Federal deficit speech was good. Not great.

Some of my “likes” about the President’s speech and his general “framework” for federal deficit reduction:

- advocates a “balanced” approach with a mix of spending cuts and revenue increases;

- recognizes that a lot of spending occurs in the form of “tax expenditures” which are economically inefficient and also disproportionately benefit the rich, and proposes to raise additional revenue by reducing some of these tax expenditures;

- acknowledges that the Bush tax cuts played a large part in turning the surpluses of the late 1990s into the record deficits in the following decade;

- clarifies that the choice is not reducing the deficit versus not reducing the deficit, but reducing the deficit by cutting benefit programs versus reducing the deficit by raising taxes;

- reminds Americans that we all benefit from safety-net programs even if we don’t personally need that safety net at this very moment (or even ever use it)–the “there but for the grace of God go I” sentiment;

- outlines a vision quite different from the Ryan one by refusing to use savings from spending cuts or tax base broadening to fund tax cuts for the rich;

- proposes an approach generally similar to that of the President’s fiscal commission.

Some of my “dislikes” or at least “disappointments” about the proposed framework:

- proposes a mix of spending cuts versus revenue increases that is probably still too heavy on the spending side, and gives the President an “opening bid” that is basically where I think he wants to end up. (Is that the best negotiating strategy to counter Ryan’s all-spending-cuts proposal, or has the President already negotiated with himself?)

- suggests that the broadening of the tax base/reduction of tax expenditures would be limited to households with incomes above $250K–such as those “millionaires and billionaires” the President kept referring to today. Not clear that this would raise adequate revenue or that the President is willing to go after the largest tax expenditures or pare them back enough (even on the rich). (Still, in terms of economic efficiency, raising taxes on the rich by broadening their tax base is still preferable to raising taxes on the rich by simply raising their marginal tax rates.)

- fails to acknowledge that even the “middle-class” portions of the Bush(-now-Obama) tax cuts were deficit financed and were fiscally irresponsible, and that President Obama has always supported the deficit-financed extension of the great bulk of the Bush(-now-Obama) tax cuts;

- takes a pass on Social Security reform, just like the Ryan plan;

- doesn’t cut defense spending as aggressively as the commission recommended (and yes, probably for the same political reason that it doesn’t raise as much revenue as the commission proposed–which by the way I still think was too low with its ceiling of 21 percent of GDP);

- proposes a “fail-safe” trigger that I worry would be either ineffectual because of its exemptions (Social Security and Medicare, and “emergency” situations) or even economically damaging because of its procyclical nature (cutting spending during recessions).

I thought the President’s speech was great in terms of tone and delivery, but just good in terms of substance. Not perfect, but at least good–and I am reminded that the wise adage applies well here, that we can’t let the perfect be the enemy of the good. It actually exceeded my expectations from before the speech, and I am somehow comforted and reassured to see the House Republicans react the way they did to the speech (in the video below)–lashing out with accusations of the President’s “partisan rhetoric,” basically shocked that the President disagrees with them on the issue of tax cuts for the rich and the draconian spending cuts they require. (So I guess the President did provide a decent counterpoint to the Ryan plan, even in taking that “balanced” approach of still three-fourths spending cuts to the one-fourth tax increases.)

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