A Debt Limit Solution?
by PETER HUESSY
July 29, 2011
I have a solution to the debt limit crisis. Cut spending in the budget year starting October 1, 2012 by combing the cuts proposed in the February administration budget request and add to it the cuts in the Ryan passed House budget plan. In the former, $120 billion in cuts were proposed. These cuts included agriculture ($8B), education, ($10B) defense ($40B), Health and Human Services ($17B), Department of Labor ($39B) and HUD ($11B). Added to the Ryan budget plan cuts yields total cuts in excess of $150 billion in the coming budget year with no cuts to Medicare, Social Security and Medicaid.
Now the administration proposed these cuts because for the next two budgets before the 2012 election, spending was projected to be flat--$3.818 trillion in FY11, $3.728 trillion in FY 12 and $3.770 trillion in FY13. The trick was two-fold: they could claim the budget was being reduced, (because they assumed robust economic growth and thus greater revenue for 2011 and 2012, but then would promise huge out-year increases over the next three years, after the election: $250 billion, $220 billion, and $280 billion or $750 billion. TARP and stimulus all over again!!
For the House leadership, take the budget cuts offered and reject the spending increases. That would be part one of a deal: get sufficient spending cuts now to get an extension of the debt ceiling to avoid economic Armageddon.
No, everyone agrees that future spending restraint and getting to a balanced budget has to involve three things: (1) entitlement reform of both Medicare and Social Security trust funds, (2) welfare reform especially of Medicaid, (the projected increase to $62,000 for eligibility for this program adds two hundred billion a year to the program); and (3) tax reform which propels economic growth and greater economic efficiencies by helping to add 20 million new taxpayers to the economy over the next decade rather than squeezing even more money out of the existing tax payers which have fallen by nearly 3 million since 2009.
Now, no one wants to buy a pig in a poke. So there is concern that any super committee empowered to put together a budget plan will be a squishy, smoke and mirrors, TTWWW (That is The Way Washington Works) plan. A take it or leave it approach may give us nothing worthy to take.
But I have a solution. Politics is about choices. That is what 2012 is all about. No one doubts the parties have major differences and visions about the country’s future. No matter what any new super committee looks like, these differences will not change. Instead of seeing this as an obstacle, let us see it as a virtue. So here’s the deal.
By November 10, the super committee must report to the House and Senate TWO bills: one from the majority and one from the minority. If they can come up with a bipartisan plan, fine. But each side, majority and minority, gets to offer an alternative. The proposals must address entitlement reform, tax reform and discretionary spending caps. And as both the Boehner and Reid plans on the table indicate, no tax increases—but that does not preclude tax reform that spurs economic growth and brings in more revenue. Each proposal will be scored by the Congressional Budget office, and each of the Budget Committees and this scoring will accompany the reports on November 10.
Let us take a quick historical detour and see how a previous Congress did things. In 1996-9, a Republican Congressional majority reformed welfare and saved hundreds of billions of dollars; defense spending in this period was actually increased (albeit modestly) from the President’s request. Capital gains taxes were CUT (ultimately shooting up revenue collected by $80 billion a year!) and the child tax credit went up as well. Actual domestic discretionary spending was actually CUT in real terms in the initial year by $50 billion as Tony Blankley always reminds us). And caps on spending were adopted from a lower base.
Now for the record, the dot-com bubble burst, the country was in recession in 2000-1, and 9/11 all resulted in a halt to hundreds of billions of revenue coming into the government and government expenditures for homeland security and fighting the war in Afghanistan going out. And those dreaded tax rate reductions did not go into effect until 2003 AFTER the surpluses had gone away. Even so, by 2007, the US government was collecting $2.8 trillion a year, compared to $2 trillion in 2000.
Now, spending in 2008 was $2.9 trillion. Today it is $3.7 trillion. Between 2009 and 2016, the administration projected in February that defense, homeland security and veterans would increase a grand total of $50 billion. But overall spending would reach $4.5 trillion!! Defense is not the problem. And given the tax increases of over $1.6 trillion assumed by the administration to have been agreed to, obviously tax increases didn’t bring down spending.
So we come back to our deal. By December 1, each House of Congress must vote on the two proposals, with two amendments in order in both Houses—one from the majority and one from the minority. Filibusters would be out. By December 21, the conference committees between the House and Senate must reconcile the proposed debt reduction bills. If they do not, spending is cut across the board in FY12 and beyond to reach the $3 trillion level over the decade. No gimmicks. No phantom cuts. No smoke and mirrors.
No pig in the poke is being promised. Each party gets to bring its own pig to the party. It will not be pretty. If they can agree on one proposal fine, but any minority or majority member of the super Committee gets to offer an alternative. Since each of the party’s leadership gets to appoint its members, everyone’s interests are met. But finally, each side will have to present a deal, a real deal. The markets will know all of this will be settled before Christmas 2012. Between now and August 2, 2012, no expanded deal with real tax reform and entitlement reform can be agreed to except in very vague terms and it certainly cannot be “scored” by CBO in time. And another thing: on November 10th, each chamber has to bring up, put on the table and vote on whether to adopt for the future beyond an initial ten year deal, a balanced budget amendment to the Constitution. If it does not pass so be it. But a budget deal is possible with spending reform and tax reform. All it takes? Members of Congress have to stand up and VOTE. What a novel idea!
FamilySecurityMatters.org Contributing Editor Peter Huessy is on the Board of the Maryland Taxpayers Association and is President of Geostrategic Analysis of Potomac, Maryland, a national security firm.
Peter Huessy is President of GeoStrategic Analysis of Potomac, Maryland , a defense and national security consulting firm.
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