Over the past week, President Obama has directly entered the debate about raising the debt ceiling and cutting the budget deficit. Of course, the debate is about something altogether different and far more important—the century-long battle between the two major political parties over the proper role of government in American economic life. But what has gone largely unnoticed throughout this process is that the meaning of “tax reform” has undergone a profound, if gradual, transformation.
Listening to today’s debates, one might think that the United States faces a budget deficit. Not so. America faces two budget deficits. The first challenge is near term. Once the economic recovery is well-advanced, we must find a way to cut spending or raise taxes to prevent government debt from rising faster than income. The second challenge is dual: to slow the growth of health care spending, in general, and Medicare spending, in particular, and to decide whether to make cuts to Social Security.