Fiscal Commission Debates Deficit Cuts
Policy + Politics

Fiscal Commission Debates Deficit Cuts

There were no protests, no shouting and only one exchange that could be remotely characterized as confrontational as the president’s fiscal commission convened Wednesday afternoon for what may be its only opportunity to hear from the general public.

Several experts who testified at the hearing suggested that the commission’s deficit-shrinking timetable was too challenging, given the fragility of the economic recovery. More surprisingly, one of the commission co-chairmen signaled he might agree.

The commission is supposed to make recommendations that would shrink the deficit to 3 percent of gross domestic product by 2015. It is also charged with developing policy to address the long-term fiscal picture by finding ways to raise revenue or stabilize the growth of entitlement programs such as Medicare and Social Security. Those two missions may require different tools, however.

Robert Greenstein, executive director of the Center on Budget and Policy Priorities, said changes to programs like Social Security would have to be phased in slowly and would be unlikely to have any immediate impact on the deficit. Similarly, results from Medicare cost-control experiments in the new health care law won't be available in time to get any benefit by 2015. That would put most of the deficit-cutting burden on increased revenues. Higher taxes seem unlikely, given a polarized Congress with an anti-tax bent and a president who has pledged not to increase taxes on most Americans.

"It would be far preferable to propose a balanced and politically feasible plan to stabilize the debt starting in 2017 or 2018 than to reach a deadlock in your deliberations or adopt a plan with big program cuts that would be very harmful if enacted and likely would be unacceptable on Capitol Hill in any case," Greenstein said.

At the same time, he added, it may not yet be time to shift from stimulating the economy to reducing the deficit."We would urge you to keep in mind the president’s admonition against too much fiscal restraint while the recovery is still fragile and unemployment remains so high," he said.

Commission members drifted in and out and no more than six of the 18 were ever present, although 75 witnesses spoke during the seven-hour affair. Commission chairman Erskine  Bowles left before the 8 p.m. final gavel to make a flight out of town. His co-chairman, Alan Simpson, got a cushion for his chair two hours into the hearing, the better to bear the burden. 

In the morning, the commission took testimony from Congressional Budget Office Director Douglas Elmendorf. Ninety people signed up for four-minute speaking slots in the afternoon. They included a familiar lineup of budget wonks, representatives of labor, immigration and anti-tax groups and a just handful of private citizens who came to speak for themselves.

Several witnesses echoed the need for different approaches to shorter-term and long-term situations. That prompted  Bowles to say: "Where I'm having difficulty is trying to figure out the when and what triggers the deficit reduction." He asked what to use as a sign that the threshold had been crossed from need for growth to need for reductions.

"Unemployment would seem logical to me," said David Kallick, senior fellow at the Fiscal Policy Institute. John Irons of the Economic Policy Institute suggested that 6 percent unemployment would be a good bar, while David Walker of the Peter G. Peterson Foundation said 7 percent. In May, the rate was 9.7 percent.

(The Peterson Foundation provides funding to several budget and deficit awareness groups, including America Speaks and the Concord Coalition. Separately, Peterson, a New York businessman and philanthropist, funds The Fiscal Times, an independent news service.)

But Doug Hamilton of the Pew Charitable Trusts said it would be important to signal to markets now that serious action would be forthcoming. Brian Riedl of the Heritage Foundation, who thinks all cuts should come from spending, said there was no need to delay.

If Bowles is indeed looking to set deficit policy based on a trigger such as a level of unemployment,  it implies that the 2015 deadline is flexible. In addition, Senate Budget Committee Chairman Kent Conrad, D-N.D., also a commission member, said his budget plans would make the required cuts by 2015, so the commission shouldn't worry about that particular target. "The intense focus of this group should be the longer term," he said.

Witnesses were herded in and out of a nearby holding room in four-person panels. Sometimes, the commissioners asked no questions. In the holding room, witnesses-in-waiting stared mutely at a TV showing the hearing. At least one person dozed in an office chair.

The one sparring session was between the quick-tongued Simpson and his longtime nemesis, Grover Norquist, head of the anti-tax Americans for Tax Reform. Norquist called for spending cuts to stimulate economic growth, offered procedural proposals such as requiring that all legislation be online for five days before a vote, and said Congress should spend more time out of session, asserting that through history, when members go home, the stock market goes up.

Simpson, not content to wait to ask questions, jumped in, trying to get Norquist to admit that even double-digit growth for many years wouldn't solve the long-term debt problems. "Are you aware that there's no way to do this? Do you know that?" he said. "Absent spending restraint, that may well be true," Norquist allowed.

Simpson also told Norquist that Ronald Reagan, a hero to anti-tax conservatives, had raised taxes 11 times, and proceeded to list the increases. "What's your thought about your idol?" Simpson asked.

Norquist stood by Reagan's work, citing a tax plan that Reagan navigated through an "uncomprehending Senate," a jab at Simpson, who was in Congress at the time. "Tax increases are what politicians do when they don't have the gumption to govern," Norquist said.

Americans for Tax Reform handed out plastic "Obama Tax Hike Exemption" cards, featuring Obama's pledge not to raise taxes on any family making less than $250,000 and a list of recent tax changes. The back of the card suggests presenting it to retailers, asking for a discount and, if challenged, asking:  "Are you calling President Obama a liar?"

Carolyn Lukensmeyer, head of America Speaks, said most Americans are willing to make some sacrifices. Her group held a set of town halls on June 26 in which 3,500 people discussed long-term fiscal issues. Majorities were willing to reduce spending on health care and defense, and raise taxes on capital gains, she said.

Not everyone offered specific solutions, which the commission had solicited, but among those who did, proposals ranged from obscure tax structures to familiar fixes to Social Security. At least five people recommended indexing Social Security benefits or raising the cap on income that's taxed. Four said benefits should not be touched. Five called for an end of subsidies to agriculture and the oil, energy and defense industries. Four called for a tax on carbon, while three called for liberalizing immigration laws. Many reminded the commissioners not to leave behind the poor.

Those comments led Simpson to clarify earlier remarks about helping the "lesser people" in society. "It meant those that were most vulnerable; it doesn't have some denigration aspect to it," he said, accusing interest groups of using his words for scare tactics. "This thing is filled with emotion, fear, guilt and racism. It's all in there."

But except for one knock-knock joke, it was a mostly staid affair. The joke came from Maya MacGuineas, head of the Committee for a Responsible Federal Budget, who said her son poses it every morning. "Who's there?" she responds. "Howza." "Howza who?" "How's the budget going, did you fix it?"

"Please, for the sake of my family, put an end to the knock-knock jokes," she told the panel.