Deficit Reform as a Hostage Situation

Matt Yglesias points out a startling chart released by the CBO: if Congress and the President just do nothing then the debt and deficit never become a problem.  The big debt problem the U.S. faces- contrary to popular opinion- isn't that we fail to tackle the problem but that everyone expects us to add to it through a series of "fixes" to existing legislation.   Ezra Klein explains:

So the Congressional Budget Office also publishes an alternative scenario. In this world, we fix the Medicare doctor payment system so that our budget forecasts show how much we're actually paying doctors (the one-year increases in pay we've been doing lately leave the long-term forecasts artificially low), the cost-control elements of the Affordable Care Act aren't implemented, and, well, I'll let CBO explain the big gun: "More important, CBO assumed for this scenario that most of the provisions of the 2001 and 2003 tax cuts would be extended, that the reach of the alternative minimum tax would be kept close to its historical extent, and that over the longer run, tax law would evolve further so that revenues would remain at about 19 percent of GDP." 

To be clear, all of that isn't just politically difficult ways to cut the deficit. In some cases, they are practically immoral and reckless ways to cut the deficit.  Failing to renew the "doc fix," for example, would suddenly reduce to payments that all doctors who accept Medicare patients receive; consequently, many doctors might stop accepting Medicare patients.  Thus, Ross Douthat smells red herring in the entire premise:

Well, sure — except that what Yglesias blithely describes as “inaction” involves exactly the kind of massive tax increases and painful spending cuts that nobody wants to be associated with. It isn’t really “surprising” that if you take the marginal tax rate on labor from 29 percent to 38 percent, raise the tax burden dramatically for the middle and working classes, permanently slash physician reimbursements for Medicare and curb domestic discretionary spending growth as successfully as the Clinton-Gingrich deadlock did in the 1990s, you can dig your way out of the fiscal hole. But the whole reason our fiscal picture seems so grim is that it’s hard to imagine lawmakers being willing to let those kind of changes take effect, or to imagine that voters would put up with them.

 Then again, voters just put up with the Republicans knocking 2 million people off of the unemployment rolls in the name of deficit reduction. If saving a negligible amount of money at the cost of some families having no income at all is essential, then curing the entire country's deficit problem at the expense reducing income for the relatively well off must be tolerable.  I'm not saying that this is the way the U.S. should balance it's budget, but for once real deficit reform has leverage.  The biggest problem in American politics is the anti-majoritarian rules in the Senate that make passing practically any legislation impossible.  Suddenly, a stick instead of another stale carrot.  All it takes is 40 senators willing to say: "if you don't want the Bush tax cuts to expire, the AMT to grab new families and doctors to take a pay cut then let's make a serious deal on the deficit."

If legislators actually care about the deficit and debt, then when they "fix" items with major consequences to the deficit, they have to figure out how to pay for it.  If you want to keep the Bush tax cuts and the scale the Alternative Minimum Tax to inflation (which shouldn't be as much of a problem for the next few years of stagnant consumption anyway) then you have to find an different way to raise that revenue.  If doctors need more money than budgeted in Medicare, then find another place to cut spending.  If "pay as you go" actually means anything to deficit hawks, then the 40 senators who won't extend unemployment benefits should have to justify causing a $4 trillion deficit over the next decade.  Fans of consumption taxes should try to tie the expiration of the Bush tax cuts to tax reform.  Entitlement reformers latch onto the "doc fix" as your opportunity to make real changes.  Use the tyranny of the minority to force action instead of further incompetent gridlock.  That's why the status quo of the budget is a big deal, even if it does not present a credible solution to the looming debt problem. 

Comments

[Christopher Carr]

Put military and "War on Terror" spending on the table. It's the elephant in the room.