Deficit May Be Shrinking But Hard Work Remains
Policy + Politics

Deficit May Be Shrinking But Hard Work Remains

iStockphoto/The Fiscal Times

After two years of harrowing confrontations in Washington, the national debt is no longer growing out of control and policymakers from President Obama to House Speaker John A. Boehner (R-Ohio) have rushed to take credit.

But nearly half the improvement forecast for the coming decade is due to factors unrelated to the budget battles, including lower-than-expected health-care costs and a recovering economy, according to a Washington Post analysis of congressional budget data.

The brighter budgetary outlook is recasting the political debate. A growing chorus of Democrats is urging policymakers to declare victory and move on, leaving deficit hawks to plead for them to focus on an unfinished job. Legislation passed since Republicans took control of the House in 2011 should generate significant savings this year and through the rest of the decade, the data show. But much of it will not materialize unless policymakers adhere to caps on agency spending — including a layer of sharp cuts known as the sequester — that people in both parties view as unrealistic.

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Lawmakers, meanwhile, have done nothing to improve the finances of Social Security and Medicare, programs that already account for more than a third of federal spending and are forecast to push the debt skyward again at the end of the decade as the baby-boom generation retires.

“The deficit is getting better, but it’s not a result of any hard choices Congress made,” said Robert Bixby, executive director of the bipartisan Concord Coalition, who has spent 20 years pressing lawmakers to address the looming expense of an aging population.

“They all want to get on the aircraft carrier, like George Bush with his ‘Mission Accomplished’ banners,” Bixby said, referring to the 43rd president’s premature 2003 declaration of victory in the Iraq war. “It’s very frustrating, because you can feel the momentum being sucked away from the budget debate. But then you look at the numbers and you realize how little has been done to solve the basic problem.”

Liberals long perplexed by Washington’s obsession with the debt have nonetheless seized the moment since the Congressional Budget Office last month announced that the budget outlook is improving much faster than expected.

This week, the Center for American Progress, a think tank with close ties to the White House, published a report urging policymakers to “hit the reset button” on the budget debate: “No more pretending that the sky is falling. No more rash actions to cut the deficit without regard for real-world impacts. No more calls for an ever-elusive grand bargain.”

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“It’s true that we still have a long-term deficit challenge,” said the center’s president, Neera Tanden. But “if you were entering the country from another planet right now, you would wonder why our economic policy is focused on the deficit, which has stabilized, when we still have seven and a half percent unemployment.”

At the same time, senior Democrats are scaling back their ambitions for further savings, arguing for legislation that would simply replace the sequester in 2014.

“That would be my small deal,” said Senate Budget Committee Chairman Patty Murray (D-Wash.). “Do we still need to talk about the bigger deal? Absolutely.” But absent progress toward a broader agreement that includes higher taxes as well as entitlement reforms, replacing the sequester “would at least give us some stability over the next year or two,” she said.

Obama has proposed to replace the entire 10-year life span of the sequester with new taxes on the rich and structural reforms that would make Social Security and Medicare more affordable for the long haul. But House Republicans rejected the offer, and Obama’s effort to jump-start negotiations with Senate Republicans has stalled.

The developments have alarmed advocates of deficit reduction, who say policymakers should stop congratulating themselves and get back to work.

“The truth is, the hardest part has yet to be done,” said Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget. “There’s no need to have additional deficit reduction in the very short term. But you just can’t say you got the job half done so you should quit in the middle.”

The nation began racking up record annual deficits in excess of $1 trillion after the onset of a global recession in 2007. Tax collections plummeted and spending on social programs soared as people were thrown out of work and forced to seek government assistance. When Obama took office in 2009, he pushed Congress to enact a massive economic stimulus package that helped stabilize the economy but added to the red ink.

The Congressional Budget Office has long forecast that conditions would improve as the economy recovered. Congress also agreed to let taxes rise on high-income households as part of a deal in January to avert the “fiscal cliff” of simultaneous tax hikes and spending cuts.

The bulk of the savings was adopted as part of the 2011 fight over the federal debt limit and relies almost entirely on congressional enforcement of unprecedented cuts to agency budgets. Those cuts, which are now being deepened by the sequester, are on track to drive agency spending to the lowest levels on record, as a share of the economy, by 2017.

But Republicans are already struggling to live with the cuts.

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House Appropriations Committee Chairman Harold Rogers (R-Ky.) said the House is unlikely to pass eight of the 12 spending bills needed to lock in the sequester for the coming fiscal year, an exercise that would require lawmakers to slash 15 percent from international aid, nearly 10 percent from transportation and housing, and nearly 19 percent from health, education and labor.

The House did pass funding bills this week for the Departments of Veterans Affairs and Homeland Security, but those measures would increase spending for those agencies, part of a Republican push to shift the burden of the sequester away from defense and entirely onto domestic programs.

Even if Congress manages to enforce the sequester, the caps are set to expire in 2021. Without reforms to popular health and retirement programs, higher revenue, or both,“the sustainability of federal fiscal policy over the long run is now even more tenuous than prior to the fiscal crisis,” said a recent analysis by the forecasting firm Moody’s Analytics. The national debt will be stabilized, but at a level nearly double its postwar average, as a share of the economy.

Still, the shrinking deficit has sapped energy from a debate that, after two years, has failed to break the fundamental stalemate between Republicans who don’t want to raise taxes and Democrats who won’t cut entitlement benefits without some contribution from the rich.

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“I just don’t see a lot of hope in the grand bargain at the moment,” Tanden said. “We’ve gotten to a place where the big deal means I have to kill one of my children and you have to kill one of your children. What we’re trying to point out is you don’t have to kill anybody to undo the sequester, which is a stupid policy.”

Sen. Mark R. Warner (D-Va.), who has been dogged in pursuit of a grand bargain, agrees about the sequester, comparing it to “saying you want to go on a diet and then hitting your [weight target] by cutting off your leg.” And with the growth in health costs slowing, he said, the outlook for Medicare has become somewhat less dire.

“So we’ve got a little breathing room. But that just means we should redouble our efforts to do this in a sensible way,” Warner said. “Many of us who still think this is still the overwhelming issue believe it’s taken on a value beyond the economic imperatives and that it would improve confidence if we could show we can get our balance sheet right.”

Policymakers still have to get through the fall, when the government will shut down and the Treasury Department will face default without congressional action. Senior Republicans, such as House Budget Committee Chairman Paul Ryan (R-Wis.), are still predicting a showdown that could force a broad agreement.

Neither side wants another white-knuckle confrontation, however, and administration officials predict the pain of the sequester will soon become unbearable for Republicans, particularly when furloughs start hitting hundreds of thousands of defense workers next month.

But Republicans say they will not trade the sequester for higher taxes, especially when official forecasts now show the nation owing $750 billion in interest payments on the debt in 2023, a sum larger than the entire defense budget. “What’s going to be cut to pay for that?” Sen. Jeff Sessions (R-Ala.), the senior Republican on the Senate Budget Committee, asked. “This idea that you have no responsibility to tighten your belt and begin to take some medicine now, I think is irresponsible.”

This piece originally appeared in The Washington Post.pixel

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