There’s faint hope on the fiscal front: The Senate’s budget negotiator, Sen. Patty Murray, D-Wash., said that she believes there is a path forward to a deal with her House counterpart, Rep. Paul Ryan, R-Wis., on easing across-the-board spending cuts known as the sequester in return for other deficit-reduction measures. Murray’s comment, however cryptic, was welcome because if there’s no agreement by a mid-December deadline, further indiscriminate cuts in discretionary spending, both to defense and non-defense, are likely, starting Jan. 15. And that result would exacerbate the basic problem: Discretionary federal spending, already approaching a historic low, is bearing the entire burden of fiscal adjustment while entitlement spending continues to devour an ever-greater share of federal revenue – which also needs long-term enhancement.
Of course, even a modest-size deal now would have little effect on that structural problem. Under current law, federal debt held by the public will stay near its current elevated level, 73 percent of gross domestic product, for the next decade, according to the Congressional Budget Office – after which the level will commence rising. The only way to put the federal budget on a sustainable path for the long term, the CBO noted, is to make significant changes to tax and spending policies.
That quotation comes from the CBO’s latest report on the deficit-reduction options facing Congress, the first such compendium since March 2011. Couched in the nonpartisan agency’s neutral language, the report nevertheless conveyed both fresh data and a powerful message: The obstacles to sound fiscal policy are purely political. Congress and the president must resolve to tackle programs and tax breaks that benefit middle- and upper-middle-class America.
That’s not what you generally hear from Republicans, who emphasize savings from, say, eliminating Amtrak subsidies (a mere $15 billion item over 10 years, according to the CBO report) or tightening food stamp eligibility ($50 billion). Nor is it the impression you would get from Democrats, who talk of ending the favorable tax treatment of carried interest for hedge fund managers ($17 billion) or tax preferences for oil drilling and the like ($34 billion). Eliminating waste or handouts to the rich or poor – whatever the merits of any particular proposal – simply doesn’t add up to a credible fiscal fix.
The big money is in two places: tax breaks for the middle class and entitlements. The former category includes the deduction for state and local taxes (eliminating that would save nearly $1 trillion over 10 years) and the mortgage interest deduction (another $1 trillion). As for entitlements, using the alternative, and more realistic, inflation measure known as chained CPI would save $162 billion over 10 years; changing cost-sharing rules for Medicare and limiting Medigap insurance would raise another $114 billion.
Obviously, achieving savings this large would impose sacrifice. But, just as obviously, the more people who benefit from a program, the more widely shared the pain. Unless and until the American people and their elected representatives face up to the necessity for such a broad-based restructuring, the United States will continue on its current sorry course: reeling from deadline to deadline while hoping Congress can muster just enough consensus to keep the government from closing or defaulting.