Why We Should Be Thankful for the Fiscal Commission

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Stan Collender writes in Roll Call that "black smoke" is rising from the National Commission on Fiscal Responsibility and Reform. He says that attitudes toward deficit reduction are now worse than when the commission started working, in part because of strategic errors by its chairmen. He alleges that "Getting the 14 of 18 votes required to formally propose a comprehensive deficit reduction plan is going to be at least as difficult now as it was when the commission began its work."

I disagree: the Commission is exceeding my expectations, but perhaps that is because my expectations were always that it would serve a different mission than it purported to. In my view, the probability that 14 commission members would sign onto a consensus report was zero all along; so was the probability that we would get a comprehensive deficit reduction deal out of the 112th Congress, absent a sovereign debt crisis or other economic crisis that forces the hands of elected officials.

Instead, I view the Commission's purpose as furthering a long-range process: driving an elite discussion about deficit reduction options so that, when the right economic time comes to actually close the budget gap, we have a clear vision of the steps we will need to take-and what compromises politicians will be willing to make. Viewed from this frame, the Commission has been a success, in part because it could not reach consensus and released several reports instead of one. These reports, and political players' reactions to them, have helped to clarify those questions and identify a path toward budget sustainability.

Conservatives' reactions to the Bowles-Simpson Chairmen's Mark, the closest thing to an official report that the commission will likely release, have been heartening: while some hardcore anti-tax groups (such as Americans for Tax Reform) have attacked the plan for raising taxes, the bulk of conservative commentators and politicians have sounded cautiously optimistic notes about the plan. That is because they recognize that it is worth accepting tax increases to get a plan that stops unsustainable growth in entitlement spending.

Even more surprising has been the relative lack of conservative complaint about $100 billion in defense cuts in Bowles-Simpson plan. Republicans often put the defense budget off-limits from budget discipline, including by focusing recent calls for a spending freeze on the non-defense discretionary budget. But this proposal does not seem to be raising widespread ire on the Right, suggesting that Republicans may agree to a significant reduction in defense spending.

We've also learned a lot from reactions on the Left. Some of what we learned is dispiriting-Nancy Pelosi deemed the Bowles-Simpson proposal "simply unacceptable," without offering meaningful ideas of her own; Representative Jan Schakowsky, a liberal commission member, produced her own deficit plan that was almost a parody of liberal views on the budget. But liberal policy analysts-if not liberal elected officials-had more nuanced and useful reactions that signal a way forward to compromise.

Particularly, a lot of liberal analysts and think tankers have drawn distinctions between Bowles-Simpson, which they don't like, and Rivlin-Domenici, another bipartisan plan which they like a lot better. There are good reasons for the Left to feel better about the Rivlin-Domenici plan: its tax components are more progressive, and raise more revenue overall; it doesn't raise the eligibility age for Social Security. But the two plans are fundamentally similar in a lot of ways, so if conservative policy elites like Bowles-Simpson and liberal policy elites can live with Rivlin-Domenici, that bodes well for coming up with a compromise plan that works for both sides.

The gaps might be even smaller than they look-for example, Karl Smith of the Modeled Behavior blog notes that eliminating all the Bowles-Simpson tax increase on the bottom quintile of earners costs just $8 billion per year, and eliminating half the increase on the next quintile costs $17 billion. Which means it would not take that much tweaking to address liberals' concerns that the Bowles-Simpson tax plan is too regressive. Similarly, many conservative concerns about Rivlin-Domenici-for example, I'd say it taxes capital too much-are likely to be fixable with adjustments of manageable size.

It's particularly noteworthy that many liberal thinkers appear unfazed by big changes Rivlin-Domenici would make in medical entitlements. On Medicare, the plan adopts the Ryan Roadmap approach of voucherizing Medicare and growing voucher values more slowly than medical inflation. That means that, over time, seniors will have to pay for more of their own health care. The plan also calls for a limit on growth in per-participant Medicaid spending. If liberals will sign on to a plan that aggressively reduces the future value of medical entitlements, I'd be willing to give up a lot in exchange, such as any new increase in the Social Security age.

Of course, reaching broad agreement among policy elites is one thing, and building public support for a deficit reduction deal is another. It's true that the deficit commission has done little to move the needle with the general public and thereby make a deficit deal likely in the near term. In fact, I think Matt Yglesias is right: deficit reduction will remain politically impossible until large deficits are actually hurting the economy. Right now, it's very cheap for the government to borrow, and consequently very hard to convince people they should give up nice things so the government can borrow less. Only when interest rates rise will the political will exist to shrink the deficit.

But I disagree with Yglesias that it is therefore silly to spend a lot of time thinking about deficit closing measures today. Thinking about these issues in advance will help make our inevitable fiscal adjustment more orderly, when the political will exists to do a fiscal adjustment at all. For example, I think this month's discussion has already helped us to discover that, despite all the screaming about who wants to kill granny, it will probably be easier to reach consensus on cutting Medicare than cutting Social Security.

And while we won't get a near-term budget deal, I do think liberal and conservative reactions to the deficit plans have shown some possible areas for bipartisan compromise in the next Congress. One possibility is a defense appropriations bill that sharply cuts Pentagon spending. Another is a Medicaid reform that turns the program into a block grant to states, with a Rivlin-Domenici style cap on growth in the grant. Maybe these reforms could be packaged together, since the former would appeal more to Democrats and the latter to Republicans.

But even if we don't see gap-closing actions in the next Congress, I believe having these chats on an ongoing basis will serve us well in the 113th or 114th Congress when we actually get around to fixing our unsustainable federal budget. So, don't call the deficit commission a failure yet-be thankful that it may have us on a road to budgetary success.

Josh Barro is the Walter B. Wriston Fellow at the Manhattan Institute.

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