Allowing all the Bush tax cuts to expire at the end of 2012 is one way to raise $3 trillion dollars to move toward an upgrade of the U.S. credit rating, according to Peter Orszag, vice chairman of global banking at Citigroup and an adjunct senior fellow at the Council on Foreign Relations. And that is just the first of his suggestions in an opinion piece that Bloomberg ran Tuesday.
Calling for an acknowledgment by political leaders of the current situation and a bold response to it, as well as a lowering of expectations, Orszag, the former director of the Office of Management and Budget under President Barack Obama, cited four ways that the U.S. could move back toward a triple-A rating once more.
The first of these, he said, was to reduce the deficit, and a way to do this was to allow a complete expiration of the Bush tax cuts, not only those for the wealthy. This, he pointed out, would restore $3 trillion to the revenues of the country over the next 10 years.
He also suggested that, as an immediate economic boost, the current payroll tax holiday be tripled, from 2% to 6%, and extended until unemployment is no longer elevated.
Orszag pointed to the high cost of health care as “the most important driver of our long-term deficit.” Dealing with that through tools in the Affordable Health Care Act, and getting Congress to enact medical malpractice reform, would also cut the deficit, as would another of his suggestions, a reform of Social Security.
Second, Orszag put forth the idea of managing expectations to accept slow growth. That is actually where the 6% payroll tax holiday comes in, since it would help boost an economy laboring under contraction. Further, he proposed, that the tax holiday should be tied to the unemployment rate, so that it would come and go as needed to support the economy as it claws its way back up.
The third strategy is a means of bypassing “structural gridlock” through more mechanisms like the budget-balancing trigger that will make automatic cuts if the new supercommittee fails to do so. Other structural changes that would make it easier to get cuts pushed through make up part of this strategy.
Last but far from least, Orszag suggested reevaluating and changing the government’s role—re-envisioning what the public sector should and shouldn’t do, and taking action accordingly. A new infrastructure bank and an end to pork-barrel projects would be part of this.
He concluded by advocating a support for job creation first and later a focus on deficit reduction—once the economy is strong enough to handle it.