This is a stunner. In the new book The Escape Artists: How Obama’s Team Fumbled the Recovery, journalist Noam Scheiber uncovers this tantalizing tidbit:
In May 2009, the president asked [White House budget director Peter Orszag] to draft a secret memo laying out the government’s options in the event of a fiscal crisis, in which a runaway deficit sent interest rates spiraling upward. No other member of the Obama economic team was even aware of the assignment.
OK, let’s take this step by step:
1. The Obama administration has already conceded it has no long-term plan to deal with rising U.S. debt, driven for the most part by social insurance spending. Testifying before the House Budget Committee recently, Treasury Secretary Tim Geithner told Chairman Paul Ryan the following: “We’re not coming before you to say we have a definitive solution to that long-term problem. What we do know is we don’t like yours.” Even Obama’s ten-year plan doesn’t keep the debt burden from increasing.
2. Yet, apparently, the White House does have a secret plan to deal with a sudden debt crisis. So instead of developing a long-term plan to avoid the worst-case scenario, it has chosen to plan for the worst-case scenario. (This will certainly be a shock to liberal economists like Paul Krugman and Brad DeLong who insist a debt crisis, as evidenced by the current low level of interest rates, is highly unlikely. In fact, they say, we should be borrowing more to boost the economy.)
3. Then there’s this possibility: Maybe the crisis plan is the long-term plan. Maybe it’s something like this: a) do nothing; b) keep implementing the Obama healthcare and environmental agenda; c) wait for markets to finally freak out over rising U.S. debt; d) break the glass and grab the 2009 Orszag plan.
4. And what exactly is in the Orszag memo? Well, as they say in Washington, personnel is policy. Here’s what we know about Orszag, who now works for Citigroup. He thinks America is undertaxed. Elsewhere in Escape Artists, Scheiber writes that “[Orszag] believed the only practical way to balance the budget was to repeal all the Bush tax cuts, not just the upper-income variety.” That is a $4.5 trillion tax hike right off the bat.
And here is Orszag just last month:
… to significantly reduce the deficit over the next decade, additional revenue will be needed. The administration’s budget proposal projects revenue to reach 20 percent of gross domestic product by 2022, about 1 percentage point of GDP more than what is projected with no policy change. The administration deserves credit for proposing even that, given the antipathy to any tax increases. But in the end more revenue will be needed. And since the administration’s budget probably shows the outer limit of what’s plausible in terms of taxing high-income households, the implication is that middle-income households will have to pay more, too.
And how to best tax the middle class? Like most left-of-center economists, Orszag loves the idea of a VAT:
Although hardly anyone wants to admit it, we’re not going to solve our budget problem over the next decade unless revenue is part of the equation. … One possibility would be to establish a new source of revenue, perhaps through revenue-increasing tax reform, and possibly including a modest value-added tax (that is, a V.A.T. of 5 percent to 6 percent). This approach has many potential benefits, including the opportunity to improve our tax code by cutting back on loopholes and shifting toward a consumption-based tax system.
So I think it’s reasonable to assume that the secret Obama-Orszag memo contains some options on massively raising taxes to send markets a signal that the United States is getting its fiscal house in order, ASAP.
Orszag, when he worked for Obama, was also the guy behind the creation of Obamacare’s Independent Medicare Payment Advisory Board. Starting in 2015, IPAB will have the power to making binding recommendations to cut Medicare provider payments if Medicare costs rise too quickly. As Orszag has put it: “This could well turn out to be as consequential for health policy as Federal Reserve policy was for monetary policy. The commission will put its proposals forward and if Congress does not act on them, or if it votes them down and the president then vetoes that bill, they will automatically take effect. Huge change.”
So perhaps the plan recommends giving the powerful IPAB technocrats even more power, not to just limit Medicare spending, but all healthcare spending in the age of Obamacare, public and private. In effect, use IPAB to fully nationalize U.S. healthcare and then ration care, as they do in the U.K., to reduce spending.
But again, this is all just speculation. Mr. President, how are you going to deal with a debt crisis? What’s in the Orszag memo?