by Andrew Wolf
In May 2010, the Committee for a Responsible Federal Budget released an online Budget Simulator that puts users in control of stabilizing the debt (60% of GDP by 2018). They advertise “as Congress sidesteps budget, you can step in.” It is an important tool and one Republicans in Congress would do well to look at. Thus far, the GOP has been short on specifics with regard to how to reduce the deficit and deal with the nation’s fiscal challenges.
House Republicans have pledged to cut domestic spending in order to balance the budget and pay down the debt, promising to save at least $100 billion in the first year. But as David Wessel of the Wall Street Journal recently pointed out, while “cutting government spending in general is popular; specific, substantial spending cuts are not. And bringing down the deficit by spending cuts alone, particularly cuts in annually appropriated domestic spending, is, well, arithmetically challenging.” Even if the GOP cut all non-defense discretionary spending, 17% of total outlays, the deficit in 2020 would still be roughly $668 billion. Not to mention, Wessel wrote, “the International Monetary Fund and most economists say spending cuts hurt a weak economy in the short run, particularly at a moment when the federal Reserve can’t cut interest rates further.”
The GOP has also proposed a moratorium on earmarks, and here it seems the party has the President’s support. But as Jackie Calmes noted in the New York Times, eliminating earmarks (like eliminating waste, fraud, and abuse) would also have a negligible impact on annual deficits. “In the 2006 fiscal year, when Republicans last controlled Congress, they approved nearly 10,000 earmarks, a record; the $29 billion cost was about 11 percent of the year’s deficit.” The deficit for FY 2010, according to CBO estimates, was $1.3 trillion.
Real reform means tackling entitlement spending – Medicare, Medicaid, Social Security – along with tax expenditures and defense spending. Unfortunately, few politicians have laid out specific plans on how to move forward. And a top priority for Republican leaders in Congress is to make the Bush tax cuts permanent, which will make the deficit problem worse. Extending all the tax cuts, which are set to expire December 31st, would cost roughly $4 trillion over the next ten years (not including interest). Even the administration’s plan to extend the cuts to all but the wealthiest Americans – individuals and households with income over $200,000 and $250,000, respectively – would cost more than $3 trillion over the next ten years.
Within the next month, the President’s bipartisan National Commission on Fiscal Responsibility and Reform will vote on a final report of recommendations aimed at balancing the budget (excluding interest payments on the debt) by 2015. Let’s hope the Commission’s report, which requires the approval of at least 14 of the 18 Commission members and is likely to include both spending cuts and tax increases, at least gets members of Congress debating concrete solutions for fixing the national budget.