CBO Report Confirms U.S. Deficit Back to Normal Level

Robert Pollin, Guest Blogger

Jessica Desvarieux of The Real News Network interviews Robert Pollin, professor of economics at the University of Massachusetts and co-director of the Political Economy Research Institute (PERI), about a new Congressional Budget Office (CBO) report showing the U.S. fiscal deficit returning to historic norms. Pollin argues that the report confirms that the surge in the deficit after the financial crisis and recession was largely cyclical, that the report debunks the views of economists who claimed that high fiscal deficits would lead to economic disaster, and that it undermines arguments for austerity policies. He concludes that cuts to social spending should be reversed, and spending programs to be funded by progressive taxation like a financial-transactions tax.

JESSICA DESVARIEUX, TRNN PRODUCER: Welcome to The Real News Network. I’m Jessica Desvarieux in Baltimore.

The nonpartisan Congressional Budget Office released a report last week titled An Analysis of the President’s 2015 Budget. It indicates that the U.S. has stabilized its deficit.

With us to discuss the U.S. budget outlook is Bob Pollin. Bob is a professor of economics and the founding codirector of the Political Economy Research Institute at the University of Massachusetts Amherst.

Thanks for joining us, Bob.

So, Bob, the CBO releases another report about the budget. So why is this one in particular such major news?

ROBERT POLLIN, CO-DIRECTOR, POLITICAL ECONOMY RESEARCH INSTITUTE: Its major news because it’s the Congressional Budget Office, as you yourself just said, a nonpartisan think tank working for both the Democrats and Republicans in Congress, reaching the conclusion that the government’s fiscal deficit, the amount they borrow to fund all the government’s activities, has now gone down quite dramatically, especially with Obama’s 2015 budget and their projections outward. The Congressional Budget Office has reached the conclusion that the U.S. fiscal deficit as a share of the economy, as a share of GDP, it has basically reached its historic average. So that is major, major news, because the whole premise of U.S. austerity policies, that we have to cut food stamps, that we have to cut spending on Head Start, on education, on family support, all of those arguments were premised on the idea that we have a fiscal deficit that is way out of control.

DESVARIEUX: But, Bob, those in the other side, they’re going to say the deficits were stabilized partially by cuts to social spending. So how do you reconcile that? They’re going to argue that austerity worked.

POLLIN: That’s right. No. Here’s what happened. The fiscal deficits went down basically for four reasons.

Number one, that the recession eased. Officially, we’ve been out of recession for five years, but we are still in a very weak situation with respect to jobs. Nevertheless, it’s not as bad as it was in 2009 at 2010. So that means that tax revenues have gone up, that, you know, people have more incomes, they’re spending more, tax revenues go up. So that’s one thing.

And the second thing is the social support for people who are in really bad shape due to the recession, that has gone down. I’ll come back to that in a second. The second thing that has reduced the deficit is that we aren’t fighting in Afghanistan and Iraq, at least not nearly to the same extent, and we’re not spending the same amount of money.

So in addition to that, the deficit has gone down because, as you said, there have been cuts. So the austerity has been a factor, and that therefore, because we’ve stabilized the deficit now, we now are in a situation where we can say, let’s restore spending on things that we need. And, okay, we don’t want to increase the deficit to do it. So guess what? Let’s raise taxes in order to support spending–well, let’s at least return money to people on food stamps so they don’t face hunger or food insecurity. Let’s get money back into things like Head Start, into health care, into education. And you could say, well, how do we do that? Because we don’t want the deficit to go up anymore. Well, the answer is easy: raise taxes on wealthy people. And the best way to do that right now is to tax Wall Street transactions, the so-called Robin Hood tax.

DESVARIEUX: Okay. Can you explain the Robin Hood tax, just for those viewers that aren’t familiar with it?

POLLIN: Sure. Yeah. The Wall Street transaction tax, or Robin Hood tax, there are two bills in Congress now, one of them called the Inclusive Prosperity Act. It would tax each and every transaction on Wall Street, just like every time you go down the street and buy something at the store, you pay sales tax. This would be a sales tax on each and every Wall Street transaction, on stocks, bonds, and derivatives. And if the U.S. were to establish such a tax at a very modest rate, at a half a percentage point on stocks, and lower rates on bonds and derivatives, I estimate that we could still generate about $300 billion a year, which is roughly equivalent to the amount of the austerity cuts. So we could restore–now that we’ve gotten the budget deficit down, we can use increased taxation through the Robin Hood tax to restore decent levels, minimally decent levels of social spending.

DESVARIEUX: So, Bob, what would you say to those deficit hawks? I mean, a lot of them were saying that we’re going to reach this fiscal cliff. You know, they were predicting the worst. What would you say to those folks?

POLLIN: You are wrong, and admit it. You know, we’ve heard this for years now. This was the dominant theme in U.S. politics, as well as economics, with all of these budget crises and falling over the cliff and all that, over and over again.

The fiscal deficit did go up in 2009 due to the recession, because we were counteracting the recession tied to Wall Street hyperspeculation, the financial crisis. Now, the deficit hawks said, no, you can’t run such big deficits. Why? Because it’s going to generate high inflation, because it’s going to increase interest rates, and because it is going to create this long-term disaster that we’re going to keep borrowing so much and the United States is going to be bankrupt. Now, yes, there are a lot of nuts on, you know, 3 a.m. talk radio shows that say such things, but these were also the leaders of the economics profession, such as Professor John Taylor at Stanford, Robert Barro at Harvard, Martin Feldstein at Harvard, Pete Peterson, the billionaire who runs the Peterson Foundation in New York, over and over and over again saying these things, and it turns out they were all wrong.

DESVARIEUX: Alright. Bob Pollin, thank you so much for joining us.

POLLIN: Thank you very much for having me.

DESVARIEUX: And, of course, you can follow us @therealnews on Twitter. And please send me questions and comments @Jessica_Reports.