Budget experts speaking in Pittsburgh say rhetoric impedes solutions to problem

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Former Treasury Secretary Paul O'Neill and Alice Rivlin, the first director of the Congressional Budget Office, are out of patience with a phony budget debate that they say has failed to grapple with the real issues driving the nation further into a sea of red ink.

One is a Republican and one a Democrat, but the two budget experts were united Thursday night as they warned that the nation is moving heedlessly toward a budget abyss that threatens the very nature of American society. And they contend that the rhetoric on spending and taxation heard on the campaign trail and in the halls of Congress does little to address the fundamental dilemmas the nation will face, whoever is elected in November.

In a panel discussion sponsored by the League of Women Voters of Greater Pittsburgh, Mr. O'Neill, the former Alcoa CEO, and Ms. Rivlin, who was director of the Office of Management and Budget in the Clinton administration, joined in criticizing a political culture that puts ideology ahead of rational economic debate.

"What worries me the most is not the future of the American economy," said Ms. Rivlin. "[We're] not addressing problems because politics have become so polarized ... we can't afford gridlock."

"I am really concerned about where we are as a nation," Mr. O'Neill said. "We seem to have drifted further and further away from the idea that our policy-making and/or analysis should be based on facts and truth-telling. ... Facts in too many issues are not even a consideration."

In the discussion at the Rivers Club, moderated by WQED CEO Deborah Acklin, Ms. Rivlin bemoaned the blame game that she said obscures the fundamental demographic factor -- the looming retirement of the baby boomers -- that is one part of the country's fiscal straits. She said that while Democrats blame former President George W. Bush for wars and deficits, and Republicans blame President Barack Obama for the fiscal stimulus and still-larger deficits, the long anticipated demographic bulge compounded by the rising costs of health care is at the real root of the problems they described.

In contrast to many Republicans, the two experts agreed that added revenue had to be part of the nation's long-range fiscal fix and that the current tax system is a barrier to capturing new revenue efficiently.

Mr. O'Neill has significant economic credentials. He managed the nation's Treasury during the first years of the George W. Bush administration, and his signature still appears on some of the currency in American pockets. But, he confessed, "I cannot do my taxes. ... because you cannot understand it all."

Both said the current tax system should be scrapped and replaced, although they had different thoughts on what a new system would look like. Mr. O'Neill suggested that all current income and corporate taxes could be replaced with a national value-added tax -- a sales tax levied at each stage of production -- crafted in such a way that it includes rebates or other mechanisms to ensure that it is progressive.

"Unless we have the courage to think bold thoughts, we're not going to get out of this mess we're in," he said.

Noting that the U.S. was the only advanced country that does not tax general consumption at the federal level, Ms. Rivlin said, "We are a country that consumes too much and saves too little."

She acknowledged the appeal of a value-added tax but suggested that greater fairness, along with more revenue, could be realized through a fundamentally revamped income tax that includes some of the same deductions in the current system.

Another of their many points of agreement was that any long-term debt solution would have to do more to inhibit the rise in health care costs.

Mr. O'Neill lamented the fact that the health care debate that occupied much of Mr. Obama's first term was not used to educate the public to the difficult realities of the problem.

"We have this fiction that we don't have to pay for our own health and medical care," he said.

Ms. Rivlin argued that longer-term deficit solutions did not have to be at odds with current spending on infrastructure or similar investments made to prod the lagging economic recovery.

Mr. O'Neill seemed less optimistic, citing the rigidity of many members of Congress who have added their names to the Grover Norquist anti-tax pledge.

"It's a really frightening situation we're in," he said.

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Politics editor James O'Toole: jotoole@post-gazette.com or 412-263-1562.


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