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Commentary: Politics and deficit reduction

This article first appeared in the St. Louis Beacon, Nov. 29, 2010 - If the lame-duck session of Congress is any indication, the 112th U.S. Congress will be paralyzed by partisan gridlock. The signs are less than promising that either the newly energized Republicans or the weakened Democrats will be able to reach agreement on crucial issues such as economic stimulus, climate change, health care or the deficit/debt.

While all of these issues warrant immediate attention, the last one has received increased scrutiny recently because of the work of two bipartisan groups.

One indication of whether both sides are seriously willing to find consensus will be Congress' reaction to the final report of Obama's commission on deficit reduction, which is due Dec. 1. At the same time that this commission, chaired by former Republican Sen. Alan Simpson and Clinton chief-of-staff Erskine Bowles, was working on their recommendations, another group headed by another former Republican senator, Pete Domenici, and Clinton budget director, Alice Rivlin, was preparing its own alternatives to solving the deficit riddle.

Arguably, one reason the tea party movement gained so much traction among independent voters in the 2010 election was widespread concern over the size of the deficit and debt. Currently, the deficit stands at $1.3 trillion. While this is certainly a huge figure, it is still only 9 percent of the GDP. More ominous, however, is the growth of the national debt. The Congressional Budget Office predicts that the debt will be 87 percent of GDP in 2020, up from the current 62 percent, if nothing is done.

While deficit and debt are often used interchangeably, they are not the same thing. Deficit refers to a shortfall between income and outlays in the annual budget, which has to be made up by borrowing. This accumulation of annual borrowing comprises the debt.

There is considerable debate among economists about whether deficits are bad. The mainstream opinion is that in the short term, such as during a downturn, they are necessary to help "jumpstart" the economy. However, most economists agree that, over the long term, high levels of debt are a drag on the economy and cripple growth.

Although the Simpson-Bowles' commission has not yet issued its final report (the Domenici-Rivlin commission released its report on Nov. 19), Simpson and Bowles made their own recommendations public just a few days ago.

There are important differences between the two sets of recommendations. For example, Simpson-Bowles recommends reducing Social Security benefits for the top 50 percent of earners while Domenici-Rivlin sets the ceiling at the top 25 percent of earners. Nevertheless, both commissions agree that the true culprit in the ballooning national debt is the structural deficit created by entitlement spending.

Going after earmarks, as the tea party-led Republicans propose, is, in the context of the real issue, a diversionary tactic, which only gives the appearance of producing change and ends up doing nothing.

Earmarks constitute a small percentage of congressional discretionary spending, which taken as a whole, makes up roughly 40 percent of the federal budget. The remaining 60 percent is entitlement spending, which includes Social Security and Medicare.

Cutting earmarks and even all discretionary spending (including defense) would do very little to address the structural deficit. To do this, Congress must tackle Social Security and Medicare. Up to now, neither party has shown the slightest inclination that it is willing to do so.

There are, however, precedents for Congress making hard choices. In 1983, Congress made cuts in future Social Security spending, increased retirement age and enacted higher payroll taxes. Later in the same decade, budget reforms placed caps on spending and mandated that tax cuts be offset with spending cuts. These agreements lapsed during George W. Bush's presidency, when he cut taxes in 2001 and 2003 without cutting spending. In fact, in 2003 he signed one of the biggest, recent entitlement expansions, the prescription drug benefit, into law, again without any offsetting tax increases or spending cuts elsewhere.

Both commissions advocate controlling escalating health care costs, reducing Social Security benefits and closing tax loop-holes as the long-term solution to reining-in the deficit. For example, Simpson-Bowles raises the retirement age to 69 by 2075, while Domenici-Rivlin would index lifetime benefits to a recipient's lifespan. In other words, as expected lifespans lengthen, annual benefits would decrease the earlier an individual retires.

Their approach to controlling Medicare spending is roughly similar as both would raise premiums. In addition, Simpson-Bowles would raise the Medicare co-pay while Domenici-Rivlin supports some public funding of private insurance plans.

Finally, both commissions recommend eliminating some tax loop-holes and deductions costing $1 trillion a year; doing so would allow marginal rates to drop. Although some of these tax breaks benefit low-income earners, for example, the earned-income tax credit; the majority go to higher-income earners.

In contrast to other countries, the emphasis of both plans is on cutting spending and not raising taxes. However, a truly balanced approach would include both. American politics, especially after the 2010 election, suggests that raising taxes is the more difficult sell.

The hallmark of both sets of recommendations is shared sacrifice. Unfortunately, the American political system, conditioned by years of tax cuts and debt-fueled spending, seems unprepared to embrace such a radical concept.

Although I am skeptical that the more draconian measures will be passed by Congress, I am hopeful that, at least, there will be some honest debate about them in the upcoming year. In this way, perhaps, the seeds for future action will be sown and the public educated as to the rough road ahead.Robert A. Cropf chairs the Department of Public Policy Studies at Saint Louis University. 

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