The looming budget fight in Washington has two components, the short term and the long term. And it’s important to keep that distinction in mind as events play out.
The short term is going to be brutal. House Republicans are itching for a spending fight, and they’re going to get one. The occasion might be passage of the continuing resolution needed to fund the rest of this fiscal year; it might be the debate over raising the debt ceiling; it might be both. The House GOP is proposing budget moves they know won’t be accepted — a 29 percent cut in the hated EPA, eliminating funding for the Corporation for Public Broadcasting and Americorps and slashing college tuition aid while defense spending increases — but they show every sign of stamping their feet and throwing a major hissy fit if the rest of Washington doesn’t bow to their every wish.
The damage those cuts would do is serious. But in terms of the deficit, the short-term fight will mean nothing and accomplish nothing. By concentrating on non-defense discretionary spending, which accounts for just 12 to 18 percent of federal spending depending on how you define it, the short-term battle sidesteps entitlements, defense or taxes, which means it doesn’t address the deficit at all. Its sole impact will be to strengthen or weaken the political position of the various participants as they prepare for the longer game.
That’s where the money is, and where the change will come. For the first time, we’re seeing signs from President Obama and congressional leaders of both parties that they’re willing to work toward a grand compromise. To his credit, U.S. Sen. Saxby Chambliss of Georgia is reportedly playing a major role in leading a bipartisan, behind-the-scenes discussion in the Senate in which all ideas — entitlements, taxes, defense — are on the table.
Let’s breeze through the major areas of concern:
1.) Saving Social Security is relatively easy. You don’t have to privatize it, you don’t have to slash it. The president’s bipartisan deficit commission laid out a common-sense approach of reductions in long-term benefit increases combined with slight increases in SSI taxes to make the program actuarially sound. Remember, the maximum Social Security benefit for someone retiring this year at age 66 is barely $28,000, so any effort to slash that is going to hit a lot of vulnerable people very hard.
2.) Medicare, on the other hand, is relatively impossible. We’ve got a health-care delivery system that already spends twice as much of our national GDP as any other industrialized country, and we’ve got large numbers of Baby Boomers about to retire over the next decade. That’s a hugely expensive combination.
The House GOP approach to Medicare is essentially to abandon it, converting the program to vouchers that senior citizens can use to buy health insurance on their own. However, those vouchers would be scheduled to diminish in value over time, leaving seniors to somehow pay their own medical bills. The numbers just don’t work, and the impact of that approach on seniors’ access to health care would be far more devastating than the imaginary death panels could ever have been.
Somehow, you’ve got to lower health-care delivery costs not just in Medicare but throughout the health-care system. (Doing it in Medicare alone is impossible.) You’ve also got to means-test benefits to a degree and raise taxes if necessary to cover what’s left. You can’t “solve” Medicare, but you can certainly contain it.
3.) Defense spending also has to be cut. Everyone knows it, although some refuse to acknowledge it. You cannot sustain a globally dominant military without a globally dominant economy, and if you try to do so, you weaken your economy still further. Today, we lack the means to permanently finance a military establishment that spends as much money as the rest of the world combined on defense. Those days are over.
4.) Taxes have to go up. We have to trash the nonsensical idea that tax cuts pay for themselves, because they don’t. Taxes aren’t too high — as a percentage of national GDP, they’re lower now than they’ve been in decades. If we simply allow the Bush tax cuts to expire as now scheduled in 2012, taxes as a percentage of GDP would still be at or below the historical average since 1970.
Those are the raw ingredients of a deal: Entitlement cuts, spending cuts, defense cuts and tax increases. How much of each will be a matter of negotiation and sometimes bitter political gamesmanship, but without all four components, no deal is possible and we’ll continue right off the cliff.
– Jay Bookman