It’s absurd. Uncle Sam is likely to run up an additional $11 trillion in debt over the next decade. But Washington only replies with minor budgetary tweaks. First, the Obama administration says it wants to freeze some domestic spending for three years. Then it creates a new healthcare entitlement program “paid for” through tax increases and unlikely spending cuts. Next up, the Obama administration creates a deficit reduction panel that not even its members think will work. And now the Obama administration wants new “rescission” authority to cut billions from congressional spending bills — excepts it’s “trillions” that are the problem. None of these measures favorably alters the budget’s perilous trajectory.
If I was a U.S. taxpayer or holder of U.S. Treasuries, I would not take much comfort from President Barack Obama’s proposed Reduce Unnecessary Spending Act. Points for effort, I suppose. But fast tracking and streamlining the current fiscal process that allows the White House to submit proposed budget cuts from spending bills would do little.
Well, if you define success as having the commission come up with solutions that can pass Congress, then yes. I am watching several commission members at the Peterson Foundation Fiscal Summit. They are all downplaying what the commission can accomplish, saying that as long as the panel educates the American public on the debt problem, they will consider it a success. But will bondholders of U.S. debt agree? Downplaying expectations may avoid an adverse financial market reaction to failure, but I am not sure it should. We won’t cut spending. We won’t raise taxes broadly. And we ignore policies that would boost economic growth. What else is there?
Good luck to the Obama deficit commission. In my heart, I do not believe Congress will pass huge entitlement cuts (preferable) or tax increases without a crisis. (There needs to be a focus on boosting economic growth.) To quote Milton Friedman in Capitalism and Freedom:
The Obama deficit commission has its first meeting next week. And when the panel finally releases its report after the election, I am sure it will contain an unsurprising mix of tax increases and spending cuts as a way of dealing with the deficit. But a new report from the wealth management group at UBS looking at public sector debt dismissed that policy prescription:
Multiple reports suggest Andy Stern will be leaving his job as head of the politically powerful SEIU. The union, which represents healthcare and public employees, was instrumental in passing healthcare reform. In other words, he has contributed in two ways to America’s fiscal woes. First, health reform may prove a budget fiasco since its tax hikes and spending cuts were used to expand coverage rather than cut the budget deficit. Second, fat pay and benefit packages for public sector unions are a big reason so many states like California have long-term fiscal woes. As this David Feddoso story found: