August 29, 2014

To Go Big, Keep Going

Members of the Joint Select Committee on Deficit Reduction (“super committee”) have a timing problem that compounds their political problem. Put simply, they may run out of time to reach agreement on the kind of comprehensive changes that are needed to put the nation’s finances on a sustainable path. However, with a little cooperation and a strong dose of leadership, they need not let the clock run out on their efforts.

The super committee’s political problem is easy to see. Its official goal is to cut the deficit by $1.5 trillion over 10 years. This won’t be easy, but as the Government Accountability Office (GAO) recently pointed out, even if lawmakers are able to achieve this goal it would still leave the debt on an unsustainable growth track. That is why the President, the chairman of the Federal Reserve Board, many members of Congress and countless outside commentators have urged the super committee to aim for a more ambitious target – anywhere from $3 trillion to $5 trillion.

However, to reach this goal, often described as “going big,” the super committee will have to tackle the two thorniest fiscal policy issues – entitlement and tax reform. These issues have stymied every other long-term budget negotiation this year because they are where the parties have their biggest differences.

And yet, we will not be able to achieve a truly sustainable fiscal path unless we reform federal health care programs, Social Security and the hidden entitlements administered through the tax code (i.e., “tax expenditures”).  All are growing faster than the economy. In combination they are pushing federal spending up while draining revenues. As time goes on, this gap will spiral out of control.

Now comes the timing problem. The super committee’s tight November 23 deadline gives its members little remaining time to work out the legislative details of a compromise on these issues, even if they find the political will to do it.

One approach would be to “go small” and see if they can hit their minimum deficit reduction target by cobbling together a package of additional discretionary spending cuts, user fees (not to be referred to as “taxes”) and minor tweaks in entitlement spending other than Social Security, Medicare and Medicaid – the largest and most popular entitlement programs.

Mathematically, they might be able to do this, particularly if they include nearly $800 billion in “savings” from a reduction in war costs that is likely to occur anyway. But as noted, if this is all they do, much work would remain to be done. In fact, they would not be doing much more than is already mandated by automatic spending cuts to be triggered if the committee fails to do anything.

The trigger exempts Social Security, Medicaid and most of Medicare. According to the Congressional Budget Office, 71 percent of the triggered cuts would come from discretionary spending and only 13 percent from the non-exempt entitlement programs. Revenues would be left off the table.

So regardless of whether the super committee goes small or allows the automatic cuts to go into effect, the inevitable need to resolve our entitlement and tax reform issues will just be postponed again.

However, the looming November 23 deadline does not require this result.

For one thing, the committee is not starting with a blank slate. It has many options available to it that have found agreement in previous bipartisan efforts. Committee members are hearing ideas from the Bowles-Simpson commission, the Rivlin-Domenici task force and others. There is yet time to select from these ideas, particularly where there is some overlap such as in  reducing tax preferences, adjusting Social Security to reflect longevity gains, and changing the method of calculating cost-of-living increases. 

If, however, more time is needed to fully develop a comprehensive plan, the committee has within its powers the right to instruct the relevant committees of jurisdiction to find additional savings through the regular budget process in 2012. In effect, the super committee could write a “super budget resolution.”

As former Senate Budget Committee Chairman Judd Gregg (R-N.H.) wrote in an op-ed for The Hill, “The super committee needs to use its authority to go well beyond the $1.5 trillion reduction called for and set specific and enforceable procedures for getting our long-term debt on a sustainable path.”

The process should specify targeted levels for spending and revenues that, at minimum, would stabilize the debt as a percentage of the economy within the 10-year budget window. The spending targets should include Medicare and Medicaid savings, a solvency plan for Social Security, and base-broadening tax reform targets. The super committee should also prescribe an expedited procedure for consideration of legislation to implement these targets.  It would be up to the regular committees to fill in the details, as they do with traditional budget resolutions.

To make this process credible, the super committee would also need to specify a new trigger for non-compliance to ensure that the targets would be met. Absent that, any passback to regular order would likely be viewed as a “punt.” In fact, it would be. 

This committee has an historic opportunity to cut through the partisan maneuvering and posturing that have stymied action on a long-term fiscal responsibility plan.  It should first comply with its deficit reduction goal of $1.5 trillion. But that won’t be enough and time may not allow for much more. The way out of this dilemma is to combine their initial deficit reduction package with instructions to the committees of jurisdiction to go further. This would allow the process to go big by keeping it going.