Former budget director calls for entitlement spending cuts, other 'hard decisions'

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Blaine Friedlander

Saying that current American policies are impeding "our ability to compete in the world," former Congressional Budget Office (CBO) director Douglas Holtz-Eakin spoke out against entitlement spending and taxation Feb. 17 in a lecture sponsored by the Cornell Program on Freedom and Free Societies.

"The last five years have been a critical moment in our nation's history [and in the future], we must maximize the rate of growth of the American economy in every way," said Holtz-Eakin, who also served as chief economic policy adviser for Sen. John McCain's 2008 presidential campaign. "It is extremely unlikely that we will see the American consumer power a recovery, [as] state and local governments are in terrible shape, and federal budgets are in dismal shape."

Speaking in Martha van Rensselaer Hall, Holtz-Eakin pinpointed increases in health care spending as the source of his concern over the budget. CBO projections call for 8 percent annual increases in Medicare and Medicaid costs "as far as the eye can see," and 6 percent yearly jumps in Social Security spending. Due in large part to these spending increases, "the debt-to-GDP ratio will rise from 40 percent in 2008 to 90 percent in 2020," he said. "Ninety percent is the level at which credit begins to get cut off."

Holtz-Eakin called for "hard decisions" on federal spending to bring down the $1.3 trillion budget deficit, and he urged for greater involvement of private enterprise in public services. "Medicare is so broke that half the people in it can't see a primary care practitioner and one-third can't see a specialist. These are programs that are not working to meet the health care needs of people in America ... Medicare drives the fragmentation of health care in America," he said.

The theme of diminishing American competitiveness resurfaced in Holtz-Eakin's discussion of corporate tax rates. "We have a terrible tax system that is unfair and hurting us internationally," he said. "The U.S. is the last country on the globe to tax its multinational companies on the basis of worldwide income, with the bonus that we have the highest corporate tax rate in the globe."

In addition, he said, low-income American employees of these corporations are most affected by these policies; they are "crowded out of the labor market" by high tax burdens.

Ultimately, Holtz-Eakin concluded, if the United States does not implement sweeping reforms, its position as the world's dominant power will be jeopardized. "In order for the United States to be able to project its values around the globe," Holtz-Eakin said, "[we are] ultimately dependent on the size and strength of our economy. It is absolutely the case that many countries do not share our values, and that our negotiation power" in future conflicts will be diminished.

Holtz-Eakin served on the Council of Economic Advisers under Presidents George H.W. Bush and George W. Bush. After serving at the CBO from 2003-05 and on McCain's presidential campaign, he was a member of the Financial Crisis Inquiry Forum, a committee set up to investigate the 2008 financial crisis. He is president and founder of the conservative think tank American Action Forum.

His talk was sponsored by The Program on Freedom and Free Societies at Cornell.

Shashwat Samudra '14 is a writer intern for the Cornell Chronicle.

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