In a move that should please the usual crew of "fiscal conservatives," a small group of Democratic and Republican senators are trying to craft a deal on deficit reduction, using the Simpson-Bowles report as a guide. Here are the details:
The Senate group's working plan calls for placing separate caps on security and nonsecurity spending, and missing a budget target in one area would not trigger mandatory cuts in the other. The spending targets would follow proposals laid out by the deficit commission, which recommended cutting discretionary spending by $1.7 trillion through 2020. Lawmakers on the spending committees would draft legislation to meet the targets. But if they were not met, automatic, across-the-board cuts would go into effect.
The tax-writing committees would be given two years to overhaul both the individual and corporate tax codes, with general instructions to close tax breaks and minimize or eliminate tax deductions while lowering tax rates. The committees would be given a target for additional revenues to be raised by the new code. The deficit commission's version of tax reform would net $180 billion in additional revenues over 10 years.
It's fair to say that this is a terrible deal for Democrats. $180 billion in revenue is paltry in comparison to $1.7 trillion in cuts to discretionary spending. To put it in perspective, $180 billion over 10 years comes to a little more than 1 percent of the 2010 budget for discretionary spending, while $1.7 trillion over the same period comes to $170 billion, or nearly 12 and a half percent of the 2010 budget for discretionary spending. If you exclude defense, and only count "non-defense discretionary spending," then $170 billion is a 24.1 percent cut in all other federal spending for 2010.
To reach that number, you'd either have to make deep cuts everywhere or eliminate the following agencies: the Small Business Administration, the Corporation for National and Community Service, the National Infrastructure Bank, the Corps of Engineers, the National Science Foundation, the Social Security Administration, the Environmental Protection Agency, the Department of the Interior, the Department of the Treasury, the Department of Labor, the Department of Commerce, NASA, the Department of Justice, the Department of Agriculture, and the Department of Energy. It's easier to make those cuts if you include defense spending, but given the reach and influence of defense contractors, I have a hard time imagining a world where the Pentagon sees significant annual cuts.
This is a long way of saying that discretionary cuts are close to meaningless in terms deficit reduction. If you want to reduce deficits and long-term debt, three things are necessary: higher revenue, higher economic growth, and lower health care spending. The latter is tough, but the former is basically low-hanging fruit; the Bush-era taxes are a huge drag on the budget, and a return to Clinton-era tax rates would slash the short-term deficit by half, as well as stabilize debt for close to a decade. The politics are straightforward -- let the cuts expire, refuse to compromise -- and it would be excellent policy. That this isn't on the table should be a sign: most "deficit hawks" are less concerned with fiscal stability and more concerned with keeping taxes low for rich people.
