Aggressive Deficit Reduction: Will Congress Buy It?
Policy + Politics

Aggressive Deficit Reduction: Will Congress Buy It?

Getty Images

With a Dec. 1 deadline  fast approaching, President Obama’s bipartisan fiscal commission is struggling between recommending aggressive and painful ways to reduce the $1.2 trillion annual deficit and more  politically prudent proposals that would skirt cuts in  Social Security, Medicare and other costly but highly sensitive entitlements.

The commission, headed by Democrat Erskine Bowles and former Republican Sen. Alan Simpson, postponed their deliberations during the final month of the mid-term election campaign, and will resume work shortly after the Nov. 2 election. 

The commission members are almost certain to leave untouched Medicare health insurance– a major contributor to the long term deficit — because the program already underwent significant cutbacks and revisions as part of the Affordable Care Act on health reform that Obama signed into law early this year.   

As for Social Security, an aide to the commission said that members are “looking at a longer term plan” that would address the program’s solvency beyond 2037, “but nothing for the short term because there wouldn’t be any need to do anything now.” For the first time in nearly 30 years, the retirement system will pay out more benefits than it receives in payroll taxes both this year and next,   but it will be decades before the retirement trust fund faces the threat of insolvency.

Medicare, Medicaid and the Children’s Health Insurance Program together account for 21 percent of the federal budget in 2010, or $753 billion. Social Security accounts for another 20 percent of the budget, or $708 billion.

But a broad range of other measures — cutting or freezing government spending and raising revenues through adjustments in popular tax breaks — are very much in play.  The Wall Street Journal reported yesterday that the commission will likely suggest cutting defense spending and freezing domestic programs – proposals already embraced by the Obama administration and many Republicans — and paring back a few important tax breaks.

The popular tax breaks the commission is likely to target include deductions on mortgage interest, child tax credits and the ability of employees to pay their portion of their health-insurance costs with pretax dollars, according to the Journal article. Commission officials are expected to look at preserving these breaks but at a lower level.

“There’s nobody working out specific proposals. There’s a consensus
that the problem is acute, it has to be addressed….Beyond that
there are no agreements and everything is on the table.”

Commission members and senior  staffers insisted Monday that no options have been ruled in or out and won’t be until after the election, when members,  including many currently serving in Congress, will have time to confer by phone or in person and begin to  assemble  a final package of proposals to submit to the White House and Congress.

“We’re still operating very much at 10,000 feet,” Sen. Judd Gregg, R-N.H., a key member of the commission, said in an interview Monday. “There’s nobody on the ground yet working out specific proposals. There’s a consensus that the problem is acute, it has to be addressed, and anything we do should be substantive and viewed as something that will have an impact on moving the deficit and the debt now. Beyond that there are no agreements and everything is on the table... to my knowledge.”

Bruce Reed, the staff director of the fiscal commission said, “The members are gone until after the election; no decisions have been made and we won’t know what the commission will do until they come back and decide.”

The commission was appointed by Obama last April to come up with proposals for reducing the government’s flood of red ink, and members took pains to project a can-do spirit of collaboration despite obvious political fissures.  Obama urged the commission to agree on a package of proposals by Dec. 1 that would balance revenues and spending for everything except interest on the debt by 2015. That would still leave a projected deficit of $571 billion in 2015 according to White House estimates while requiring either wrenching cuts in many federal programs or painful tax hikes.

By creating the commission, Obama and the Democrats were able to put off some of the toughest spending decisions until after the election. Budget experts generally agreed that it would be difficult, if not impossible, to persuade the GOP members of the commission to go along with tax increases, while liberal Democrats would be squeamish or outright opposed to tampering with Social Security or Medicare for seniors and Medicaid for the poor.

The Obama panel, officially called the National Commission on Fiscal Responsibility and Reform, requires that a super majority of at least 14 of 18 members agree on any proposal before it can be submitted to the White House and Congress for action. Obama and Democratic congressional leaders have promised to seek a vote on any proposal that emerges from the commission during the lame duck session of Congress — but that could prove to be a tall order, especially if the Republicans win control of the House and the Senate next week and insist on putting off any consideration until early next year, when they formally take control.

“Nobody knows what frame of mind members will be in after the election and what message they will take from the election,” noted a commission source  who said that much is still up in the air including what  Congress  will do about extending the Bush era tax cuts  and taking final action on this year’s appropriations bills.

One possibility under consideration is to offer a handful of specific spending cuts or tax increases and suggest adoption of new budget rules or creation of yet another panel — similar to the commission that decides on military base closures — to make the tougher decisions on entitlements. “Those ideas have been discussed but there has been no decision,” Gregg said.

Further complicating the picture is the role of Alice Rivlin, a prominent Washington budget expert, who is simultaneously serving as a member of the commission and as co-chair of the Bipartisan Policy Center’s Debt Reduction Task Force, which will offer its own set of deficit reduction measures Nov. 17 — two weeks before the presidential commission unveils its plan.

The Bipartisan Policy Center is a research organization begun by former Democratic and Republican Senate majority leaders and is partially funded by the Rockefeller and Peter G. Peterson foundations. (Pete Peterson funds the operation of The Fiscal Times.) Rivlin, a senior fellow at the Brookings Institution, and former Senate Budget Committee Pete V. Domenici, R-N.M., are the co-chairs of the taskforce.

“I’m working with both groups and I’ve been hopeful
about the fiscal commission…I never said to anybody
that [I was concerned] about political deadlock.”

Rivlin said yesterday that her debt reduction task force will offer “a strong set of tax reform proposals, Social Security and Medicare proposals,” as well as spending freezes on defense and domestic discretionary spending. The latest goal of the task force would be to try to stabilize the national debt at 60 percent of the gross domestic product by 2020, she said.  The debt held by the public totaled $9.01 trillion this month, or 66 percent of GDP. “So it’s a broad based plan that we think involves not only stabilizing the debt but reforms that will make the economy grow faster,” she said.

Rivlin, a former director of the Office of Management and Budget and of  the Congressional Budget Office,  strongly disputed a Bloomberg Businessweek  report last week that she was frustrated with the presidential commission’s political “paralysis” and was attempting to use the more ambitious recommendations of her other group to force the hand of the commission.

The article suggested that Rivlin was adopting a tactic that broke a similar stalemate in January 1983, when the National Commission on Social Security Reform collapsed in partisan bickering, and then-Sen. Daniel P. Moynihan, a New York Democrat, and then Sen. Bob Dole, R-Kan., put together a rump group that sold a compromise to the Reagan administration and Congress.

“That’s totally wrong,” Rivlin said. “I’m working with both groups and I’ve been hopeful about the fiscal commission. It hasn’t come together yet and won’t until after the election, but that was by mutual agreement, and I never said to anybody that [I was concerned] about political deadlock.”

Steve Bell, a former Senate aide to Domenici and a visiting scholar at the Bipartisan Policy Center, said that both the deficit task force and the presidential fiscal commission are bumping up against tough political realities and that it could take years before Congress and the executive branch can agree on a blue print for reducing the debt. He noted that many candidates for Congress have been under pressure from special interest groups on the left and right to pledge not to support cuts to entitlements, or raise taxes or support other measures essential to reducing the deficit.

“People will tell you funny phrases, like ‘We want it [the deficit-reduction package] to be politically viable,’” Bell said in an interview yesterday. “I’ve told everyone here — and I think everyone here knows it, that none of this is going to be ‘politically viable’ if you mean people are going to rush onto the floor of the U.S. House and Senate and endorse it.”

“But if you mean over time it will serve as a beacon, and give folks a pretty specific roadmap, then it will do that,” he added.

Related Links: 
A Deal on Deficit Reduction? Get Serious (The Fiscal Times)
Neocons Talk Deficit but Won’t Budge on Defense Cuts (The Fiscal Times)
Economists Argue Against Deficit Reduction (The Washington Independent)