That the United States faces a serious long-term fiscal gap is now widely recognized, but deciding what to do about it poses a huge dilemma for Congress and the Obama administration.
Many members of Congress appear to think that the best way to deal with it is to create a bipartisan budget commission, tasked to come up with a deficit-reducing program on which Congress would agree in advance to vote without amendment. Senators Kent Conrad, the North Dakota Democrat, and Republican Judd Gregg of New Hampshire proposed such a commission last year and again this year. Their proposal garnered the support of 53 senators, from both sides of the aisle, but it did not win the backing of the 60-vote supermajority required.
Now, President Obama has proposed creating a budget commission by executive order without the “vote without amendment” provision. Is either approach likely to work? The answer, unfortunately, is no.
Commissions have never replaced presidential and congressional leadership. A budget commission cannot substitute for the hard political negotiation and compromise that will be necessary to reduce deficits to a sustainable level.
The fiscal danger is real. The problem is not the current budget deficit, projected to reach $1.6 trillion this year. Most current red ink reflects reduced revenues caused by the current economic downturn and the added spending to fight it. These deficits are desirable. Without them the recession would be much worse than it is. They will shrink automatically with economic recovery.
By general consensus, the fiscal danger lies late in the current decade and the next.
Government spending is projected indefinitely to rise faster than revenues under current law. Those deficits will absorb private saving that could otherwise be invested at home or abroad. Economic growth will be slowed. Debt and debt service burdens will mushroom. If gaps are not closed, the nation will eventually be forced to default on its obligations. The result would be economic chaos.
The source of the fiscal gap is widely understood. Most is traceable to spending on health care – Medicare and Medicaid – and, to a lesser extent, on Social Security. The fiscal gap can be closed by cutting health spending and pensions, by raising taxes, or by some combination of both. The barrier to action is not a lack of technical analysis but of willingness by elected officials to make hard political decisions on how much to cut spending and how much to raise taxes.
Closing the fiscal gap will happen when two conditions are satisfied: Republicans must acknowledge that taxes have to go up, and Democrats must accept some cuts in the growth of spending. In fact, the Obama administration has already acknowledged the need to slow the growth of health care spending. Their health care plan was designed to produce long-term savings, but not for many years, and exactly how much would be saved was never clear. In any event, the future of the health care plan is still in doubt. As a stop-gap, the Administration’s proposed freeze on non-defense discretionary spending promises some modest relief.
The larger problem is the unwillingness of Republican leadership and most Republican members in both the House and the Senate to consider any increase in taxes. Most have signed a pledge not to raise income taxes at all. Republican intransigence means that negotiation is impossible.
The commission idea rests on a fundamental misconception – that even if they usually are window-dressing, they sometimes work. The poster child for allegedly successful commissions is the “Greenspan Commission” – the one appointed by Republican President Ronald Reagan in 1981 to come up with ways to prevent Social Security from becoming insolvent and that was chaired by Alan Greenspan.
That commission did, in fact, sign off on a set of recommendations. Congress enacted nearly all of them. But it was not the Greenspan Commission that developed the action plan. It was a rubber stamp for a deal negotiated independently by representatives of President Reagan and of the Democratic leadership in the House of Representatives. And it was the impending insolvency of Social Security, which had led to the commission, that drove those negotiations.
In the words of the late Robert Ball, a pivotal member of the commission and a leading negotiator for the Democrats: “Nothing … should obscure the fact that the National Commission on Social Security Reform was not an example of a successful bipartisan commission.
“‘The commission itself stalled – essentially deadlocked, despite continuing to talk – after reaching agreement on the size of the problem that needed to be addressed. As a commission, that was as far as it got. The usual commission procedure was then turned on its head. An agreement was negotiated between the principals by proxy and then the already agreed-to result was taken back to the commission for its endorsement” (emphasis added).
Ball then goes on to draw lessons from this experience that apply directly to the proposed budget commission:
“‘[T]o suggest that the Greenspan Commission provides a model for resolving questions about Social Security’s future would be laughable if it were not so dangerous… A commission is no substitute for principled commitment. Above all, we should not allow ourselves to fall into the trap of expecting miracles from another Greenspan commission – by deluding ourselves into believing, mistakenly, that the first one was a great success.”
If progress is to be achieved in a budget commission, Republicans will have to put tax increases on the table and mean it. Unless they do, the budget commission will be a forum for time-wasting talk, and the clock on a fiscal crisis will continue to tick.