Big deficits caused Bill Clinton to dump his investment agenda in 1993. I recently saw that Goldman Sachs is predicting a half-trillion-dollar deficit in 2009. Might Obama do the same?
I haven't seen that Goldman Sachs estimate, but the plan Obama has outlined does not increase the deficit. There are some spending cuts, some spending increases, we raise high-income taxes and cut other taxes—but if you add it all together, it does not increase the deficit and very likely reduces it by the end of the first term. He would not have to give up what he is talking about. When will we return to balanced budgets?
The current administration ran the fiscal situation so far down in the hole that it is going to take some time to get out of that. But compare [Obama's plan] to the Republican candidate, who has called for $400 billion in high-income tax cuts [that will cause] the deficit to spiral out of control. Does Obama want to raise payroll taxes or uncap the income limit to fix Social Security?
What Obama has said is that the problem with Social Security is not a crisis, but that there are fiscal issues associated with the aging of the population. In his view, the place to start is with the regressivity issue of the payroll tax. It is my own view that the majority of Americans do not understand how the payroll tax works. How it is that a guy making $90 million a year is paying the same tax as a guy making $97,000 a year? I think that at best it would strike them as highly weird and at worst grossly unfair. But he has not called for uncapping it completely, and there are several different ways to do it. But before anybody starts talking about cutting benefits, let's address that issue. It would also get the trust fund to last another 50 or 60 years. An increase in the payroll tax of 6 percentage points phased in over many years or decades doesn't strike me as a dramatic move. They have uncapped the top rates in Ireland, and they have grown extremely well.
For all the talk about reopening NAFTA, isn't the ultimate conclusion going to be free trade plus greater benefits for displaced workers?
The Bush administration has tried to put a false choice before the American people: Either you are going to support no matter what they put forward, or else you are a protectionist or an economic isolationist. And to me that is an excuse to turn a blind eye to glaring problems in our existing trade agreements and enforcement regime. But as long as I have known Senator Obama, he has believed that you can't build a moat around the country and that trade overall has been good for the economy—but that there have been a lot of people left out. And if you don't take seriously the concerns of workers, then the political will in favor of open markets dries up and goes away. If you look at these agreements, they are about a thousand pages long, and about 10 have to do with free trade and 990 are a bunch of giveaways to special interests. Like the tax code, they are riddled with loopholes, and that makes the wider public deeply suspicious of the motives of government in signing these agreements.