PJ Media

Can the White House Deficit Reduction Commission Succeed?

There is a lot of cynicism surrounding the ability of President Obama’s National Commission on Fiscal Responsibility and Reform to fulfill its mandate and come up with a viable plan to reduce our crushing deficits.

One can hardly blame the cynics. Obama’s ploy of creating the Commission in the first place was due to the inability of Washington politicians to face the consequences of their own callous mismanagement and undisciplined actions with taxpayers’ money. Why should this statutorily toothless Commission succeed when Republicans and Democrats continue to act like spoiled brats, refusing to make the hard choices that would untie this Gordian knot of unsustainable deficits?

The short and simple answer: it absolutely must. And in Washington, where necessity is not only the mother of invention, but also the father of political expediency, the Commission may very well supply the fig leaf of political protection needed to begin addressing this monstrous problem.

Created by an executive order on February 18, the Commission was charged with:

identifying policies to improve the fiscal situation in the medium term and to achieve fiscal sustainability over the long run. Specifically, the Commission shall propose recommendations designed to balance the budget, excluding interest payments on the debt, by 2015. This result is projected to stabilize the debt-to-GDP ratio at an acceptable level once the economy recovers. The magnitude and timing of the policy measures necessary to achieve this goal are subject to considerable uncertainty and will depend on the evolution of the economy. In addition, the Commission shall propose recommendations that meaningfully improve the long-run fiscal outlook, including changes to address the growth of entitlement spending and the gap between the projected revenues and expenditures of the Federal Government.

There are two things to note. First, the idea that the budget will be “balanced” by 2015 is an interesting use of semantics. The phrase “excluding interest payments on the debt” is not a throwaway or an afterthought. Taxpayers ponied up $202 billion in interest payments for fiscal year 2009 — a number that will explode to $700 billion by fiscal year 2019 unless we can bring the debt under control.

And that number may be a memory if interest rates rise to any degree. So it isn’t a question of if we can tame the deficit, but how to do it without sending the economy into another tailspin.

Secondly, the Commission is charged “to stabilize the debt-to-GDP ratio at an acceptable level.” That level has been determined to be 3%, which is still unacceptably high at nearly $400 billion.

Only in cuckoo land can $400 billion deficits be considered “acceptable.”

But every journey begins with a first step and the Commission, at the moment, is the only deficit reduction game in town. Congress refused to create their own commission whose recommendations would have been binding. So here they are stuck with President Obama’s creation, reduced to supplying input via the choices both parties make to fill out the membership of the Commission.

That membership is shaping up to be an interesting mix. The president named former Clinton Chief of Staff Erskine Bowles and former Wyoming Senator Alan Simpson as co-chairs, making a statement immediately about bipartisanship. Both men have a reputation for working with the opposition to get things done. This worked to Simpson’s detriment when he was ousted from his position as majority whip by Trent Lott in 1995 following the GOP takeover of the Senate.

What distinguishes Bowles and Simpson is their encyclopedic knowledge of the budget process and experience in negotiating complex agreements. The temperament of both men seems well-suited to what awaits them, as they will almost certainly meet resistance to deep budget cuts and tax hikes from both sides.

In addition to the co-chairs, President Obama has also named:

* Alice Rivlin — former OMB director under Clinton and a Brookings fellow. She also took a turn as a Federal Reserve vice chair; this gives the Commission someone with invaluable insight into monetary policy.

* David Cote — CEO of Honeywell International. A favorite business executive of the president, Cote endeared himself to Obama by pushing the stimulus bill with the business community. No doubt he is an intelligent fellow, but he has little experience in politics. Cote seems to have been appointed as a reward for political chores well done.

* Ann Fudge — former president of Young & Rubicam Brands. Again, there’s no doubt Fudge is an estimable woman, very smart and capable. But shouldn’t appointees to a Commission on deficit reduction have some, you know, experience in reducing government deficits? Cote and Fudge aren’t exactly window dressing, but realistically, how much are they going to contribute?

* Andy Stern — president of the Service Employees International Union. Now why did the president go and ruin it? An outspoken proponent of “social justice” — a budget euphemism for adding at least three zeroes to every line item possible — Stern, and the powerful union he represents, is there to make sure the Commission goes heavy on tax increases and light on budget cuts.

In addition to the six members named by the president, both parties get to name six commissioners each to the panel. Harry Reid has already named his three candidates: Senate Budget Committee Chairman Kent Conrad; Senate Finance Committee Chairman Max Baucus; and Harry’s pal, Majority Whip Dick Durbin. Both Conrad and Baucus are considered fiscal moderates, while Durbin will probably be a close ally of Stern on the Commission in making sure the budget ax falls lightly on their constituencies.

Indeed, it is fairly obvious that the Commission will have to mix budget cuts and tax increases in order to achieve any deficit reduction at all. There is also little doubt that the medicine will be bitter and difficult to swallow. The biggest item on the table will be defense spending, with non-defense discretionary spending the second biggest target. Taken together, they represent about 1/3 of the budget — not nearly enough to achieve the kind of savings necessary to put a dent in our trillion dollar plus deficits.

What about entitlements? The second part of the Commission’s mission will be to:

propose recommendations that meaningfully improve the long-run fiscal outlook, including changes to address the growth of entitlement spending and the gap between the projected revenues and expenditures of the Federal Government.

So who wants to walk the plank first? Who is going to vote to cut Social Security and Medicare? Possibly, the Commission will fiddle with the retirement age and perhaps raise copayments slightly for Medicare. But don’t expect any grand compromise that would put our fiscal house in order. This was one of the reasons that legislators refused to form their own commission to reduce the deficit. There is no political upside to getting seniors roiling mad at you, not to mention the delicious demagoguery potential in skewering the other side for daring to propose a solution to the entitlement crisis by laying hands on old folks’ bennies.

So without meaningful entitlement reform, that leaves one option: raising taxes. And since soaking the rich has just about played itself out, the only place to find the amount of cash that would be meaningful to deficit reduction is in the payroll checks of the middle class. At this point, we come face to face with the ultimate question: What kind of government are you willing to pay for? What services? What programs? No one likes taxes, and most people think they’re overtaxed already. But the consequences of that attitude have helped get us in this mess, and we’re not going to get out of it unless we start making hard choices — any choices — on what we want, and what we need from government.

Can the Commission be realistically expected to meet these kinds of expectations? Not in the short term. Their recommendations are due by December 1 of this year, not coincidentally after the midterm elections. Both Speaker Pelosi and Leader Reid have promised a vote on the Commission’s recommendations before the end of this Congress in late December. An up or down vote on the entire package is unlikely given the almost certain-to-be-controversial nature of many of the Commission’s proposals. This will encourage cherry-picking the easiest targets, while leaving the difficult decisions on the floor.

But given the deficit crisis we face, it might be time for both sides of the aisle to consider the consequences of failure. Everyone agrees the deficits are unsustainable. So why not act like it?