Congress is back in Washington to finish work on a "deficit reduction" plan. The sentiment is laudable but there is a major flaw in the plan—the deficit would go up, not down. Moreover, the suggested policy changes do not remotely begin to address the magnitude of the problem.
An Unsustainable Long-Term Outlook
Under reasonable assumptions about current policies, deficits could easily exceed $5 trillion over the next ten years. The long-term outlook is even worse. As the huge baby boom generation—77 million strong and twice the size of the current elderly population—begins to qualify for Social Security in 2008 and Medicare in 2011, analysts of diverse ideological perspectives warn that the government’s tens of trillions of unfunded obligations are simply unsustainable over the long-term.
There are only two ways that Congress can directly reduce the deficit. It can cut spending or raise taxes. Many past successful deficit reduction plans have done both. This year’s plan would cut spending by up to $50 billion over five years and then cut taxes by much more - up to $106 billion, or twice the spending cuts.
Simple arithmetic shows that this does not add up to a deficit reduction plan. Moreover, it makes no sense to cut spending in the name of deficit reduction and then more than wipe out all the hard fought gains with tax cuts.
To Congress and the President: Develop a Real Plan
We suggest the following guidelines:
Put everything on the table: If everyone insists on only cutting someone else’s priorities, talk about deficit reduction will remain just that. The best way to end this standoff is to agree on the common goal of deficit reduction, put everything on the table—including entitlement cuts and tax increases—and negotiate the necessary trade-offs.
Share the sacrifice: The burden of deficit reduction should be distributed fairly. It is neither fair, fiscally responsible or politically viable to make cutbacks in limited areas of the budget while exempting most areas from scrutiny. Those who can more readily shoulder the burden should be asked to do so.Implement pay-as-you-go rules and budget caps: These rules, which Congress and the President enacted in 1990 and extended in 1997 with bipartisan support, were a critical part of getting a handle on the deficits in the 1990s. Anyone who proposes a spending increase or a tax cut, including the extension of expiring tax cuts, should answer the question: "How do we pay for it?"
It is encouraging that the "deficits don’t matter" rhetoric of the last few years is giving way to expressions of concern. Unfortunately, actions have been wanting. Leaders must put the national interests ahead of partisan or parochial interests and develop a specific and realistic plan to put the country on a sustainable long-term fiscal path. • • •