Scores of ideas for reducing the deficit will be put on the table at an all-day fiscal summit on Wednesday. But bringing the deficit under control and putting the nation on the path toward fiscal probity is challenging, frustrating work. In the end, it will all boil down to resolving a debate over the size and scope of government, according to a broad range of deficit reduction plans.
The speakers' roster, headlined by former President Bill Clinton, the last chief executive to preside over a balanced budget, will address the need for a long-term plan to bring the $1.4 trillion annual budget deficit under control. But the centerpiece of the conference will be the unveiling of six plans from across the ideological spectrum, each financed by the Peter G. Peterson Foundation, the sponsor of the annual event. Peterson, a former Wall Street financier and Commerce Secretary, also funds The Fiscal Times. The plans were developed by (from ideological left to right): the Roosevelt Institute Campus Network; the Economic Policy Institute (EPI); the Center for American Progress; the Bipartisan Policy Center; the American Enterprise Institute (AEI) and the Heritage Foundation.
The proposals are all comprehensive and far ranging, and offer road maps to containing or stabilizing the deficit in the coming decade -- if not actually balancing the budget. Yet despite their ideological diversity, none of the plans contains a magic bullet that would readily solve the long-term problem. Moreover, most of the ideas have already made their way into the public arena or been thoroughly vetted in some previous think-tank report.
The report of the National Commission on Fiscal Responsibility and Reform issued last fall, outlined scores of recommendations for reducing deficits by $4.1 trillion over the coming decade. At least, it sparked an important national debate about the government’s unsustainable spending path. And the fierce clashes between the Obama administration and Republicans on Capitol Hill over long-term spending and tax policy, and raising the debt ceiling, underscores that the deeply rooted philosophical differences will be hard to bridge.
A simple comparison of the AEI and EPI proposals, what one might call the responsible right-of-center and left-of-center poles of the debate, reveals the width of the gulf. AEI would privatize Medicare and turn it into a premium support or voucher program, no different than what has been proposed by Rep. Paul Ryan, R-Wis. That plan, part of a budget recently approved by the GOP-controlled House, has drawn fierce opposition from liberal groups, and may receive an electoral rebuke in upstate New York later today.
The EPI plan would increase range of taxes: on the well-to-do, on carbon, and on financial transactions to maintain entitlements and shore up investment in human and physical capital. Opposition to any form of tax increase has been the touchstone for any plan for balancing the budget in the eyes of most conservatives.
There is only one thing that both sides can agree on. “These choices are difficult,” said Alan Viard, a former Federal Reserve economist who is now at AEI. “When you actually stop and look at the numbers, it reinforces how difficult this is going to be.”
To put the two plans in perspective, it’s worth looking at what doing nothing entails. Call it the Congressional Budget Office plan, since their bean counter analysis always assumes current law will continue in place for the foreseeable future, defined as the next ten years.
Under the most recent budget and economic outlook, released by CBO in January, the nation’s total debt, currently $14.3 trillion, is slated to rise by nearly $7 trillion by 2021. Revenues a decade from now will equal 19.9 percent of the gross domestic product, while outlays for all purposes – including entitlements – will equal 23.5 percent.
That’s a deficit of about 3.6 percent of GDP, or slightly higher than what economists call primary balance since at that point the increase in debt each year will be about equal to the increase in economic growth. That’s the economic definition of affordable – when your debt doesn’t grow any faster than your income.
But look at what “doing nothing” assumes. It assumes that all the Bush-era tax cuts are allowed to expire – for the middle class as well as for the rich. It assumes there is no fix for the millions of families that will be swept up in the alternative minimum tax, which Congress adjusts every year. And it assumes there will be no pay increases for physicians who treat Medicare patients – something Congress until now has not been willing to allow, despite the adverse impact on the deficit.