September 19, 2014

To Fix Deficit, Congress Needs the Will to Cut

With Congress having passed an expensive new health care plan, it is a good time to ask whether our political system is capable of undertaking major entitlement and tax reform to put the nation on a sustainable fiscal path.

It must do so -- sooner rather than later. However, it is far from clear whether that time has arrived. The work of President Obama's new fiscal commission this year will be a crucial test.

The commission's short-term mission is to shave about one percentage point of gross domestic product from the deficit in 2015 -- roughly $180 billion that year. As explained in the president's budget, the commission is also supposed to "examine policies to meaningfully improve the long-term fiscal outlook." This includes addressing "the growth of entitlement spending and the gap between the projected revenues and expenditures of the federal government."

If the commission is to make credible recommendations for these goals, it will have to include substantial spending cuts or tax increases -- without costly sweeteners to mitigate the pain. In other words, the commission will have to establish deficit reduction as the primary goal.

The political difficulty of this task has been illustrated by the health care reform debate. The plan that Obama signed into law contains some tough decisions. It could reduce net Medicare spending by hundreds of billions of dollars over 10 years and will raise substantial new revenue.

But because the plan also includes a big expansion of Medicaid and new health insurance subsidies for lower-income and even middle-income people, the overall deficit reduction would be small -- and that's if everything works according to plan.

How $1 trillion hides in plain sight

So why didn't we begin with cost control measures and wait to expand health coverage until we knew the added costs would be affordable?

Top administration officials noted the "moral imperative" of health care reform, suggesting they had put a higher priority on extending coverage than on tackling cost control.

But they also said it was unlikely that Congress would approve extensive cost-containment measures in legislation dedicated entirely to deficit reduction.

Whatever its merits in the limited context of health care reform, this pragmatic argument has ominous implications for the broader work of the fiscal commission. If Congress is willing to enact major entitlement and tax reforms only while expanding other costs, the government will never achieve a sustainable fiscal path.

The time is fast approaching when sacrifice cannot be avoided. The natural desire for politicians to cut taxes and enact new spending programs has left us on a course that will run up the national debt to dangerous levels by the end of the decade. Interest costs would then exceed defense spending and consume more than one-third of all personal income tax dollars.

The president's commission will have to argue a case that many politicians don't want to hear. Reforms of the major entitlement programs -- Social Security, Medicare and Medicaid -- must be designed to curb spending growth, and tax reform must be designed to raise revenues. A simple "pay-as-you-go" approach will not be enough.

This does not mean that immediate spending cuts or tax increases should be implemented while the economy is still in a fragile state. Nor does it mean that we should take a meat cleaver to entitlement programs or raise tax rates across-the-board. However, the fiscal commission will have to set priorities and recommend trade-offs with the well-being of future generations in mind.

The commission will have to identify ways to better target benefits to where they are needed most, increase the efficiency of the tax system, and improve the value of health care spending in ways that go well beyond the measures in the new legislation.

These things will not happen with a status quo mentality. Nor will they happen unless the commission and the public recognize that deficit reduction has itself become a "moral imperative."

Robert L. Bixby is executive director of the Concord Coalition, a national, nonpartisan organization dedicated to fiscal responsibility. Bixby will be featured on "I.O.U.S.A.: Solutions," a CNN special about the national debt airing Saturday at 1 p.m. ET and Sunday at 3 p.m. ET.