenders who are keeping the U.S. economy afloat.

The Hill reports today that nine Senate Democrats and Independent Joe Lieberman (CT) have sent Majority Leader Harry Reid a letter urging him to set up a special legislative process to defuse the debt bomb. “We do not believe that action on these important issues will occur under the regular order in Congress,” they wrote.

The Senators, including such pragmatic progressives as Evan Bayh (IN), Mark Warner (VA), and Mark Udall (CO), are dead right. The key to getting Washington’s finances under control is curbing the unsustainable spending growth of Medicare, Medicaid, and Social Security. As entitlements, these programs grow automatically each year, propelled by medical cost inflation and the baby boom retirement. This happens by formula, outside of the normal Congressional budgeting and appropriations processes.

It’s instructive that the last serious effort at entitlement reform came in 1983, when President Ronald Reagan and House Speaker Tip O’Neill agreed to create a special panel (chaired by Alan Greenspan) to fix Social Security. They understood that lawmakers are unlikely to tackle the politically explosive issue of entitlement reform without both parties having skin in the game.

Other forward-looking Democrats, such as Sen. Kent Conrad (ND) and Rep. Jim Cooper (TN), have proposed a bipartisan commission to identify the spending and tax changes necessary to start winding down the nation’s deficits over time. The Obama administration would be wise to embrace this approach. It would be seen by investors here and abroad as a kind of promissory note, a sign that U.S. political leaders are determined to deleverage the federal government and boost national savings.

Some liberals dismiss worry about deficits (which reached an astronomical $1.4 trillion this year, up from $455 billion in 2008). They say Democrats ought to focus on creating jobs and speeding economic recovery, which means more government spending. It’s a false choice. Maybe we need to spend more — we’ll have a better idea once the original stimulus package is spent.

Even so, the U.S. cannot afford to let its national debt rise to 80 or even 100 percent of national output, as some budget experts predict. We can’t build lasting prosperity on fiscal quicksand.

So it’s not a matter of choosing between more Keynsian stimulus and deficit reduction, it’s a matter of doing both — and getting the sequence right. As the Senate pragmatists recognize, that means starting now on the difficult work of building a broad political consensus for modernizing the big three entitlements.

Baucus Delivers Finance Bill

Posted on by The Progressive Policy Institute

After a long and difficult gestation, the Senate Finance Committee has finally given birth to its plan for overhauling the nation’s health care system. Like many newborns, it may not be particularly pretty, but it has potential.

Although it’s the last entry into the health reform sweepstakes, the plan fashioned by Committee Chair Max Baucus is widely seen as the most important. That’s because Baucus, with President Obama’s explicit blessing, tried harder to win Republican backing for comprehensive health care reform. Even if he didn’t immediately succeed, his bill lies nearer the nation’s center of political gravity.

In today’s rancorous climate, that naturally means that Baucus is getting hammered from both ends of the political spectrum. Liberals hate his bill because it embraces (costly) nonprofit health care coops rather than the public option. Senator GOP leader Mitch McConnell wasted no time blasting the bill as partisan and senseless, even though three of his fellow Republicans were part of the “gang of six” who labored with Baucus for months to find common ground.

One of them, Sen. Chuck Grassley, was more circumspect than McConnell. Noting that the “chairman’s mark” is merely the starting point for committee deliberations on the plan, he added, “So if you don’t have the whole thing worked out yet, it would be intellectually dishonest for me to say, you know, I couldn’t vote for it or vote for it. Let’s see what the final package is.”

Whether any Republicans wind up supporting the bill, however, is less important than holding together the coalition of insurance companies and other key players in the health industry who this time around have lined up behind reform. His bill is also calculated to appeal to the moderate Democrats Obama will absolutely have to win in order to pass any reform of consequence.

With a price tag of $856 billion, the Baucus blueprint is cheaper than other Congressional plans. Best of all, it’s paid for — though the particulars will spark fierce debate. The financing package includes $507 billion worth of cuts in public health programs, mainly Medicare and Medicaid. Hospitals will take a big hit, and some providers may stop taking Medicare patients if reimbursements are cut. The bill also envisions $349 billion in new taxes. Most of that would come from taxing the most expensive health insurance policies, though medical device makers would also get nicked.

Complaints about these and other provisions of the bill are piling up thick and fast. Democrats say it doesn’t extend subsidies for buying taxes far enough up the income scale, forcing many families with modest incomes to pay more for coverage or face penalties if they couldn’t. That’s because most people will be required to buy insurance, regardless of how much subsidy they receive.

Republicans don’t like this mandate, or another one on larger businesses that don’t provide their employees with coverage. And with consummate chutzpah, given his party’s ferocious opposition to government-run health care, McConnell has shed crocodile tears over the bill’s Medicare cuts.

The Baucus bill will be, and should be, substantially modified as it runs the gauntlet of the Finance Committee, the full Senate and then a House-Senate conference. But it contains the insurance market changes, subsidies and mandates that are the guts of health reform, and it meets President Obama’s demand that reform seek to restrain health care cost growth while adding nothing to the federal deficit. And conservatives can sleep easy in the knowledge that it contains no death panels, no abortion funding and no insurance for illegal immigrants.

Most important, it moves the arduous legislative process forward, giving critics not only a target to attack, but a mark to beat.