The Deficit Commission Report Is Dead Before Arrival

Most controversial legislative measures that involve cutting spending and raising taxes are dead on arrival on Capitol Hill. The much-ballyhooed recommendations of the Fiscal Commission, released Wednesday, were dead even before departure. The plan would bring the nation’s long-term expenditures in line with revenues by making big cuts in discretionary spending, eliminating or severely curtailing tax expenditures such as the hallowed mortgage interest deduction, slashing Medicare, and raising the Social Security retirement age.

The bipartisan Commission, appointed by President Obama, had a mandate to issue its voted-upon recommendations today, December 1. The theory was that at least 14 of the 18 members would approve a plan, which Congress could then vote on. But because the Commission’s leaders couldn’t round up sufficient support, they issued the report without taking a vote. (They’re pledging a vote on Friday.)

The mechanics surrounding the Commission’s release — and the atmosphere into which it is being launched — show what a fiscal clown show we’re witnessing.

The big stumbling block seems to be that the elected officials on the Commission — the types who would have to approve the recommendations — don’t think the plan is a good idea. Democrats like Rep. Jan Schawkowsky of Illinois say they’re opposed because they can’t countenance any big cuts in Social Security or Medicare. Republican Congressional members like Rep. Jeb Hensarling of Texas are opposed because it contains some tax increases — or the elimination of tax breaks that can be construed or defined as tax increases. And no Republican in office is willing to countenance any legislation that does that. Republican Sen. Judd Gregg (a long-time self-proclaimed deficit hawk who voted for a host of deficit-creating actions while in office) says he likes the plan — but he’s retiring.

The opposition of elected officials wouldn’t be a problem if we had a system in which budget and spending decisions were controlled by unelected graybeards. But that’s not the case. And, unfortunately, the electoral system has some serious structural issues that prevent large-scale action on deficits. To wit: Voters tend to reward politicians on both sides who increase deficits by cutting taxes and enacting popular spending programs; Democrats won’t be party to major cuts in entitlements; and no Republican will go on record to support anything that can be construed as a tax cut.  For these reasons, I thought the Commission was something of a non-reality-based effort from the beginning.

To aggravate matters, people who put faith in the Commission wilfully misconstrue two components of the political dynamic in Washington circa 2010. First, the prospect of bipartisan approval of any measure is extremely low — and getting lower. Second, many of those who claim to be concerned about the deficit don’t really care about it when push comes to shove.

Consider the politics. Today’s resurgent Republicans, who know exactly what they want, simply won’t cut deals with Democrats, who have very little idea what they want. By definition, something that President Obama thinks is a good idea is anathema to Congressional Republicans. The only room for “compromise” is for President Obama to do precisely what the Republicans want and then convince some Democrats to go along with it. There’s a chance President Obama could do that. (Much to the chagrin of the demoralized Democratic left, the White House is showing signs of meeting Republicans three-quarters of the way.)

The problem is that what Republicans (and many Democrats) want on fiscal matters will result in significantly higher deficits than we have today. The centre-right consensus calls for precisely the opposite of what the Fiscal Commission recommends: no increases in taxes, no significant changes to the 80-plus per cent of the budget taken up by defence and by entitlements like Social Security and Medicare, and token cuts like freezing federal wages or banning earmarks.

Meanwhile, back in the lame-duck Congress, our representatives are negotiating with one another, and with the White House, on how to increase the deficit further, in ways big and small. Take Sen. Jon Kyl of Arizona. The Republican has had a busy few weeks. He brought home a $200 million non-earmark earmark for a water project in his home state. And he’s the point man on negotiations over the New Start nuclear treaty with Russia. Kyl has been opposed in part because he believes the Obama administration isn’t spending enough on the nation’s nuclear defenses. He might be willing to support it, in other words, if we borrow more money.

The action over the next few months — the treatment of the deficit commission, the outcome of the tax cut debates, spending plans for next year — should expose the fraudulence of the overwhelming majority of fiscal hawks. Let’s assume a deal is worked out to extend the Bush tax cats for the next few years. Short-term deficit projections will rise, and deficit hawks will again start complaining about the size of the deficit. But they won’t offer systemic changes or massive cuts. Rather, they’ll continue to do what they do now: use the deficit as an excuse to oppose spending measures they don’t agree with, while ignoring it when pushing spending or fiscal measures (read: tax cuts, or extensions of tax cuts) that they favour.

Take the debate over the expiration of extended unemployment benefits. Former McCain adviser Mark Zandi, chief economist at Moody’s/, suggests the expiration will harm economic growth. But Democrats and Republicans couldn’t come to agreement on a measure to extend them. The cost would be about $5 billion per month. Democrats wouldn’t offset them with spending cuts and Republicans wouldn’t pass them in such a way that they would increase the deficit. As Jon Chait of the New Republic notes; this highlights the absurdity of our current fiscal debate. NPR reports that “both sides say the solution may be to attach those benefits to a deal extending the Bush-era tax cuts.” Got that? Democrats would trade $5 billion per month in cuts for huge increases in deficits, and Republicans, as a condition of getting more tax cuts, agree to more spending.

This is how budget politics work in 2010. It’s why the deficit commission was unable to deliver on its mandate of serving up a voted-upon recommendation by its deadline. And it’s why this blueprint is likely to be shelved.

This post originally appeared at Yahoo! Finance: Tech Ticker and is republished here with permission.

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