The draft proposal offered last week by the chairmen of the National Commission on Fiscal Responsibility and Reform was only the first shot in what is expected to be a very long war over how to eliminate the federal deficit and begin paying down our national debt. That debt already exceeds $13.7 trillion, and if the unfunded liabilities of Social Security and Medicare are included, it actually tops $100 trillion.
Obviously, Republicans would not want to embrace every one of the commission’s recommendations, especially the tax hikes. Even so, the commission’s report does show the magnitude of the cuts actually needed to reduce spending to even 21 percent of GDP (and it really should go lower). But if the draft proposal by chairmen Erskine Bowles and Alan Simpson accomplishes nothing else, it has already done a service by showing just how feeble the GOP’s commitment to deficit reduction really is.
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Just compare what Bowles and Simpson recommend to what Republicans have been talking about. Bowles and Simpson would reduce discretionary spending by $1.4 trillion over ten years, reduce defense spending by roughly $1 trillion over that same period, make substantial cuts in both Social Security and Medicare, and increase taxes by $1 trillion over ten years. This would eliminate the deficit and bring the debt down to a more manageable level.
During the campaign, in contrast, Republicans spoke of rolling back federal spending to 2008 levels. This would have been a 14.4 percent cut from this year’s federal spending, and yet only a small step in the right direction: By 2008, the Bush administration had already driven federal spending to record levels. In fact, federal spending increased by more than 60 percent during the Bush presidency.
And since the election, Republican leaders have been busy “clarifying” that promise. It now seems that they didn’t actually mean that they would roll back all federal spending to 2008 levels, just domestic, discretionary spending. Entitlement programs such as Social Security and Medicare are off the table, as is defense spending. Homeland security and veterans’ programs would also be spared any cuts. Removing those categories, along with interest on the debt, exempts 83 percent of the budget from any serious cuts. Rolling back the remaining spending to 2008 levels would save barely $100 billion, 2.8 percent of federal spending. That’s a drop in the bucket compared with our $1.3 trillion deficit.
In fact, it’s less than 12 percent of the $853 billion that total federal spending has increased since President Obama took office. It would reduce government spending from 24.3 percent of GDP to 23.6 percent.
Now there’s something to make the Tea Party stand up and cheer.
Also, since the election, some Republicans have actually been calling for an increase in defense spending. Defense might indeed be “different,” of course. But that doesn’t mean defense spending can be unlimited in an era of budget restraint. And even hard-core deficit hawks such as Sen. Jim DeMint (R., S.C.) have been claiming that there is no need to cut Medicare or Social Security benefits. Former House speaker — and possible presidential candidate — Newt Gingrich has been hitting the talk-show circuit, all but morphing into Nancy Pelosi as he warns that the commission is “frightening seniors” by suggesting that those programs might have to be reformed. Campaigning against Obamacare’s Medicare cuts might have been a good political tactic, but suggesting that programs that are $50–100 trillion in the red are fiscally sound is, well, budgetary nonsense of the type we expect from Democrats.
It’s time to face some hard facts: To actually bring the budget into balance by 2019 will require as much as a 20 percent reduction in spending relative to the level to which it would otherwise grow with inflation. That’s total spending, not just domestic discretionary spending. To truly roll back the size of government — to, say, the 18 percent of GDP it consumed during the Clinton presidency — would require even bigger cuts. How does the GOP pretend that we can get there simply by cutting “waste, fraud, and abuse,” and without putting entitlements or defense on the table?
In the run-up to the election, Republicans constantly reassured voters that they understood how they had “lost their way” during the Bush era. If we gave them one more chance, they would leave their big-spending days behind them. Faced with the fiscal nightmare of the Obama-Reid-Pelosi agenda, voters reluctantly gave the car keys back to the Republicans. It’s very early, of course, but if Republicans hope to earn and keep that trust, they are going to have to demonstrate that they are a lot more serious about cutting spending than they have shown us thus far.
Yeah, the GOP should rail about slashing everything. I look at this debate in exact opposite fashion: the GOP proposes what are admittedly very modest cuts, and the other party balks at even making those.
So, if we can all be a bit patient, 2012 will have many issues teed up nicely. And spare me the predictions of the sky falling before then.
Tanner is calling decreases in projected increases "cuts". This kind of double talk is endemic in government and makes any serious discussion impossible.
This is what we should do, take the last 30 years and average all major programs expenditures against total government spending. What has gone up everything, what has decreased Defense.
How about the same test but as a percentage of GDP; What has gone up everything, what has gone down Defense.
So let's cut defense it is "obviously the problem".
The original writer is right. Look at federal spending as a percent of GDP, and divide it between discretionary and transfer payments. All the unsustainable, ratchet-like growth is in the transfer payments. It bumps up several percent of GDP at each recession and it never goes down.
Within discretionary, the only item that grows significantly is defense, in the Reagan build up and again in the last decade. Both were periods of defense spending increasing as a percent of GDP. Arguably both were useful in world affairs and certainly the first was a bargain, for what we got out of it. But such increases are also something we cannot afford while running deficits of 9% of GDP. Within discretionary, defense will be on the table.
Taxes will also be on the table. One can argue about the timing and try to address it in booms rather than busts. But for example, it is crazy and unsustainable that medicare is funded by a 2.9% payroll contribution, when HHS spends $775 billion a year. Trying to fund a supposed "entitlement", and one with costs galloping 8% a year, out of general revenues, is crazy and unsustainable.
All entitlement programs need to be fully funded by the payroll taxes and user co-pays of those programs themselves. Hands off general revenue. If Medicare and Medicaid cost 6% of payrolls, then the payroll contribution for them needs to be 6%, not less than half that. We can't keep playing "make believe" with what they cost. In fact the contribution should be adjusted automatically to whatever is actually being spent on these programs.
And the same goes for Social Security. If the present payroll contributions are supposed to suffice, then retirement ages have to rise and COLAs have to be slowed. If we aren't willing to accept both of those, then the contribution percentage has to go up.
No entitlements without dedicated funding.
When the make believe accounting that results from spending general revenue on these transfers is abolished, we will see the level of political support these programs actually have.
One more - 99 weeks of unemployment benefits? Another extension on top of that? It was meant to be a maximum of 6 months with the expectation that the average would be more like 3. This cost over $300 billion in the current recession, easily half of which was avoidable. It also encourages long term unemployment - subsidize anything and you will get more of it.
What we get instead is pols who think they are clever relying on rhetoric while presenting an imaginary free lunch and all goods things to the voters. They aren't clever. If politicians won't govern the country, then arithmetic will.
Jason,
It is not the general fund financing SSI and Medicare but the other way around. Surpluses in the Social Security Trust Fund were invested in US Treasuries. If not for these surpluses the stated budget deficits would have been much higher in recent years.
Are you advocating that the federal government not repay these bonds? Because if those bonds are indeed redeemed, a highly problematic if, then the medium term health of the trust fund is fine. It is only if the government defaults on these bonds that there is any SSI shortfalls for the next few decades.
Tom, I just don't understand the focus on the "trust fund." Yes, Social Security overpayments are, for bookkeeping purposes, deposited in special federal bonds. But when you say that Social Security has a fine medium term outlook as long as the bonds do not default, you ignore that the funds deposited in these bonds have already been spent, and the only source for bond repayment is current payments of taxpayers, which is the same source for the Social Security account itself. The amount in the trust fund account only determines what percentage of funds come from the general budget; it in no way alters the liability to taxpayers in any particular year.
It is projected that in a few years there will be inflows from only two taxpayers for each Social Security recipient. The average Social Security recipient today receives about $1100 a month, and of course that figure only ever goes up. So in a few years, the average person will be paying at least $550 towards Social Security every month. Now, depending on the status of the "trust fund," some of that $550 will be listed on payment stubs as FICA taxes, and some of it will come out of the amount for general federal income tax, but while that's important for accounting purposes, it's not so important to those of us who are paying the $550. It's simply not sustainable.
An aversion to higher taxes - and trusting the Federal government to exercise fiscal restraint - is hardly cowardice. The $160 billion stimulus package and $700 billion TARP package under President Bush two years ago, coupled with Obama's stimulus bill, the bank bailout bill, the health care hijacking bill and the FY 2010 and 2011 Federal budgets furnish ample evidence that the Federal government, whether led by Republicans or Democrats, will spend every dollar it has and trillions of dollars it doesn't have. The lesson that should be drawn from the mid-term elections is that Americans have rebelled against this reckless policy and want the spending to stop, period. They've been stuck with a $14 trillion check already that will take generations to repay and accusing them of cowardice because they recoil at the thought of even higher taxes is ridiculous.
