"[I]f you want a role that has benefit programs for older Americans, like the ones we've had in the past, and that operate for the rest of the government like the ones we've had in the past, then more tax revenue is needed than under current tax rates," Elmendorf said. "On the other hand, if one wants those tax rates, then one has to make very significant changes in spending programs for older Americans" or all the rest of the government's functions.
Given where Congress finds itself -- a separate story that began over a year ago -- that's the debate Democrats want to be having. Should we roll back safety net programs in order not to increase taxes on the wealthy? Because that's the choice we'll face in a few years. And it's precisely the debate Republicans do not want to have. So they spent Tuesday trying to reorient the conversation: instead of arguing in favor of their preferred and informed decisions about the future of the country, they posited a scenario where crisis is upon us already and the only plausible way to avert fiscal catastrophe and help the country end its economic slump is to cut, cut, cut right now.
"There's a recent report by Alberto Alesina of Harvard University," noted Sen. Rob Portman (R-OH), "showing that the most successful and pro-growth deficit reduction took place in countries that relied chiefly on austerity programs, spending cuts. And nations that relied more on tax increases were less successful in reducing the deficits and had slower economic growth."
That's a controversial claim in and of itself, but it's also one based on a fundamentally wrong comparison between the United States and countries that have no options other than austerity.
"I think the principle lesson of looking at countries like Greece and others is that it is a terrible situation to end up in, where one has to make drastic abrupt changes in policy," Elmendorf cautioned him. "But if you look at Greece or Ireland or the experience in the UK which did not face such a crisis but has made a very, very determined pivot in its policy, those economies are not doing very well right now. And I think leaders of those countries felt they had no alternative given where they had gotten to; that they were at a point where people were not lending the governments money anymore or about to stop lending them money...so they had to make drastic changes. But that is not a situation that we would like to find ourselves in."
We have some time. Indeed, Elmendorf argued persuasively, and in line with the professional consensus, that we should support the economy now with expansionary fiscal policy -- temporarily higher spending, temporarily lower taxes -- and pair it with a credible plan for budget consolidation based on the sort of cost-benefit analysis he laid out above. How do we want the country to look, how do we pay to make it look that way, and if that's too much money, what should we skimp on.
This did not sit well with Republicans.
"I hope we'll be able to discuss what I see as a real danger in taking the approach that I think you might be advocating...the danger of delaying the spending cuts for fear that we will weaken a fragile economy," said Sen. Pat Toomey (R-PA) in his opening remarks. "I would argue that if we tolerate or aggravate the current deficit problem with a promise that we'll work it out in the future, that's a very very dangerous direction to head in."
An hour later, Toomey had his chance, and argued politely with Elmendorf that failing to cut right now we'll likely find ourselves on an irreversible path to calamity.
"I think there are disadvantages to delays, Senator, as we said in the written testimony and as I repeated here," Elmendorf said patiently. "Again, based on our analysis, which I think is consistent with the consensus of professional opinion, immediate increases in taxes or cuts in spending would slow the economic recovery. But that does not suggest -- is not meant to imply that there aren't a variety of factors that can matter in different ways; not meant to imply that we're sure we have that right, but that is, I think, the consensus of professional opinion."
This consensus opinion is unacceptable to Republicans at least in part because it leaves them in a policy space where the best thing to do right now is what President Obama just proposed; and the more popular thing to do in the next few years is also what he proposed. That means government's not going to shrink all that much in the years ahead, taxes revenues will have to climb, and their party's core mission won't be met.
Late in the hearing, Sen. Jon Kyl (R-AZ) actually accepted one of Elmendorf's arguments -- that spending cuts now will harm the economy -- and marshaled it in service of protecting an interest that matters to him. "[W]ith defense, for example, you've got high unemployment of returning veterans to begin with," Kyl noted. "You have reduction in end strength. You've got more people potentially unemployed. You got people making radios and building ships and so on. And if those cuts, therefore, end up reducing the employment in those industries and the amount of money spent in those areas, obviously it could delay economic recovery."
But that didn't lead him to embrace an approach modeled on Obama's. Instead, he argued the committee should focus on the modest patch of agreement between the parties. In particular, he asked Elmendorf to help the committee find savings from reducing improper payments to Medicare providers, and by identifying federal property that the government could sell off to pad the treasury. On both items, Elmendorf had bad news.
"There is no evidence that suggests that this sort of effort can represent a large share of the $1.2 trillion or $1.5 trillion or the larger number that some of you have discussed," Elmendorf said. "We have done a fair amount of work, we've given testimony on this topic and there is no evidence that the amount of extra revenue that could be reaped by the government in this direction could represent any substantial share of numbers that begin with 'T' for trillion."
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