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Posted at 9:01 AM ET, 12/ 2/2010

Andy Stern takes on America's second deficit

By Ezra Klein

Thumbnail image for andysternexit.JPG

"Do we really need another deficit-reduction plan?" I ask Andy Stern. I like this stuff, but even I'm getting exhausted by the endless parade of plans, each just slightly different than the last, and none with an obviously supportive constituency in Congress. He laughs. "Yes," he says. "We need to debate as many as we possibly can. We need to get this right."

Stern, the former president of the Service Employees International Union, is a member of the Simpson-Bowles Commission. He's not the only participant to bring out his own plan (pdf) -- both Rep. Jan Schakowsky and Alice Rivlin have already released separate proposals -- but his plan is more clearly distinguished from the others. This is, in part, because where they reduce one deficit, he reduces two.

Stern's proposal cuts and raises about $4 trillion by 2020, which is comparable to the Simpson-Bowles proposal, and sufficient to get us back to the black. "But we need to appreciate that we have two deficits," Stern says. "A fiscal deficit, and an investment deficit. A family under stress would think hard before they didn’t invest in their kid’s education. A company under stress would think hard about not investing in new equipment that it needed. I wanted to show you can invest as well as cut."

Stern's critique of the fiscal commission is that its mandate has been too narrow: You can cut and tax your way to a balanced budget, but more is needed for a dynamic economy. His plan calls for the creation of "a permanent fund beginning in 2015, with an initial investment of $75 billion dollars, increasing by 3% annually. A range of long term investments (e.g. infrastructure, smart grid, education, and broadband) will be recommended each year by an outside panel of experts appointed by the President and Congress."

The point, he says, is that Congress isn't very good at creating space in the budget -- or in the budget process -- for long-term investments. In a PAYGO world, investing in something new means taking from something old, and the old thing has entrenched interests, while the new thing rarely does. So if we want long-term investments, we need a dedicated fund with a dedicated funding source. Stern proposes a few possibilities: a financial transaction tax, for instance, that would add a 0.25 percent-0.5 percent charge onto stock transactions if the stock is held for less than a year (that way, it mainly falls on professional investors making speculative trades, not ordinary investors managing their retirement savings). Another option is a surcharge on income over $1,000,000.

You can imagine a lot of ways to fund such a project. Stern's point is that you can implement one of them at the same time you're reducing the broader deficit. General austerity doesn't mean there aren't opportunities -- and even a need -- for targeted investment. That raises the question, of course, of whether Stern plans to vote for the Simpson-Bowles plan on Friday. "I'm still trying to figure out what I want to do on that," he says. "But the thing I definitely wanted to do was highlight a larger discussion on jobs, investment, and competitiveness which the commission and the country still needs to have."

Photo credit: Haraz N. Ghanbari/AP.

By Ezra Klein  | December 2, 2010; 9:01 AM ET
Categories:  Budget  
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How could a guy with Stern's background POSSIBLY be contemplating voting for Simpson-Bowles?

Posted by: Jasper999 | December 2, 2010 9:08 AM | Report abuse

Investments are not in the GOP vocabulary.

They'd rather save that money and get it back in the form of reduced tax rates.

Stern's ideas are DOA

Posted by: lauren2010 | December 2, 2010 9:23 AM | Report abuse

Wow, color me shocked. A Union thug wants to tax high earners and a predominantly non-union sector (finance) to fund a new permanent slush fund for Union-friendly interests. With 80% of the assets in the US professionally managed (those "ordinary" investors are going to get crushed, even with sub-50% portfolio turnover, the mutual fund industry average), think of the endless possibilities for more graft, waste and crony capitalism.

Slam dunk idea.

Posted by: bzod9999 | December 2, 2010 9:29 AM | Report abuse

Amazing how those on the left call the confiscation of more wealth from the taxpayers "investments". What a freakin joke. How in the world an unqualified thug like Andy Stern got on a deficit commission is beyond me. What a shock that Stern wants tax dollars, from taxes he wants to increase, to go into an "infrastructure fund" for infrastructure improvements that would be done by unions.

I just love how he tries to make a distinction between individual investors and institutional investors when he discusses his asinine stock transaction tax. Exactly whose money does he think a lot of those large investors are investing? Here's a tip Andy: Many of those managing billions in investments get that pool of money from individual investors, including the retirees you claim you care about. That Stern thinks he can pass some sort of stock transaction tax without harming those investing for retirement and small investors shows how ignorant he is.

Posted by: Bob65 | December 2, 2010 10:23 AM | Report abuse

well when i think of andy stern, the word "investment" abruptly pops in my head.

and even though I agree with infastructure needs, and find Stern's idea interesting, co-opting the use of "investment" doesn't somehow magically whisk away the inefficencies inherent in gov spending (be leg and regulatory capture, public choice economics etc), nor does it magically transform object wealth transfer payments into sound investments.

the problem is that when (often liberal) politicians co-opt (one might say) the term investment, their measuring parameters are often much different than how such investments would normally be evaluated. there's both danger and opportunity there...

Posted by: stantheman21 | December 2, 2010 10:30 AM | Report abuse

oh come on now Bob I'm sure Stern wasn't thinking at all that this would be a slush fund for unions. I'm sure he'd be fine it the work was done by non-union groups, right? He's worried about the future of our country not his union's bottom line. Kind of like his former union allowed kids to be thrown off their healthplans this coming year.

And Ezra just went along for the ride not even putting 1 and 1 together and realizing you get 2.

Posted by: visionbrkr | December 2, 2010 10:36 AM | Report abuse

First, Ezra wrote this piece in a different style than he normally uses, and I think it both read well and was a nice change of pace. Good job!

Second, I think the infrastructure fund is a great idea. Look, nearly everyone that looks at our infrastructure declares that we're falling behind other countries in new infrastructure, and what infrastructure we have is crumbling away. I don't care of this suggestion came from a pro-union guy because he thinks it will help unions. It's still a good idea for us to make regular upgrades and investments in our country's infrastructure, and it's an important insight that Congress is bad at investing money in new projects at the expense of old ones. It's also good to point out that we can have cuts and savings in some areas while still investing in others.

As for issues with the funding sources, whatever, we can fund this thing any number of ways. If you don't like a financial transaction tax, then something else. There are many options.

Whether fixing roads, upgrading the electrical grid, or other projects this would entail qualifies for the term "investment", well, I these projects clearly meet the definition of paying for something now which will pay dividends later, but that's all really a semantic point. If you don't like calling it "investments", fine, that's just a label.

Posted by: MosBen | December 2, 2010 11:16 AM | Report abuse

the word investment, according to frank luntz, is not just a label, but is rather a political rhetorical technique that he teaches.

i think the larger point is that you could characterize almost all government spending as "investments" but the metrics of such "investment" (which we should remember is rather involuntary) often follow very different lines than if we were actually trying to maximize "dividends later," and such language co-opting risks masking the differences. it gets to be a bit orwellian, although I agree in the infastructure context the word is less misleading...

Posted by: stantheman21 | December 2, 2010 12:12 PM | Report abuse

"A range of long term investments (e.g. infrastructure, smart grid, education, and broadband) will be recommended each year by an outside panel of experts appointed by the President and Congress."

Used to be something like that, the Natural Resources Planning Board, until Congress killed it in 1943 and shipped its files, Ark of the Covenant-like,to the National Archives.

Posted by: beowulf_ | December 2, 2010 6:32 PM | Report abuse

From the above Archive link...

History: NRPB established three functional divisions (A, B, C), June 1940.
Division A reported on current business and employment trends; made special studies on relief, technology, unemployment, and youth; conducted industrial research through the Science Committee, including compilation of the National Roster of Scientific and Specialized Personnel (established by NRPB, July 1940, in cooperation with the U.S. Civil Service Commission); and made studies in economics, finance, and fiscal policy.

Division B made technical studies on transportation, location of industry, and resources.

Division C conducted a federal public works program; studied federal financial relief programs; encouraged state and local public works programs; conducted water resource planning; and assisted railroads, public utilities, and industry in planning large, long-range capital budget expenditures.

Posted by: beowulf_ | December 2, 2010 6:36 PM | Report abuse

Stern's idea of a speculation tax is extremely unsound - economically dangerous. No government in its right mind would coerce investment companies (or individual investors) to commit funds for a pre-determined period and against investors' better judgement. Intervening economic trends and business circumstances will always dictate terms of investment. Any attempt to artificially "lock in" capital would result in a massive disincentive, driving US financial sector businesses offshore, and into the waiting arms of wiser competitors.

Posted by: symphony2 | December 2, 2010 10:01 PM | Report abuse

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