Former Seattle resident and Gates Foundation executive Sylvia Mathews Burwell will take center stage Wednesday in Washington, D.C. when, as the newly appointed director of the Office of Management and Budget, she will defend President Barack Obama's formal budget submission to Congress.
The budget is a couple months late but, better late than never, it will provide a framework for bipartisan negotiations which will follow. It had been preceded by House- and Senate-passed proposals with differing tax/spending emphases.
Burwell's appointment should be seen as good news. She served as deputy director of OMB in the Clinton White House and worked closely with Treasury Secretary Bob Rubin and White House chief of staff Erskine Bowles (later co-chair of the Simpson-Bowles deficit-reduction commission) to achieve a balanced federal budget in the first year of President Clinton's second term.
Leaks last week indicated that the Obama proposal would cut $130 billion over 10 years in Social Security spending while also proposing much larger tax increases. The House Republican budget, by contrast, projects no net tax increases but continues to emphasize entitlement programs and other spending cuts.
Any genuine compromise will come through their mutual embrace of "tax reforms," eliminating present loopholes and subsidies for favored groups and sectors. A favorable portent on that front came on Monday when a joint Wall Street Journal essay by Senate Finance Chair and Democrat Max Baucus and House Ways and Means Chair and Republican Dave Camp revealed their mutual effort to find common ground on proposals which would seriously address longterm deficits while also stimulating general economic growth.
Both liberal and conservative economists will attest that a tax code with lower rates, fewer deductions and fewer brackets — as in Sen. Bill Bradley's 1986 tax-reform package — would stimulate growth, remove imbalance and unfairness in the tax code, and generate tax revenues reducing deficits and debt.
The difficulty lies, of course, in overcoming interest-group opposition to removal of "tax expenditures" (i.e., loopholes and subsidies) which specifically benefit them. (The same exercise is taking place in Olympia where generalized pledges of tax reform, by both Democratic governors and GOP legislators, keep being blunted by special-favor recipients ranging from Boeing and Microsoft to obscure companies whose lobbyists got breaks enacted under the general radar. Washington state and local tax breaks amount to three times the size of the state's biennial budget).
At national level, the time may finally be right for the kind of budget compromises both Obama and Republicans have resisted over the past four years. Opinion surveys indicate voters are fed up both with Obama and congressional leaders in the wake of the recent fiscal cliff and sequestration budget charades. The most recent economic data show a disturbing increase in long-term unemployment — and in the numbers of Americans who have just plain given up looking for work. Since the 2008 financial crisis and economic downturn, in particular, huge numbers of workers have chosen to live off Social Security disablility payments. Labor-force participation overall is at the lowest level since 1979.
Small-business hiring plans are disappointing, as many employers are resisting adding workers which would expose them to mandatory Obamacare costs next year. There clearly are not enough promising data to sustain much longer the run up of the Dow Jones average over the past year. As the average recedes, families' net worth will recede.
Over the next several weeks both White House and Congress will be engaging in sometimes polarizing claims about the others' budget proposals. Here are some things to watch as the debate proceeds:
1. Which proposals would put debt on a downward path relative to the size of the economy? Such debt presently amounts to 73 percent of Gross Domestic Product (GDP), which is twice the size of the historical average. On the present budget path, debt will be 79 percent of GDP in 10 years
2. Which proposals will contain Medicare, Medicaid and other government health spending? These are the fastest growing parts of the federal budget, driven in particular by the aging of the population and by inflation well over the general inflation rate.
3. Which proposals will stabilize Social Security finances? The most recent Social Security trustees report says that, on the current path, benefits will need to be cut 25 percent in 20 years.
4. Will genuine tax reform take place? Unless Obama and the Congress can agree on elimination or cuts in multibillion-dollar tax benefits, this exercise will be hollow. And it won't stimulate needed economic growth.
The most discouraging aspect of the recent-year taxing and spending debate — especially during the 2012 national campaign year — was the degree to which Democrats have implied that simply "taxing the rich" would get us to a satisfactory outcome while Republicans have asserted that Obama is hell-bent on creating a European-style, government-dominated economy which would stifle private incentive and growth.
Democrats and Republicans, since 1930s New Deal days, have differed over the proper balances between the public and private sectors and, therefore, government taxing and spending. This is just one more chapter in that long story, not a clash between polarized ideologies. It should be treated as a practical exercise between practical people of general goodwill.
Burwell is particularly suited to her new White House role. She is from a down-home West Virginia family, was a Rhodes scholar, worked in business before joining the Clinton administration and has a thorough knowledge of both public and private finance. She came to Seattle in 2001, as administrations changed in Washington, D.C., and spent five years as the Gates Foundation's chief operating officer and executive director before spending six years as president of the Foundation's global development program.
Burwell left Gates to become president of the Walmart Foundation in Arkansas a bit more than a year ago. She, her husband Stephen Burwell, a former Seattle attorney, and their two children are now back in the capital.
Sylvia Mathews Burwell's strong instincts toward public service brought her back to OMB. Her return there a month ago has increased the chances that 2013 may finally be the year when a serious White House-congressional budget gets done.