Why the deficit commission's proposal is unlikely to go anywhere.

Why the deficit commission's proposal is unlikely to go anywhere.

Why the deficit commission's proposal is unlikely to go anywhere.

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Commentary about business and finance.
Nov. 10 2010 7:09 PM

It All Adds Up to Nothing

Why the deficit commission's proposal is unlikely to go anywhere.

Barack Obama, Erskine Bowles, and Alan Simpson. Click image to expand.
Barack Obama, Erskine Bowles, and Alan Simpson

Everyone expected the White House's deficit commission—technically, the National Commission on Fiscal Responsibility and Reform—to release its recommendations on how to reduce the debt on Dec. 1. Instead, the panel's co-chairs released their proposal today. For deficit hawks, Christmas came early.

The panel's co-chairs, former Sen. Alan Simpson, a Republican, and Erskine Bowles, former chief of staff to President Clinton, propose slashing the debt by $4 trillion by 2020. Of that, some $3 trillion—that's 75 percent, for those of you scoring at home—comes from spending cuts, which the co-chairs catalog with something approaching glee: They include a list of 58 suggestions, and one gets the feeling they could have recommended 58 more. (The remaining quarter comes from tax hikes and reduced interest payments.) Mathematically, the plan adds up. Politically, not so much.

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First, this is only a "proposal" to the rest of the commission—for it to become official, 14 of the panel's 18 members would have to agree to it. That seems far-fetched, given that the members of the commission have been at loggerheads since President Obama created it in February. And even if the commission does manage to issue a report, Congress is under no obligation to pass it. In fact, this deficit commission exists in the first place because a proposal to create a congressional deficit commission was filibustered in the Senate.

Nonetheless, since the co-chairs' proposal is the first document the commission has produced, it enjoys semi-official status. More to the point, it is the first bipartisan attempt—lately, anyway—to figure out just what kind of austerity budget under which the United States may one day have to operate. And it offers insight into the type of compromise budget wonks and politicians might—emphasis on the "might"—one day make.

The co-chairs do not propose beginning any deficit reduction until the economy has a bit of time to recover—until October 2012, the next budget year. After then, every government program and the entire U.S. tax code is on the table.

The co-chairs strongly recommend a comprehensive tax reform plan: making one corporate tax rate and reducing the number of personal income-tax brackets to three. Income tax could come down as low as 23 percent, they say. But that lower rate is a bit deceptive: The commission eliminates so many deductions and tax expenditures (the mortgage-interest deduction, for one, and the exclusion for employer-provided health insurance, for another) that the plan actually raises about $700 billion in taxes by 2020.

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Bowles and Simpson recognize the unlikelihood—improbability? fantastical impossibility?—of such a radical plan winning approval in Congress. So they also recommend something similar to the Wyden-Gregg tax reform plan, a much more moderate proposal by the Oregon Democrat and the New Hampshire Republican to reduce the number of brackets and deductions. Then, as if recognizing the futility of their proposals, they advocate forcing the Treasury Department and the relevant congressional committees to set a 2012 deadline for passing comprehensive reform. If not, they suggest giving "haircuts" to itemized deductions until Congress figures it out.

Then comes the other side of the ledger: spending. They suggest cuts ranging from the enormous (raising the retirement age and changing the benefit structure to shrink Social Security payouts) to the outlandish (adding co-pays to Veterans Administration health care) to the picayune (charging a $7.50 admission to the National Zoo). All in all, the plan would bring spending in line with revenue, at 21 percent of the gross domestic product.

The most controversial, and some of the biggest, changes in the program would involve Social Security. (Notably, Social Security is projected to have a surplus in 2012 *, though it will face problems down the road.) Bowles and Simpson suggest indexing the retirement age to average longevity, which would boost it to about 68 by 2050 and 69 by 2075. (They recommend providing hardship exemptions to workers in labor-intensive industries, who could retire at 62.) Then, after making people work longer, they would turn to reducing benefits, cutting the total amount allocated to the middle quintile of earners by nearly 10 percent by 2050.

Spending on health care—even after the passage of the reform law, the government spending that will bloat the debt the most—does not get nearly such substantive changes. Bowles and Simpson say doctors should make less. They suggest speeding up the cost controls included in Obama's health care reform law. But they also include pie-in-the-sky recommendations, like overhauling the fee-for-service system. And their proposal to eliminate the exclusion for employer-provided health insurance would dramatically make Obama's health care reform look like marginal tinkering.

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The meat of the report is in cuts to federal programs. The proposed cuts—both wide and deep—would save $100 billion from the defense budget and another $100 billion from domestic spending.

For the defense budget, the co-chairs recommend freezing some salaries for three years, doubling Defense Secretary Robert Gates' contracting cuts, closing one-third of overseas military bases, replacing a number of military workers with civilians, slashing the research and development budget, and sending the U.S.-based children of military personnel to local schools, rather than educating them on-base.

The report suggests slashing the White House budget and freezing federal-worker salaries for three years. For every three workers that leave the federal government, it recommends, the government should hire only two replacements. It suggests cutting 250,000 federal contractors. No area of spending is too insignificant to escape the co-chairs' notice: Their proposal suggests cutting printing costs and increasing the use of teleconferencing to reduce the travel budget. It proposes eliminating earmarks for commercial spaceflight. It suggests hacking farm subsidies. And it recommends selling excess federal property.

Asking whether this proposal stands a chance in Congress is premature. Already, one member of the deficit commission has said she won't vote for it, and another, a Republican, said that some of the ideas "disturb" him. Still, in the unlikely event it reaches Congress for an up-or-down vote, remember: Behind every spending program lies an interest group. And behind Social Security stand senior citizens—America's most consistent and enthusiastic voters. No Congress, no matter how fiscally prudent, would ever enact this plan.

Correction, Nov. 11, 2010:This article originally said that Social Security was in the black. It is not projected to have a surplus until 2012. (Return to the corrected sentence.)

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