A Viable Deficit-Reduction Compromise?

Ah, the deficit.  No single issue has caused as much consternation in Congress and around the country as the deficit has in recent weeks.  Sure, health care reform tied up Congress for just about a full year, but now everything is getting held up because of the blasted deficit.  Unemployment benefits, the coming energy bill, “the Doc fix”, Finreg, or the Wall Street Reform bill, all of these and more have been delayed, weakened, or outright allowed to expire because of the deficit concerns.  It’s not enough to simply promise that the bill will be deficit-neutral as was done with the health care bill, but rather each piece of legislation in theory needs to go toward reducing the deficit.  (In theory, everything should already be deficit-neutral if we’re actually following the “Pay-as-you-go” rules that Congress readopted in a joint resolution, but that’s another story.)

So what to do?  Lately, the hot thing is an austerity program, as in severe spending cuts and their accompanying cutbacks in services.  Seriously, they’re all the rage in Europe following the Greek economic crisis a couple of months ago, and at least it does do something for the deficit.  Oh, except for one minor detail: such a package is a bad idea and exactly what we don’t need now.  According to a New York Times editorial, there is a very real risk that an austerity measure would cause, in effect, the dreaded double-dip recession.  Yes, that’s right; the combination of reduced spending and the still-weak credit ecosystem in this country coupled with projected decrease in corporate profits and personal incomes might just cause the nascent recovery to fall flat, leaving us to slide back into recession.

Unfortunately, we’ve already tried the alternative; massive government spending from the stimulus program has proven unconvincing at best.  I’m sure you’ve seen at least one of the projects funded by the $787 billion stimulus from last year.  For example, the most common ones I’ve seen are highway repairs and major road projects; nobody knows for sure exactly how many jobs were created or saved by the program, but estimates abound.  In addition to the still-unproven effectiveness of the stimulus, it also costs a ton of money, and in this climate, anything that, again, isn’t fully paid for and helps the deficit situation at the same time is dead on arrival in Congress.

A New Option

There is another choice; this week, Senators Claire McCaskill (D-Missouri) and Jeffrey Sessions (R- Alabama) teamed up to offer a third option.  In short, this proposal would limit spending increases to 1% each year for the next three years.  It is a sound proposal, and one that has broad support.  The article from the Huffington Post I just linked shows Senate Republicans are fully getting behind the proposal, and it has a very real chance of passage if it were to come up for a floor vote, and President Obama proposed a similar, but less-restrictive, form of this proposal.  Unfortunately, it, too, is not a silver bullet for the deficit.

The main concern with it is that discretionary spending, which is what would be limited under this proposal, makes up a very small proportion of the Federal budget.  With most of the budget tied up in the costly entitlement programs such as Social Security and Medicare, even limiting the spending for everything else as this proposal would do would not amount to much.  And then there’s Defense.  Everyone recognizes that something must be done about the deficit, but whether that appetite extends to the Defense budget is something else.  However, one thing is about as certain as it can be: cutting funds for the wars in Iraq and Afghanistan is also dead on arrival.

Another issue is whether it will even see the light of day; since Democrats control the Appropriations Committee, which is where fiscal responsibility goes to die, the McCaskill-Sessions proposal might not make it out of committee.  There are plenty of other ways to sneak it in, so who knows, it could come to the floor eventually, and it should.  As far as deficit-controlling measures go, this one strikes the balance between political acceptability and economic health, but there’s one other glaring issue: it doesn’t actually do anything to solve the deficit! Sure, it attempts to limit spending, but unless further action is taken, all that does is make it so the deficit does not get any larger.  I believe that the McCaskill-Sessions proposal is viable only as part of a larger package including a mix of spending cuts and tax increases.

There, I said it: we need to raise taxes a little bit.  Of course, people howl about any thought of it, as I’m sure some of you are now, which is why I don’t want a direct tax increase.  I’m not contradicting myself; there’s talk lately of letting the Bush tax cuts to the wealthy finally expire.  That is exactly what should happen- heck, it should’ve happened years ago.  According to recent figures, it’ll cost north of $650 billion in deficit spending to renew them again.  Allow them to expire, and Congress just basically paid for the stimulus; it actually comes up short of paying for the stimulus, but nothing a few small cuts here and there couldn’t fix.  Maybe we’ll see more out of the Deficit Commission (I sure hope we do), but letting the tax cuts lapse and enacting McCaskill-Sessions is a good start.

The A Viable Deficit-Reduction Compromise? by The New Age of Politics, unless otherwise expressly stated, is licensed under a Creative Commons Attribution-ShareAlike 3.0 Unported License.

Tags: American Recovery and Reinvestment Act of 2009, ARRA, austerity, Bush tax cuts, Claire McCaskill, Congress, deficit, deficit spending, double-dip recession, fiscal responsibility, Government spending, Jeff Sessions, Pay-as-you-go, Paygo, Politics, spending caps, stimulus, United States federal budget