Friday, November 19, 2010

They Dreamed a Dream of Deficit Reduction: Unprincipled Cuts and Wishful Thinking

-- Posted by Neil H. Buchanan

The preliminary proposal from Erskine Bowles and Alan Simpson, the co-chairs of the National Commission on Fiscal Responsibility and Reform (the Deficit Commission), continues to dominate discussion among budget wonks and political junkies. In my post last Friday, I discussed the narrative that surrounds the release of any bipartisan plan to reduce the deficit: solemn nodding and hearty congratulations to the authors for their boldness, bravery, and responsibility in taking on such a grave, patriotic duty.

This was the reaction not just to the co-chairs' proposal, but also to a proposal released on Wednesday of this week by something called the Debt Reduction Task Force, which is part of another unknown entity called the Bipartisan Policy Center. Upon the release of that proposal, one group of deficit hawks quickly issued a press release saying "hats off" to the Task Force's co-chairs for "starting a more responsible discussion" about deficit policy.

As I pointed out last week, there is nothing difficult about any of this. Once you agree that "responsible" proposals can include politically dead-on-arrival components (for example, any defense cuts at all), then anyone can come up with a plan to reduce deficits with ease.

In my FindLaw column yesterday, I turned my attention from the media narrative about the co-chairs' proposal to a critique of its unprincipled approach to deficit reduction. Other than a few halfhearted nods toward protecting spending on good things like education and "the disadvantaged," the proposal really is just a bunch of ways to cut spending and raise taxes, with only the barest attempts (at best) to describe why any given idea makes sense. In other words, the co-chairs spend a great deal of time talking about things on which we spend money; but they do not expend any effort to determine whether we are spending the right amount of money on any of the items that they describe.

They would cut the budgets of Congress and the White House by 15% each. Why? Who knows? They suggest cutting the growth of foreign aid -- because, you know, the U.S. is so famously generous in its foreign aid -- to save $4.6 billion in 2015. How do we know whether that is money poorly spent? Even more ridiculously, they include $16 billion in savings in 2015 from eliminating all earmarks -- even though earmarks merely direct where money will be spent, without changing the total amount of money that will be spent.

The proposal that jumped out at me was the "Cut and Invest Committee," which would be "charged with trimming waste and targeting investment," by "de-authoriz[ing] outdated, low-priority and inefficient programs and recommend[ing] high priority long-term investments." From that bare-bones description, this could be something like my proposal for a Growth Budgeting Board, which would apply principled cost-benefit analysis to find long-term investments that the government could finance through borrowing, to raise future living standards. Unfortunately, the little evidence available in the proposal suggests that the "cut" part of the committee's title is much more important to the co-chairs than the "invest" part.

The easiest place to see these misplaced priorities is the plan to raise the gasoline tax to fund transportation improvements. A gas tax, of course, is a really good idea, on many grounds. The co-chairs, however, propose only a $0.15/gallon tax and then promise not to allow the government to spend even a dollar more than it collects from that dedicated tax on improvements in the transportation system: "fully funding the transportation trust funds and therefore eliminating the need for further general fund bailouts." ("Bailouts"? This is supposed to be two statesman avoiding demagoguery, isn't it?) Intelligently-planned infrastructure improvements should be limited neither by the funds collected by the gas tax, nor by knee-jerk efforts to avoid spending general funds on transportation or other projects, nor by concerns about the overall deficit. (The rest of the tax proposals are a story unto themselves, which I will set aside in the interest of both brevity and readers' sanity.)

It is hardly a secret that the real action in long-term deficits is in health care costs -- although one would not know that from most political rhetoric about "out of control spending" and such nonsense. To their credit, the co-chairs at least try to think about health care costs in laying out their plan. Unfortunately, they once again take a bizarrely unprincipled approach to their proposed cuts. For example, they suggest saving $54 billion from 2012-2020 by cutting spending on "graduate and indirect medical education." Perhaps there is a study somewhere that says that federal spending on medical education is too high, but color me skeptical.

Adhering to the political script, the co-chairs naturally included so-called tort reform in their proposal to reduce medical costs. (This must be included in the proposal, so that pundits can point out that the co-chairs were willing to take on political sacred cows -- in this case, offending a much-reviled source of fund-raising for Democrats.) They claim that this would save $64 billion over the next decade. Because the co-chairs do not describe how they would actually change medical malpractice laws, it is impossible to know whether that is a reasonable estimate. It strikes me as high, unless we are really going to make it much more difficult for anyone to win a malpractice suit -- even legitimate ones.

As Paul Krugman pointed out in a column last week, the most bizarre aspect of the co-chairs' proposal is the decision to completely punt on long-term health care cost savings. They would set overall targets for federal health care spending, capping growth in costs at the economy's growth rate plus 1%. If costs exceeded the caps, the President would have to propose and Congress would have to "consider reforms to lower spending." The possible reforms amount to increasing costs to patients or cutting payments to providers, although the proposal actually does suggest considering the adoption of "a robust public option and/or all-payer system in the exchange." I have not seen any of the gleeful deficit hawks jumping on that idea -- or, indeed, on any idea to cut health care costs. As one prominent budget cutter put it: "There is health care fatigue."

Even setting aside the vagueness of the long-term savings in health care costs, the co-chairs' proposal again simply fails to identify the real problem. If health care costs continue to rise, then shifting those costs from the federal government onto households and businesses is not a solution to the economic rot that is directly the result of spiraling health care costs. It is true that there is some point at which the beast can be starved, but there is no reason to believe that health care inflation could be choked off at a point where the economy is still alive.

Any serious long-term solution for the projected increases in the federal budget deficit begins and ends with a solution to health care inflation. Everything else is chump change. And this proposal says nothing at all about how to solve that problem. We can (and probably should) follow the co-chairs' suggestions to save $1.2 billion and $0.4 billion in 2015 by, respectively, "eliminat[ing] funding for commercial spaceflight," and "reduc[ing] unnecessary printing costs." That, however, is not where the action is. Maybe we will get over our "health care fatigue." If we are truly serious about saving both the budget and the economy, that single-payer thing will soon seem just a bit more thinkable.

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