A Key to Deficit Reduction: Embarrassment

OK, President Obama’s deficit commission is doomed to failure. Maybe the members – some of whom were already muttering about not touching taxes or entitlements at their first meeting – will surprise us. But let’s assume not, which Stan Collender suggests is a safe bet. What will it take to make headway?
 
If history is any guide, it’s pretty straightforward. There’s a short list of big, successful deficit-reduction efforts, and they all had at least two of these three elements in common: 1) The deficit situation had become dire or embarrassing, or both. 2) The president committed to the effort and/or signaled he’d give up a key pledge to get a deal. 3) The opposing party was willing to negotiate away a piece of its bedrock position to get a deal. Examples:
 
1982-83 -- Social Security was headed for bankruptcy, which was dire or embarrassing or both, depending on how you view Social Security’s complex accounting. The Greenspan Commission negotiated in vain throughout 1982, during which time President Reagan signed the largest peacetime tax increase in U.S. history, the Tax Equity and Fiscal Responsibility Act of 1982, a signal he was a dealmaker flexible on his core position on taxes. TEFRA and separate spending cuts could count as a major deficit-reduction effort, for that matter. The late Robert Ball’s memoirs contend that the eventual deal to save Social Security was not the commission’s work, but the product of a two-man negotiation between Reagan and Democratic House Speaker Tip O’Neill. Could Reagan and O’Neill have gotten there without the commission to pave the way? Either way, both sides gave ground to get a bipartisan package of spending cuts and tax increases. Technically, all the resulting revenues went to Social Security or its trust fund, but in reality, those surplus FICA tax collections have propped up the rest of the government to this day. Which is why this counts as “deficit reduction.”
 
1990 -- It was an election year, and a slowing economy and a ballooning deficit were combining to threaten huge, automatic Gramm-Rudman spending cuts that would come a month before voters went to the polls. Dire and embarrassing, especially given how blatantly both parties had ignored, finessed or postponed meeting the Gramm-Rudman targets already. Something had to give, and ultimately it was President Bush’s read-my-lips-no-new-taxes pledge, which he signaled he’d drop if Democrats joined in serious negotiations. Having pushed Bush into a corner, Democrats found themselves in one, too, having to give ground on spending programs to make a deal or look like obstructionists. It was a wild ride, and Newt Gingrich-led House Republicans rebelled and killed the first deal. But a second deal held, providing, among other things, appropriations caps and pay-as-you-go (PAYGO) limits on entitlements and tax cuts that amounted to serious budget discipline.
 
1993 -- A codicil to the three essential elements for successful deficit reduction is that it helps enormously if a third party candidate injects the deficit into the presidential campaign, which is what Texan Ross Perot did in 1992, when his hectoring embarrassed Bill Clinton and George Bush into taking the issue seriously. No matter that Perot himself had no clue how complex the issue was, or that his own first plan was mumbo jumbo; the issue caught on. Clinton came out of the election with only vague plans for real deficit reduction, but budget hawks such as Leon Panetta, Alice Rivlin and Fed Chairman Alan Greenspan pushed him to be bold, and he was. So bold that he almost crashed his young presidency when Republicans decided en masse to reject his ambitious package because it contained tax increases (sound familiar?) and only enough Democrats stayed with him to pass his plan by a single vote in the House and Senate. It was a remarkable gamble by a president who had no help from the opposing party, and it helped lead (along with an astonishing economy) to four years of balanced budgets in 1998-2001. We should all live so long to see that happen again.
 
So here we are in 2010. Any lessons from the past? Larry Haas rightly notes that atmospherics are crucial for deficit reduction, and after a decade of largely ignoring the problem, it has become an issue again, with much of the intensity it had in the 1990s. Washington is awash in budget commissions, the Tea Party has made the deficit one of its chief complaints, and both parties are making this a rhetorical priority. The situation is clearly dire: The debt is projected to rise to 60 percent of GDP this year for the first time since 1952, on its way to 90 percent by 2020. Somewhere along that continuum, lenders would bail out or demand punitive interest rates for financing American deficits. The president has signaled that he could give up his campaign pledge not to tax anyone making less than $250,000, a tentative sign of flexibility.

What’s missing so far is a willingness by Democrats to make necessary changes in Social Security, or any give on the Republican side for tax increases. If the commission stalemates along these lines and a new Congress with more Republicans likewise dithers in 2011, we could only hope for one of the other essential preconditions for successful deficit reduction: embarrassment.

Post your comment below or click here for the previous Capital Exchange post.

George Hager is a member of the USA Today editorial board.