If Congress Fails to Rein in Deficit, it will be because of Lack of political Courage

WASHINGTON (NYT) November 21, 2010 ― Since the midterm election, two bipartisan panels have issued thought-provoking plans. The first is a draft proposal from the co-chairmen of President Obama’s fiscal commission. The second is from a panel at the Bipartisan Policy Center, founded by former Senate leaders.

We believe the Bipartisan Center’s plan amplifies the strong aspects of the commission’s draft while correcting for some of its shortcomings. Both tell hard truths about the choices ahead — more than we heard from the politicians in this year’s campaign. Here is a review and comparison of some of the important aspects:

Getting Started

Both recognize that the recovery is fragile and delay their start dates until 2012. Without more stimulus now, the economy is unlikely to be strong enough even then to absorb budget cuts. The Bipartisan Policy Center fixes that by calling first for more stimulus, with budget cuts starting a year later.

Raising Taxes

Both plans rightly call for higher taxes to tame the budget and would lower income tax rates while modifying or ending most deductions and other breaks. In the White House commission’s proposal, tax revenue would cover only about one-third of the deficit reduction; spending cuts would have to account for two-thirds. The Bipartisan Center’s plan has a roughly even split. It also calls for phasing in a 6.5 percent national sales tax, along with provisions to protect lower-income taxpayers. The new sales tax would promote growth by raising adequate revenue without taxing savings.

Cutting Spending

Both say what the politicians won’t: to bring outlays in line with revenues, defense, Social Security and Medicare must all be cut.

We believe the commission’s draft is fundamentally flawed, because it sets an arbitrary spending target of 21 percent of the economy. That would make it impossible to meet the future needs of a growing and aging population and to achieve other goals, like improving education. The Bipartisan Policy Center avoids arbitrary limits. Rather, as spending and tax changes kick in, outlays can rise as a share of the economy.

The center’s plan is also sounder on Social Security, ensuring the system’s long-term solvency with a generally modest mix of benefit reductions and tax increases that protects middle-income retirees. The commission’s plan relies too heavily on benefit cuts for those retirees.

Unfortunately, in dealing with the most difficult problem — the inexorable rise in spending on Medicare and Medicaid — the two plans would result in unacceptable reductions in benefits for people of modest means or stiff (for them) payment increases.

The best long-term solution is to make the delivery of medical care much more efficient. That is a major goal of the new reform law, which is starting an array of pilot projects in Medicare and Medicaid. Congress needs to accelerate this effort, not look for ways — as Republicans are — to repeal or obstruct the new law.

The Obama fiscal commission is now reworking its draft. If 14 of 18 commissioners vote for a final version, the package will be sent to Congress in December. We don’t know if the commission will reach a consensus or if the final version will be improved enough to warrant Congressional approval. President Obama’s disturbing silence on his commission’s efforts — while members of his party take political shots — makes it even less likely the commissioners will agree on a worthwhile final draft.

Meanwhile Congress is moving in exactly the wrong direction. Republicans are bent on letting unemployment benefits expire, lessening the chances that the economy will be ready for deficit cutting by 2012. And those supposedly deficit-minded Republicans are pushing to extend all of the Bush-era tax cuts. That would add $4 trillion to the debt over the next 10 years, the same amount the commission has proposed to cut.

The Democrats are doing only slightly better. They want to extend the middle-class tax cuts permanently — which would add $3.2 trillion to the debt over 10 years. They do not seem inclined to fight the Republicans very hard. If lawmakers — of both parties — were serious about the deficit, they would let the Bush tax cuts for the rich expire, extend the tax cuts for the middle class for a year or so, and reform the tax system in the meantime.

There is no way to reduce the deficit without strong leadership from President Obama and honest cooperation from the Republicans. The ideas are out there. Now we are waiting for the politicians.