Balanced-budget plan: How Congress could cut the deficit to zero in eight years by literally doing nothing.

Commentary about business and finance.
April 16 2011 6:42 AM

The Do-Nothing Plan

How Congress can balance the budget in eight years by literally doing nothing. This is not a joke.

Illustration by Rob Donnelly. Click image to expand.

The Simpson-Bowles blue-ribbon deficit commission longs to slash Social Security and defense spending. The Bipartisan Policy Center's Alice Rivlin and Peter Domenici yearn for a value-added tax. Rep. Paul Ryan's politically deft, economically daft plan conspires to shift the burden of health care spending, cut taxes for the rich, and make up the difference with fantastical supply-side growth assumptions. And President Obama is likely to embrace the Simpson-Bowles recommendations when he announces his long-term budget plan on Wednesday.

One might think that we need all of these big plans, these grand bargains, because of the enormity of the fiscal challenge the country faces. The United States is swimming in a sea of red ink, with trillion-dollar annual deficits and an unfathomably gigantic cumulative debt.

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But the truth is we don't need any of these plans. Every one of them is entirely unnecessary for balancing the budget and eventually reducing the debt. They may even be counterproductive. Thus, Slate proposes the Do-Nothing Plan for Deficit Reduction, a meek, cowardly effort to wrest the country back into the black. The overarching principle of the Do-Nothing Plan is this: Leave everything as is. Current law stands, and spending and revenue levels continue according to the Congressional Budget Office's baseline projections. Everyone walks away. Paul Ryan goes fishing. Sen. Harry Reid kicks back with a ginger ale. The rest of Congress gets back to bickering about mammograms. Miraculously, the budget just balances itself, in about a decade.

I know. Your eyebrows are running for your hairline; your jaw is headed to the floor. You've had the bejesus scared out of you by deficit hawks murmuring about bankruptcy and defaults and Chinese bondholders. But don't take it from me. Take it from the number crunchers at the CBO. Look at the first chart here, and check the "primary deficit" in 2019. The number is positive. The deficit does not exist. There's a technicality, granted: The primary deficit is the difference between spending and revenue. The total deficit, the number more commonly cited as "the deficit," includes mandatory interest payments on the country's debt. Even so, the total fiscal gap is a whisper, not a shout—about 3 percent of GDP, which is what economists say is healthy for an advanced economy.

So how does doing nothing actually return the budget to health? The answer is that doing nothing allows all kinds of fiscal changes that politicians generally abhor to take effect automatically. First, doing nothing means the Bush tax cuts would expire, as scheduled, at the end of next year. That would cause a moderately progressive tax hike, and one that hits most families, including the middle class. The top marginal rate would rise from 35 percent to 39.6 percent, and some tax benefits for investment income would disappear. Additionally, a patch to keep the alternative minimum tax from hitting 20 million or so families would end. Second, the Patient Protection and Affordable Care Act, Obama's health care law, would proceed without getting repealed or defunded. The CBO believes that the plan would bend health care's cost curve downward, wrestling the rate of health care inflation back toward the general rate of inflation. Third, doing nothing would mean that Medicare starts paying doctors low, low rates. Congress would not pass anymore of the regular "doc fixes" that keep reimbursements high. Nothing else happens. Almost magically, everything evens out.

These are the CBO's baseline projections. But, of course, Congress is not likely to let the Bush tax cuts fully expire, or slash doctors' payments. So the CBO also prepares an "alternative fiscal scenario" that looks more like the path we expect Congress to take. It's the alternative scenario that has the horror-show deficits. But Congress doesn't have to act. It just has to do nothing. Or when it does do something, it has to pay for it.

That last bit is important: We want the numbers of the do-nothing path but not necessarily the policies. The fiscal future written in current law is hardly the best of all fiscal futures.For one, health care spending would comprise an enormous portion of overall spending. Right now, the United States spends about $1 in every $6 on health care. In a decade or two, based on the do-nothing plan, it would spend $1 in every $5, then $1 in every $4, and not get better health outcomes, either. Those dollars would be better spent in other industries or on other priorities. Moreover, under the do-nothing plan, the government would tax a much bigger share of GDP than it currently does, and the tax burden on the middle-class would be uncomfortably high.

But the do-nothing plan proves the point that the budget revolution does not need to be particularly revolutionary. Yes, the dollar figures are enormous, so big that it would appear to require "bold" plans that include massive new taxes or cruel new cuts. But, in fact, we don't really need to end Social Security, sell Alaska, or ship the poor to Canada to get back in the black. We just need to stick to current law—particularly the tax and health care provisions—and then we can tinker our way toward a better, healthier economy.

That is because, by and large, the hard work of fixing the fat part of the budget has already happened—through health care reform. The Social Security crisis you sometimes hear about is essentially a myth. The trust fund will run out in 2037, "at which point tax income would be sufficient to pay about 75 percent of scheduled benefits through 2084." Full Social Security solvency would require only about 0.7 percent of GDP, which you can get to by exposing income above $107,000 to the payroll tax. There is no debt crisis, either, as long as the U.S.'s lenders remain confident in the country. The crisis lies in spiraling health care costs. The Obama health care reform bill might not work, but it does contain programs that could turn the tide over time. The big wheels of deficit reduction are already turning—and it might be better for Congress to step back, stick to pay-as-you-go, and let them turn.

Of course, Slate's Do-Nothing Plan is not a bold plan. It is not a banner plan. It won't get us facetime on Meet the Press, or a mash note from pundits. It requires some very unpopular measures—such as serious middle-class tax hikes and sticking with Obamacare. But asking Congress to do nothing, at the very least, seems to have a pretty good chance of making it through Congress.

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