Bo Cutter

Roosevelt Institute Senior Fellow and Director of the Next American Economy Project
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Recent Posts by Bo Cutter

  • Audacity, Audacity, Always Audacity: Why Obama and Baucus Should Push for a Carbon Tax

    Apr 29, 2013Bo Cutter

    A carbon tax would bring long-term rewards, but it will take leaders willing to make short-term sacrifices.

    We are at an unacknowledged turning point for the economy and the environment. We could, right now, substantially reduce our debt and deficit projections, take a major step toward a better environment, create a simpler and fairer tax system, make job creation easier, and raise economic growth a bit. For all of these reasons, we could and should adopt a carbon tax.

    A carbon tax would bring long-term rewards, but it will take leaders willing to make short-term sacrifices.

    We are at an unacknowledged turning point for the economy and the environment. We could, right now, substantially reduce our debt and deficit projections, take a major step toward a better environment, create a simpler and fairer tax system, make job creation easier, and raise economic growth a bit. For all of these reasons, we could and should adopt a carbon tax.

    Taking this step depends on two men: President Obama and Senator Max Baucus, chair of the Senate Finance Committee. Both men want to leave an important legacy, and both are in a unique political position: they still possess real political power, but neither will ever face another election. (Obama, of course, is limited to two terms, and Baucus has just announced that he will retire.) Acting together, the two of them could completely change the odds of enacting a carbon tax this year.

    Right now, if you ask around, as I have, there are many across the ideological spectrum who agree that a carbon tax would help us solve a lot of problems, but they won't take a public step because they see no leadership support. My own gut feeling is that there would even be energy industry support for a carbon tax. President Obama and Senator Baucus could change this picture by making a carbon tax a priority and building bipartisan support for the project.

    Why should we care? Let's look at four issues: federal revenues, the tax system, jobs, and – oh, yeah – the environment.

    First, a carbon tax of $20 a ton would raise about $120 billion a year, or $1.2 trillion over a decade. Right now, everyone anywhere near the budget debates is in a convenient and delusional state of mind about revenues. The conventional wisdom is that we either do not need more revenues or they are easy to find. So here are some counter-assertions: (1) despite the right’s imaginations, we are not going to cope with the retirement of the boomers, the doubling of folks on Medicare, and our need for fundamental infrastructure investment without new revenues; (2) despite the speeches the left makes to itself, the problem won't be solved by taxing whomever the left decides is rich; (3) we aren't going to end the home mortgage and charitable deductions. There will come a point when $1 trillion in new revenue over the next decade that actually makes the economy and the world a little better will look pretty interesting, so why not try for it now?

    Second, the tax system is a mess and more caught in a state of political gridlock than even the rest of the federal budget. The system is far too complicated, and it probably lowers economic growth and job creation. More practically, raising new revenues from this structure is next to impossible; the 40-year strategy of broadening the base and lowering rates (a strategy I agree with) has played itself out. With the carbon tax's $1 trillion, you could exempt low-income families, reduce the payroll tax, lower overall tax rates, and still bring down the debt and deficit. Sure, there would be fights about how to use the extra revenue, but those are fights the political system is supposed to have.

    Third, jobs. We rely way too much on payroll taxes. They are very, very inefficient, and they directly and visibly add to the costs of job creation. Back when the U.S. economy was an unstoppable job machine, these taxes looked as though they were cost-free. Not anymore. I am optimistic about our long-term economic prospects, but I also think the jobs of the future will require much more education and training content than the jobs of the past, and therefore employers will be much more sensitive to other costs, i.e., taxes. Anything sensible we can do to make job creation easier and less costly is a step we should take.

    Finally, the environment. A lot has been published recently about climate change and its sensitivity to greenhouse gases. Cutting through all of the models and the uncertainties, the net conclusion is that warming is probably a small bit less sensitive to greenhouse gases than we have thought. Climate change deniers have used this for the obvious purposes. But the actual end conclusions haven't changed much. At current rates, we will put half a trillion more tons of carbon into the atmosphere by 2045 and 1 trillion more by 2080. Because of this the Earth's temperature will probably warm about three-quarters of a degree in the next 30 years and 1.5 degrees over the next 50. (30 years may seem a long time to some of you; from my perspective, it's a blink of an eye away.) And the math keeps suggesting that the earth's sensitivity to extreme events is increasing more rapidly than global warming. So the future may be less hot but more dangerous.

    Isn't it worth a small amount of political difficulty and a fairly small tax now to slow down these trends? Everyone in politics talks a lot about political courage – mostly their own. As far as I can tell, political courage normally consists of doing something your supporters love and your opponents hate and then bragging about it. But maybe the two leaders I mentioned at the start will realize that they can afford to change that definition and leave a real legacy.

    Roosevelt Institute Senior Fellow Bo Cutter is formerly a managing partner of Warburg Pincus, a major global private equity firm. Recently, he served as the leader of President Obama’s Office of Management and Budget (OMB) transition team. He has also served in senior roles in the White Houses of two Democratic Presidents.

     

    Melting Earth image via Shutterstock.com

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  • The Budget Wars: An Outbreak of Sanity or the Foundations for a New Offensive?

    Mar 18, 2013Bo Cutter

    The partisan divide over the budget may seem unbridgeable, but there's a deal to be had if both sides want it.

    I'll open by acknowledging a considerable difference between my budget/fiscal policy hopes and my actual predictions. My hopes for the emergence of a doable centrist budget strategy from the Obama administration have never come close to reality. My predictions that nothing much will happen have mostly been correct. So where are we now?

    The partisan divide over the budget may seem unbridgeable, but there's a deal to be had if both sides want it.

    I'll open by acknowledging a considerable difference between my budget/fiscal policy hopes and my actual predictions. My hopes for the emergence of a doable centrist budget strategy from the Obama administration have never come close to reality. My predictions that nothing much will happen have mostly been correct. So where are we now?

    We're in the middle of the clash of ideology, reality, what Edward Luttwag calls "the autism of great powers" applied to domestic politics, and an organizational-bureaucratic brain freeze. Both the left and right are deeply mired in the ideologies of another time and another universe. Reality has played out contrary to all expectations. The "great powers" keep saying the same things because that's what they said yesterday. And the various bureaucracies are all essentially impermeable to new strategies and have no idea what steps to take now.

    There are some parallels here to Bill Clinton and the spring of 1995. (Just to be clear, I was an enthusiastic part of that administration.) In the 1994 congressional elections, the Clinton administration had been clobbered. For the first time in 40 years, the Republicans won both houses of Congress, gaining eight seats in the Senate and 54 seats in the House. It was a grim time in the White House, made grimmer by the standoff over 1994-95 spending and the government shutdown that then ensued. Bill Clinton won the public relations battle around the shutdown but, in retrospect, clearly began to be uneasy over how dug-in over budget/deficit issues his own White House was. And it was Bill Clinton, acting on his own, who moved his administration toward a balanced budget as a goal, toward the political center, and toward a huge victory in 1996.

    Is something similar happening now?

    The circumstances are obviously not exactly the same today. President Obama has won his second term and is now trying to establish the basis for a successful second term and a legacy for the ages.

    Just a few weeks ago, the second-term strategy, clearly signaled by the White House, was to run against the Republican House and focus almost completely on turning the House in the 2014 elections. Not that anyone asked, but I thought this was a terrible strategy. (And no, the Truman 1948 "Do-Nothing Congress" campaign is not even remotely an analogue.) Winning the House in 2014 is an uphill fight with the odds very much against the president. If you as the president try and then lose, you can be certain that you will get nothing in your last two years -- because you invested your first two in depicting your political opponents as the nation's enemies. If you try and actually win, you won't win much because your power ebbs so rapidly in those last two years. All those House seats you won will be filled by moderates who are looking to a future when you won't be there.

    I saw this as the common problem of poker players who don't understand the central issue of money odds versus card odds. It's okay to draw to inside straights if the pot is giving you money odds that are more in your favor than the card odds are against you. Which is to say low-probability strategies are fine if you really know the odds and the payoff is big enough. The problem in this specific case is that the odds are worse and the payoff for success less than the enthusiasts believe.

    But suddenly we're in the middle of a charm fest, filled with dinners and meetings and discussions, all about the budget, that were never anticipated. What happened? Reality happened.

    I think there is at least a chance that President Obama noticed developments out there in the real world, saw that his own White House was dug in on a low probability/low return strategy and unlikely to change, and moved on his own.

    What, possibly, did the president see?

    The end-of-the-year tax increases on upper-income families did not lead to the uprising Republicans expected. But they also did not spark the public expressions of devotion that the White House wanted.

    Then sequestration happened, which no one expected, and it was a political non-event. The public did not turn against Republicans because of the budget cuts. But it also became obvious to everyone that sequestration makes all of government a bit worse, and is more than anything else a sign of an utter absence of political leadership or comity.

    Then the picture of the economy became a bit clearer. Here's my view: enjoy this nice employment bump we've had and the decent first quarter (which is basically over), because it's the last of the good news. The rest of the year will probably be pretty slow, and the sequester will probably cost us about 500,000 jobs, mostly in the private sector. If you're President Obama, you know one thing for certain: any chance you have of building a great second-term legacy will be sunk if the economy stays mediocre and you're spending your time entrenched in the budget wars.

    Finally, the polls began to tell a story. In the most recent Washington Post - ABC News poll, President Obama's approval ratings have dropped 5 points to about 50 percent since his reelection. And the 18-point advantage the president had over the Congress regarding whom the public trusted more to handle the economy has fallen to 4 points. 50 percent of independents now have a negative view of the president's performance compared to 44 percent with a positive view. Since the end of World War II, only two second-term presidents, Obama and George W. Bush, have had approval ratings this low this early. (This is not good company.)

    Meanwhile, of course, the ongoing public debate involves all of the normal agita. Representative Paul Ryan and the Republican House have put out a House budget that progressives hate. And Senator Patty Murray and the Senate Democrats have offered a counter-budget that conservatives hate. The two, of course, have nothing to do with each other, and cannot possibly be used as the basis for a true compromise or "deal." I think they are like the cans of sardines in the joke: they're there for trading, not eating. Judging by the mail I keep getting telling me breathlessly there is a desperate need for me to give money to save us from Paul Ryan (I'd bet the conservative side is raising money to save us from Patty Murray), I sometimes suspect that the left and right got together and agreed to put out two undoable budgets as organizing and fundraising mechanisms. Thankfully, we really do not have to spend a dime to defend ourselves against either Ryan or Murray. Both of their efforts are basically sideshows.

    What I hope is happening -- and a few friends in various places think is happening -- is that both sides are looking at all this and concluding they can't be at all confident they have winning hands, and maybe it's better to see if there's a deal to be had. It will be hard to do anything else of real importance until this issue is settled; it will just sit there offering opportunities for completely unproductive fights several times every year. President Obama has a much lower chance of building a real legacy unless the issue is settled. And the hell of it is that if you decide to solve the problem over a decade, it actually isn't that hard.

    Roosevelt Institute Senior Fellow Bo Cutter is formerly a managing partner of Warburg Pincus, a major global private equity firm. Recently, he served as the leader of President Obama’s Office of Management and Budget (OMB) transition team. He has also served in senior roles in the White Houses of two Democratic Presidents.

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  • The Fork in the Road Already Facing Obama's Second-Term Agenda

    Feb 25, 2013Bo Cutter

    President Obama has a limited amount of time to accomplish his second-term goals, so there's no time like the present to go big.

    Admittedly it is absurdly early to be suggesting that President Obama's second term is at a crucial fork in the road. But I think that's where we are and here's why.

    President Obama has a limited amount of time to accomplish his second-term goals, so there's no time like the present to go big.

    Admittedly it is absurdly early to be suggesting that President Obama's second term is at a crucial fork in the road. But I think that's where we are and here's why.

    Second presidential terms are two years, not four years. Second terms have rarely been resounding successes. Sometimes the reason is too specific to be generalized. More often, the reasons have included scar tissue, fatigue, and a dwindling bench. The American people get sick of the same faces, the old players are exhausted and have spent whatever intellectual capital they came with, and the new players aren't as good as the old players. But, always, the underlying direction is declining political capital. Senior American politicians, regardless of party, are as a class or caste the most self-referential, self-reverential, and self-regarding group our species has known in its roughly 100,000 years on the planet. They have an uncanny capacity to sniff out the exact nano-second that power begins to ebb, no matter how slightly, and then act to accelerate that ebbing. 

    So President Obama has two years, not four, to get anything big accomplished, and that means he has to say what it is -- now.

    There are three obvious mega strategies. Whether the president's political advisors know it or not, the choice between these three is the big decision they are making right now.

    1. Beat up the Republican party with the hope of fracturing it completely or simply clobbering it in the 2014 Congressional elections. This seems to be the preferred direction right now.

    2. Accomplish a series of individual policy wins -- pick among immigration reform, preschool education, a small infrastructure plan, or even a carbon tax.

    3. Change the political/policy game in America and give the country a new story.

    That first goal is an emotionally satisfying choice and no group deserves clobbering more than this era's Republicans right wing. But it may not be possible and it may not help achieve real policy goals as much as one might think. The Democratic left is nowhere near as unpleasant as the Republican right, but it is just as mired in a 60-year-old, outdated ideology. And this strategy doesn't constitute much of a legacy for President Obama.

    The second goal is highly worthwhile and may be all anyone can accomplish in today's dysfunctional Washington. If President Obama achieved significant legislation in each of the four areas I named above, he would have achieved more than any of the last three, maybe four, second-term presidents going back at least 50 years.

    The third goal -- a new vision or story of America -- sounds so over-reaching as to be preposterous. But I believe we are at a moment when this is possible: a time of immense global change, an improving economy with better prospects than any other developed economy in the world, a gridlocked political environment locked into interminable debate over the wrong issues, a high level of American citizen dissatisfaction with our politics, and a popular second term president with room to maneuver. We are unlikely to see this confluence of circumstances again for another 50 years. 

    Two points about these mega strategies: They are in part mutually exclusive and path dependent. And only a president can outline them and carry them out. Certainly strategy 1, on the one side, and strategies 2 or 3 are mutually exclusive. In terms of how politics and human beings work, the president cannot decide to beat the Republicans up for a time and then change gears and directions. But strategies 2 and 3 are not mutually exclusive. President Obama could present a new American story and then move to a set of specific policies. In fact, this might be the best course for accomplishing anything. 

    I believe that right now, the president could do two big things that, if successful, would make his second term successful, have high odds of being successful, and would have low costs if they aren't successful. First, he could offer a real deal to stop sequestration and, second, he could define the next era.

    Lets start with sequestration. This is a manufactured crisis -- a set of automatic budget cuts that will make our defense, international, and domestic programs worse (in fact, the set was designed to make everything worse) but on the other hand will do next to nothing about our long-run debt and deficit problem. It was a last-ditch, desperate effort 18 months ago to look as though something was being accomplished. Its big flaw -- other than being completely irresponsible -- was that if it were going to force a real resolution, it always depended on the president defining a deal. Congress is not capable of doing that. All Congress can ever really do is the short-term, kick it down the road for three months efforts being thrown out today. These are worthless.

    Now is the moment for the president to put forward a real deal, with real entitlement reform. This means reductions in the long-term rate of growth in entitlement spending, some further defense cuts (I don't think we should cut normal regular domestic spending, but it should certainly be rearranged), income tax reform where possible (but not much is possible), and a new source of revenues -- a new tax. We cannot solve our debt/deficit problem and pay for the government we all know we are going to have without new revenues. I've always been a proponent of a highly defined, progressive value added tax (a VAT), and still am. But I think that a carbon tax would be the better choice right now. Why not raise $1 trillion over the next decade and simultaneously begin to solve our most pressing environmental problems?

    But the president should define such a deal not as the be-all-and-end-all of his administration, but rather as a necessary step toward an era of safer, higher, more sustainable, more equitable growth. He could explain how achieving this growth is possible and why it requires both fiscal reform and investments in the future. He could demonstrate easily how the specific policies he stressed in his State of the Union fit into this long-run direction. He could show a deeper understanding of the real private sector. And he could emphasize that we have time to adjust to change if we start now. As an example, a real and credible 10-year debt/deficit plan is what we need, not an economy-breaking one or two year slash and burn plan.

    I believe that a deal is there, waiting to be made. The adults in the Republican party know they are in a trap. Americans would support a deal (all the polls show that the American people are far less polarized on these issues than Washington is). Most Democrats would rather be talking about solutions and growth than waging these interminable budget wars. The president could get 1) a deal, 2) an agreement to stop the incessant budget warfare (by permanently canceling the sequestration and ending the constant debt ceiling threats), 3) the chance to create the coalitions necessary to accomplish his policies without constantly fighting the budget battles, and (4) an actual shot at defining the contours of America's next era. 

    But the president has to decide and act. What strategy is he pursuing? What does the country need? What are second terms for? 

    Roosevelt Institute Senior Fellow Bo Cutter is formerly a managing partner of Warburg Pincus, a major global private equity firm. Recently, he served as the leader of President Obama’s Office of Management and Budget (OMB) transition team. He has also served in senior roles in the White Houses of two Democratic Presidents.

     

    Obama image via mistydawnphoto / Shutterstock.com.

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  • The State of the Union: A Good Speech, But a Lost Opportunity

    Feb 14, 2013Bo Cutter

    President Obama offered up a good list of policies, but there was no clear vision of the future to go with it.

    A couple of days ago I wrote an essay in anticipation of President Obama's State of the Union speech. Assuming a "pivot" back to the economy, I defined two kinds of economic speeches he could give: the plain vanilla, commodity speech every president gives, or one that very much anticipated the future. I underlined my own hopes for the second kind of speech.

    President Obama offered up a good list of policies, but there was no clear vision of the future to go with it.

    A couple of days ago I wrote an essay in anticipation of President Obama's State of the Union speech. Assuming a "pivot" back to the economy, I defined two kinds of economic speeches he could give: the plain vanilla, commodity speech every president gives, or one that very much anticipated the future. I underlined my own hopes for the second kind of speech.

    However, Tuesday night's speech was, I would argue, an extremely high-level version of the first type of economic speech. Of course, it was good -- on his worst day ever, President Obama is not capable of giving a bad speech. The specific policies and proposals he put forward were mostly right. He gave important prominence to critical areas such as climate change.

    It also has to be said that, once again, President Obama was incredibly lucky in his competition. Senator Rubio, the most recent Republican savior, gave a pedestrian response accompanied by a now-famous swig of water. Senator Rubio comes off as an admirable man, and I had no problem with the water thing, but he's not in the president's league, and you continue to wonder when the Republican Party will come up with a narrative that actually has anything to do with American life. I think our system badly needs a viable Republican "story."

    However, classy as the president was, he did not provide that narrative either. This speech did not give a coherent, passionate vision of America today, a vision that would impel movement in the directions he wants.

    A few thoughts about the actual policies the president stressed: middle class jobs, the minimum wage, preschool education, infrastructure, manufacturing technology institutes, a market-based climate initiative, and a European Free Trade deal. It's a perfectly good list, and a pragmatic, straightforward case can be made for all of them. Some may actually happen. My sense is that a substantial trade deal with Europe is within reach, and if Europe ever recovers, a deal would add a couple of tenths to our growth rate. Some probably won't happen. I doubt that the national minimum wage will be raised, although I think it would be good for the country if it were. And we aren't going to see the miraculous reemergence of a bipartisan market-based climate approach.

    But in the end, it's just a list. The following did not happen with respect to these policies: there were no priorities, there was no sense that we have to make choices, and there was no overall story that makes this set of policies seem to be something we have to do.

    This is my core problem with the speech and why it's a lost opportunity. I refer everyone to David Brooks's recent column, "Carpe Diem Nation." His core point is this: "Instead of sacrificing the present for the sake of the future, Americans now sacrifice the future for the sake of the present." He's right, and this should have been the frame of the president's State of the Union speech.

    We are confronting enormous change. We have to figure out how to cope with it. We know that this "coping" will cost a lot. But we are spending every marginal dollar on our entitlements. We can and should raise more revenues, but anyone who thinks much more will come out of the income tax by whacking the wealthy again is dreaming. So we have to make choices, but, even more important, some core of America needs to be united around a commonly held story about America and its future.

    The hell of it is this isn't that hard. The story is completely obvious and would be bought into by a large number of Americans. The future of our economy is quite positive -- more so than any other developed region of the world. And for us the choices really aren't excruciating. It's just important in our polarized politics for the right and the left to pretend they are. I believe that President Obama could both have begun to build the foundation of a really big legacy and raised the probabilities of his policies becoming real if he had chosen to take the risk of telling the story of America's next chapter.

    Roosevelt Institute Senior Fellow Bo Cutter is formerly a managing partner of Warburg Pincus, a major global private equity firm. Recently, he served as the leader of President Obama’s Office of Management and Budget (OMB) transition team. He has also served in senior roles in the White Houses of two Democratic Presidents.

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  • A Forecast for the 2013 State of the Union Speech

    Feb 11, 2013Bo Cutter

    This is not the moment to give the same economic speech, but to be bold and long-term.

    This is not the moment to give the same economic speech, but to be bold and long-term.

    Inaugural addresses are about poetry and vision; State of the Union speeches are about prose and governing. (I acknowledge the inaccurate theft from Governor Mario Cuomo.) But they can and should be about more than a simple listing of policy and budgetary goodies, which is more often what they have become, or the inevitable, and politically necessary, announcement that the state of the union is "good." President Obama should raise the level of the genre and his own game in Tuesday night's speech. Because second term presidencies are two real years rather than the constitutional four years, the president has a lot at stake in making this his best State of the Union.

    The president's advisors have told the media that this speech will reflect a "pivot" back to the economy after the Inaugural Address's focus, largely, on inequality. That would be very welcome. But he still has a choice.

    He can give the standard, dull, plain-vanilla generic presidential speech about the economy. This would have three major themes: (1) the economy is not in good enough shape, but it's getting better; (2) everything my administration has done to date is the reason why the economy is getting better; and (3) here is my list of actions we intend to take that will immediately make the economy even better. That last point invariably emphasizes job creation, immediate job creation, immediate American job creation, and immediate American good job creation. The generic speech always has a number of good things to say about infrastructure spending. This is all always said with the implicit assumption that the economy of tomorrow will be much the same as the economy of yesterday and today and that no one need worry too much about change. You have to remember that State of the Union speeches are drafted by political advisors and consultants who, across all political parties and all times, share two views about the American people: they go into catatonic states at the prospect of any change and their time horizon is at most a couple of weeks. This speech would disappear without a trace.

    Or he could decide to give a far better economic speech. It would have the following themes:

    First, a discussion of long-run economic growth, not the next six months - which matter, but not as much as the long term. 

    Second, a focus on a particular kind of growth: long-term, equitable, and sustainable. I mention the "sustainable" point in particular because it is always part of any rhetorical flourish but mostly disregarded when the time comes to do anything. 

    Third, a conversation about change. As is obvious to anyone, and as is detailed by the fascinating ebook by McAfee and Brynjolfsson, The Race Against the Machine, we are in the middle of a huge, long-term period of enormous dislocating technological change, and that's only one aspect of the change we are going to see. The American people need this president to tell them this and to say clearly this change will fundamentally alter many of the givens of jobs, work, companies, education, etc.

    Fourth, an outline of a practical vision. The impending change is real, but so is America's immense capacity for innovation and reinvention. The president can show how down-to-earth, sensible policies will put the country on the right side of this change.

    I haven't mentioned the omnipresent issues of budgets, deficits, and debt. These issues have to be resolved if we want to establish a strong basis for the economy of the future and if we want to make this economy safer. These issues should be put in this economic context. Resolving them will require movement from both Democrats and Republicans. There is no movement today. In this speech, President Obama should make a thoughtful and genuine proposal to break today's complete deadlock. 

    The probability of this second speech being given is well below 10 percent. But the president would be better off if he gave it and if he established a different kind of context for that portion of his second term that really matters. This is a use-it-or lose it moment; this is what second terms are about.

    Roosevelt Institute Senior Fellow Bo Cutter is formerly a managing partner of Warburg Pincus, a major global private equity firm. Recently, he served as the leader of President Obama’s Office of Management and Budget (OMB) transition team. He has also served in senior roles in the White Houses of two Democratic Presidents.

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