In Washington, when problems can’t be solved they are given to bipartisan blue-ribbon panels. Then a report is produced that is long, complicated and boring. And the problems generally remain.
Today, the co-chairs of the bipartisan deficit commission put forward a draft proposal with a thesis that no one will like: “The Solution Is Painful.” This is not a surprise, since structural budget deficits of the scale we now have can only be solved by taking money away from people, either through increased taxes or reduced spending. The co-chairs, Republican Alan Simpson and Democrat Erskine Bowles, put forward a broad sweep of proposals that are unlikely to please anyone. (You can read it here.)
There are significant cuts to military and non-military discretionary spending, a gradual reduction in Social Security benefits through cost of living adjustments and retirement age changes, cuts to Medicare, which Kate looks at below, and dramatic tax reform, which would target everything from the mortgage interest deduction to the charitable deductions. The solution is painful.
This is a plan that will never be enacted. Not only did members of the panel leave the briefing today saying they would not support the plan (14 of the 18 must support the plan for any commission report to be recommended), but it includes the slaying of sacred cows, like cuts to farm subsidies and an end to mine reclamation grants, that are protected in the House and Senate like Fort Knox.
But if this report does have an impact it will be psychological, and it could be positive. The American people are by growing and alarming margins concerned about deficits, but they are at the same time unwilling to support giving up the things that would be required to solve the problem. Everyone supports taking something away from someone else. But by putting all these things on the table, people may begin to price in the possibility of actually giving up some things. If you are on the market for a house, you might start to consider the fact that Congress is floating the idea of a mortgage deduction that tops out at $500,000 loans, for instance, instead of the current $1.1 million loans.
One other cautionary note: Even if a magic wand appeared in Obama’s hand that allowed him to pass this entire package as presented, it is not clear that it would be fully binding. It sets as a goal federal spending that is capped at 21 percent of GDP, but it is not clear if the binding mechanisms to enforce this would hold. It sets medical spending inflation at GDP+1 percent, even though it is entirely possible that the discussed cost saving approaches fail to contain the cost of health care sufficiently.
The only thing we know for sure is, barring a miraculous economic expansion, the thesis is right: The solution is painful.
UPDATE: Jonathan Chait has more thoughts here.
