The commission appointed by President Obama to tackle the U.S. budget deficit voted Friday on a comprehensive plan to rein in spending, raise revenue, and change a number of important programs such as Social Security and Medicare. William Galston, Jonathan Rauch, William Gale and Ben Harris, Isabel Sawhill, Ron Haskins and Henry Aaron weigh in on the path forward, noting that the commission clarified both the huge dimensions of the problem and the fact that it is manageable with shared sacrifice and political will.
Fiscal Commission’s Vote is Encouraging for the Future of Reform
William A. Galston, Senior Fellow, Governance Studies
President Obama’s fiscal commission voted eleven to seven in favor of the deficit reduction proposal crafted by the commission’s co-chairs, former Senator Alan Simpson and former White house chief of staff Erskine Bowles. While the tally fell three votes short of the supermajority needed to trigger congressional consideration, it surpassed the pessimistic estimates that prevailed until just a few days ago.
Particularly notable—and encouraging—was the willingness of five out of six senators to support the proposal. This included not only Kent Conrad (D-ND) and Judd Gregg (R-NH), longtime partners in the battle to restrain the federal budget, but only—and more surprisingly—two staunch conservatives, Mike Crapo (R-ID) and Tom Coburn (R-OK), as well as Dick Durbin (D-IL), a liberal champion and a senior member of the Senate Democratic leadership. Max Baucus (D-MT), the chair of the Senate Finance Committee, refused to go along; his stated rationale—that the proposal would impose sacrifices on rural America—overlooked the fact that everyone will have to sacrifice if we are to solve this problem.
Only one Democratic House member—John Spratt (D-SC), the outgoing chair of the Budget Committee—was willing to sign on, while all three House Republicans were opposed. In remarks on Wednesday, Paul Ryan (R-WI), the Budget Committee’s incoming chair, said that he could not accept the plan because (among its other flaws) the plan did not advocate terminating President Obama’s recently enacted health insurance legislation. Whatever one thinks of that legislation, one thing is clear: if deficit reduction is held hostage to the effort to repeal it, the country is in for years of damaging fiscal gridlock.
It is not a surprise that Democratic elected officials on the commission were divided between members who gave efforts to address fiscal problems a high priority and those who cared more about protecting traditional party commitments. It is a surprise, however, that Republican officials—long thought to be monolithically opposed to all tax increases—divided down the middle on a deficit reduction package that did include such increases. Granted, the package was tilted more in the direction of spending cuts; granted, also, that the increases mainly took the form of reducing preferences rather than raising rates. Still, the breach between the Republican senators and their House counterparts suggests that there may be more of an opening for a serious discussion across party lines than recent conflicts have suggested.
The ball is now in President Obama’s court. If he embraces the outlines of the commission’s proposal and features it in his 2011 State of the Union address, the fiscal discussion will proceed in the 112th Congress. If not, more gridlock is a near-certainty.
Fiscal Commission Vote Shows Compromise is Possible
Jonathan Rauch, Guest Scholar, Governance Studies
Like everyone else, I could find nits to pick with the end result of President Obama’s bipartisan fiscal commission. For instance, its plan is vague on long-term health-care cost control (though no one really has a solution to that). But never mind the nits. The important thing is what the commission did do.
Or, I should say, things, plural. Among those, several stand out.
1) The commission broke the ice on some hitherto taboo, or semi-taboo, ideas. Instead of mumbling about across-the-board freezes, earmarks, and deep cuts in narrow slivers of the budget, it went for big cuts in spending, including sacred cows. Just as important—no, more so—it said flat out what everyone (or everyone serious) knows to be the truth: you can't get there from here without raising taxes. And it got some Republican support for that proposition.
2) It showed the problem to be huge, which we already knew, but also manageable, which wasn't so clear. Lots of politicians and activists have issued vague calls for a strenuous effort to get the budget under control, but until now they have shirked the details, or, like Rep. Paul Ryan, author of the Republican "Road Map" budget plan (and the incoming chairman of the House Budget Committee), have gone only half the distance. (In Ryan's plan, the action is all on the spending side, would leave large deficits for decades to come, and would not balance the budget until 2063.)
Now, at last, we know what a credible, truly big-enough plan looks like. And guess what? It's not so terrible! If you put it in place, most people would get on with their lives just fine.
3) It gave a feel for the real-world state of consensus. The final plan received 11 votes out of the commission's 18. That's a solid majority, but also solidly less than a supermajority. (A 14-vote supermajority would likely have triggered a congressional vote on the plan.)
This seems a pretty good distillation of where the country is. You can get a majority behind a really serious fiscal compromise. What you can't get is a broad enough consensus to preclude heavy sniping from the extremes. In other words, the political problem is the presence of extremist minorities—aka spoilers—rather than the absence of a centrist majority.
Spoilers are a major headache. Ask any Middle East peace negotiator. But the good news from the commission is that there is a majoritarian compromise out there to spoil. If the center hadn't held, we'd be in much worse trouble.
4) Despite everything, Republicans and Democrats can still sit in a room together, engage a hard political issue, and stay civil. Maybe they should try it more often. Just a thought.
Comments on the President’s Fiscal Commission
William G. Gale, Senior Fellow, Economic Studies
Benjamin H. Harris, Senior Research Associate, Economic Studies
The Fiscal Commission’s proposal is nowhere near perfect but it did its job, showing how a fiscal solution could be crafted.
Several aspects of the plan are worth highlighting. First, the Commission made tax base broadening a key aspect of its proposed reform. Limiting the wide array of credits, deductions, and other allowances — which essentially amount to spending through the tax code — allows for lower tax rates and more revenue; base-broadening is the foundation of all serious tax reform proposals. The Commission smartly limits the reach of the mortgage interest deduction, which does little to impact homeownership rates; the exemption of employer-provided health care premiums, which serves to drive-up health care costs; and tax benefits for retirement saving, which do little to encourage new saving.
Second, the Commission puts Medicare and Social Security on the table. It is practically impossible to solve the deficit problem without reforming these programs. Whether the Commission proposed the right level of change, or the right composition of changes (for example, one might want to bring Social Security into fiscal alignment by raising revenues rather than cutting benefits) and whether the Commission’s proposals are enforceable (the plan doesn’t really say how it would restrain Medicare costs) are valid concerns. But getting those programs on the table is the first step.
At the same time, several aspects of the plan are disappointing. First, the Commission’s plan does not raise enough revenue — this is related to the concern about how well Medicare costs would actually be contained. In fact, it only raises about as much revenue than if Congress did nothing and allowed the Bush tax cuts to expire. Tax Policy Center analysis shows that all taxpayers would pay less under the Commission’s Plan than if the Bush tax cuts simply expired (see the table below). A tax cut is not the appropriate first step towards deficit reduction.
Second, the Commission’s plan does not take advantage of other potential revenue streams like a carbon tax or a value-added tax. We have advocated for a VAT before and believe it to be worthy pillar of the deficit-reduction agenda, while a properly-designed carbon tax can be both sound environmental policy and a substantial source of tax revenue.
Lastly, it is worth noting that seven commissioners voted against the plan. Some of the Commissioner’s have publicly supported other plans — Paul Ryan and Jeb Hensarling support the Ryan Roadmap and Jan Schakowsky and Andy Stern have released their own plans — but others have not. The commissioners were placed on the Commission to solve the deficit problem, not simply vote against reform. Since the “status quo” is unsustainable, it should take a plan to beat a plan.
Deficit Reform Glass is Half-Full
Isabel V. Sawhill, Senior Fellow, Economic Studies and Director, Budgeting for National Priorities
The members of the president's fiscal commission voted 11 to 7 in favor of the report to cut the deficit by $3.8 trillion over the next decade through a combination of spending cuts and tax increases. The media are focusing on the fact that the commission fell short of the 14 votes needed to send the recommendations to Congress. But that’s the wrong spin in my view. The glass is more than half full for several reasons. First, the majority in favor was a bipartisan group, including such usually-far-apart heavyweights as Senators Dick Durbin (D-Ill.) and Tom Coburn (R-Oklahoma).
Second, the commission has reframed the debate. Anyone in Congress who now tries to get away with a lot of vague rhetoric about the need to cut spending will have to get more specific. This plan may not be acceptable to either the far right or the far left but it has set a standard against which other proposals will be measured. In particular, it has smoked out those who are hiding behind pious statements about the need to get rid of inefficiency or protect the vulnerable.
Third, there was a remarkable degree of consensus about the need to reform the tax system by curbing or eliminating what the commission calls “tax earmarks”—a category that contains more than $1 trillion a year in contrast to the $16 billion of ordinary earmarks.
The tragedy in this otherwise happy story is that Congress may make the job much harder than it need be by extending the so-called Bush tax cuts. As I have argued elsewhere, any extension—even a temporary one—should be coupled with a down payment on tax reform that caps various tax deductions but provides a big incentive for the wealthy to spend more in the short-run via a temporary super-deduction for charitable giving. Another option is David Brooks’ proposal to extend the tax cuts for only one year and make any further extensions conditional on overhauling the tax code along the lines recommended by the commission.
Two Cheers for the President’s Debt Commission
Ron Haskins, Senior Fellow, Economic Studies
Two cheers for the president’s deficit commission. No one could have predicted that the commission would come up with such a balanced and comprehensive plan that requires virtually every major demographic group in the nation to take a hit. “Spread the pain” was their operating philosophy. Most important, the plan includes cuts in Medicare and Social Security as well as tax increases, arguably the most important example of balance in the plan—and reforms that are usually thought to be political suicide. Nor would anyone have predicted that such a plan would be publicly supported by six prominent elected officials from both parties. For the first time the biggest barrier to a serious solution to the nation’s apocalyptic deficit problem has been scaled—people who were elected by voters, and who must be re-elected if they want to continue in office, have voted in favor of a tough deficit plan that is stuffed with pain. The nation owes a huge debt to these brave representatives and senators.
But we have to withhold one cheer because too many commission members voted against the plan. Hopefully, however, the media coverage will emphasize the fact that half the elected officials and three of the four public representatives voted in favor of the plan. Thus, a majority of elected officials and prominent citizens, after extensive and careful consideration, supported a plan that gores every ox. They all had reservations, but they swallowed hard and voted “yes.” Senator Tom Coburn (R-Oklahoma) had it exactly right when he said “We have to start somewhere—and it can’t be all my way.” Under the bizarre rules adopted by the commission, a total of 14 of the 18 members had to vote for the plan for it to be “passed” and thereby gain a vote in the House and Senate. But under the normal rules of democratic bodies, the plan would have passed because it was supported by a majority of members of the commission. Besides, anyone who wants to can introduce it, or some variant, in the House or Senate.
The nation has now arrived at a moment of truth. We have several deficit reduction plans, we know that many elected officials from both parties are willing to make the tough votes necessary to reduce the deficit, and the media are giving huge play to how desperate our deficit problem is and how vital it is that the problem be addressed now. The stage is set for Congress and the president to enact legislation. In this regard, it might be fortunate that the Senate is controlled by Democrats and the House by Republicans. Let us have the Senate enact its plan, which will emphasize the solutions Democrats favor, and the House enact its own plan, which will favor solutions Republicans favor. Then the House and Senate, with the participation of the president, can reach the most important compromise in Washington in recent decades and produce a conference agreement the president will sign.
The momentum is building. It is now up to leaders in the House, the Senate, and the White House to keep it going. If they do, we will soon have a political environment in which it will be risky for elected officials to oppose rather than support tough measures needed to contain the deficit and rescue the nation from its impending financial catastrophe.
Put the Bowles-Simpson Plan on Ice
Henry J. Aaron, Senior Fellow, Economic Studies
It is a pity that the commission did not have the good sense to embrace fully, rather than merely flirt with, the idea advanced by the Rivlin-Domenici commission for a one-year payroll tax holiday to stimulate economic recovery. It is also a pity that the commission did not recognize, as the Rivlin-Domenici commission did, that a new source of revenue will be necessary in the years ahead to provide adequate levels of public services as the population ages.
The above is excerpted from the Fiscal Times; read the entire piece here »