Finding Realistic Deficit Reduction
Finding Realistic Deficit Reduction
How to Make Progress in the Coming Years
Deficit reduction proposals stand a chance if they aren’t too ambitious and don’t trample all over cherished programs, says Michael Ettlinger.
“Don’t bite off more than you can chew” is an appropriate admonition to President Barack Obama as he addresses the difficult challenge of deficit reduction in the State of the Union and the coming years. Raising taxes and reducing spending are the two politically most difficult things for our democracy to do. Tax hikes are rarely at the top of anyone’s Christmas list, and every spending program and its level of funding was put in place for a reason. Divided government makes it doubly hard. Progress is possible but a winning proposal will have to be crafted with respect for the tremendous political challenge that deficit reduction is.
The president will be under a lot of pressure by the Washington policy purists to offer comprehensive solutions to the nation’s long-term problems. But trying immediately to completely solve our substantial long-term budget challenges would both make success unlikely and be largely pointless because other presidents and Congresses will have much to say about the budgets of the future.
The president is right to begin taking concrete actions that will lead to deficit reduction. While reducing the deficit too fast would choke our nascent economic recovery and undermine the president’s top priority of job creation, the country does need to show the world how we are going to get our fiscal house in order.
The president started down this road on February 10 of last year when he signed the executive order creating the National Commission on Fiscal Responsibility and Reform. In that order he tasked the commission to develop policies to achieve two goals. The first was to bring the budget into primary balance by 2015 so that revenues equal spending except for interest on the debt. The second was to meaningfully improve the country’s long-term fiscal outlook.
These were the right two goals. The long-term goal was vague, but it should be. It gave the commission the opportunity to develop recommendations that could be put in place now that would make it more likely that future Congresses and presidents would succeed in having low or no deficits. But it appropriately did not saddle the commission with responsibility for the fruitless task of dictating exactly what budgets of the distant future would look like.
The more specific goal of primary balance was also well chosen. In fact, the Center for American Progress recommended it in our report “A Path to Balance.” At primary balance the level of national debt is generally not increasing relative to the size of the economy. That’s no small accomplishment. The national public debt was 62 percent of GDP in 2010 and is likely to be at 90 percent in 2020 if nothing is done. Stabilizing it at the 2015 level, which is likely to be about 77 percent of GDP, would be a significant improvement.
Another virtue of primary balance is that you can see it from here. The tax and spending changes to achieve that goal would be tough, but they are imaginable. The target year for the goal of primary balance, 2015, is also right. It’s far enough away that we should be clear of the Great Recession but soon enough that current measures can have a substantial impact.
The commission, of course, failed to garner sufficient votes to approve a plan for either of its goals. Only 4 of the 10 members of the commission currently in the House of Representatives and the Senate supported the final proposal put on the table by the commission’s chairmen. No member from the House voted for it, and one of the four is retiring from the Senate in 2012. The members of the commission were, on average, more deficit hawkish than members of Congress and willing to put other goals and objectives second to deficit reduction. That makes this a resounding defeat that bodes ill for the plan.
There’s a lesson to be learned here. The commission was overpopulated by the “take your medicine and like it” crowd: deficit hawks with strong views on taxation and spending who aren’t inclined to tweak those views in deference to the views of the public or other policymakers. This surely contributed to the decision of the commission chairmen—reflected in their proposal—to suggest such hugely unpopular ideas as raising the retirement age for Social Security and slashing the value of the mortgage interest deduction. It also led to the recommendation that the deficit be reduced in 2015 to far below—almost $200 billion—that needed to hit their assigned target of primary balance.
The problem with such aggressive deficit reduction is that it is extremely hard to imagine a Democratic president, a Republican House, and a filibustered Senate being able to agree on how to do it. There are deals to be had, but above a certain level of deficit reduction one can’t hit the target without getting into each party’s “untouchables,” or programs and tax measures that are completely off the list of what’s possible for them.
This doesn’t doom us forever. But before we get to the deeper deficit reduction we need, policymakers are going to have to move their lines in the sand and start bringing their constituents along with them. And that’s going to take some time and probably another election with these issues squarely on the table and a renewed mandate for the president.
It’s useful for think tanks and newspaper columnists to show what actually needs doing to accelerate that process. Still, for policymakers to prematurely set too ambitious a target for themselves will set us back instead of moving us forward in our highly charged political environment. Without a realistic chance of hitting the target, politicians will open fire on each other with the usual epithets: “tax and spender,” “antichild,” “weak on defense.” A goal that offers substantial deficit reduction but gives everyone the opportunity to protect their more cherished imperatives allows policymakers to come together and take an important first step on the road to fiscal responsibility.
The Center for American Progress proposed a plan in December to hit primary balance in 2015. The proposal is weighted half to spending cuts and half to tax increases. It is not a proposal that the president and every member of the House and Senate is likely to vote for. But it is a plan that progressives could line up for that would pass political muster with the public. That’s more than can be said for the commission’s proposal.
The point here isn’t that we’ve come up with a better plan. It’s that there’s room to develop plans that aren’t beyond the pale if one doesn’t bite off more than one can chew. It’s not easy, but it’s conceivable that one can come up with something that the Republican House, the filibuster-bound Senate, and the president could agree on if the goal is one that doesn’t mandate putting bull’s-eyes on each party’s most cherished priorities. The president and Congress would do well to keep that point in mind as they hash out future proposals.
Michael Ettlinger is Vice President for Economic Policy at American Progress.
For more State of the Union policy suggestions see:
Scale Back the Defense Budget by Lawrence J. Korb and Laura Conley
Exceptionally American Competitiveness by Sarah Wartell Rosen, Ed Paisley, and Kate Gordon
Smarter Enforcement, More Targeted Measures by Marshall Fitz and Angela Kelley
Touting the Benefits of Health Reform at This Year’s State of the Union by Karen Davenport
Education Priority Number One for Congress in 2011: Reauthorize ESEA
Outlining a Strategy for Peace by Caroline Wadhams
Clean Energy Progress Without Congress by Daniel J. Weiss
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Vice President, Economic Policy