No Gimmicks: Just. Cut. Spending.

Republicans in Washington are gamely trying to prevent the debt ceiling debate from spinning out of control and becoming a defeat for the party. Currently there are two large-scale efforts on the table to resolve the immediate debt crisis. The first is the still-amorphous Gang of Six plan. It is nearly always wise to be wary of proposals negotiated behind closed doors by bipartisan groups of Senators; the Gang of Six plan, which exists only in outline form, appears to be no exception.

Dan Mitchell of the Cato Institute analyzed the Gang’s proposal; here are some highlights:

The Good
o Unlike President Obama, the Gang of Six is not consumed by class-warfare resentment. The plan envisions that the top personal income tax rate will fall to no higher than 29 percent.

o The corporate income tax rate will fall to no higher than 29 percent as well, something that is long overdue since the average corporate tax rate in Europe is now down to 23 percent.

The Bad
o The much-heralded spending caps do not apply to entitlement programs. This is like going to the doctor because you have cancer and getting treated for a sprained wrist.

o A net tax increase of more than $1 trillion (I expect that number to be much higher when further details are divulged).

o The plan targets some provisions of the tax code – such as IRAs and 401(k)s) – that are not preferences, but instead exist to mitigate against the double taxation of saving and investment.

o There is no Medicare reform, just tinkering and adjustments to the current system.

The Ugly
o The entire package is based on dishonest Washington budget math. Spending increases under the plan, but the politicians claim to be cutting spending because the budget didn’t grow even faster. …

o A requirement that the internal revenue code maintain the existing bias against investors, entrepreneurs, small business owners, and other upper-income taxpayers. This “progressivity” mandate implies very bad things for the double taxation of dividends and capital gains.

Yesterday ranking Budget Committee member Jeff Sessions also issued a cautionary statement on the Gang’s plan. He, too, emphasized the fact that, even though the Senators have been talking for months, there is little detail available on their proposal:

Several preliminary questions and concerns emerge from the executive summary. The proposal asserts overall deficit reduction of about $4.5 trillion. But if the measures outlined in the summary were followed to the letter, total deficit reduction would add up to only $1.2 trillion over 10 years. …

The authors note that, in effect, the discretionary savings will be achieved by a freeze on spending at current levels. There would be no net spending cuts. We must have true reduction of current levels since baseline discretionary spending has increased 24 percent in the last 2 years—we cannot ‘freeze in’ this inflated level.

It is also important to note that any savings are compared to baselines in which spending is already projected to increase dramatically over the next 10 years—the spending cuts only slow ongoing increases in spending. Total spending in this decade is projected to reach around $46 trillion. No amount of taxing can cover that bill. …

Overall, it would seem taxes under this proposal will go up by at least $1 trillion.

Another feature of the executive summary is the assertion that it would ‘stabilize’ the debt. Similar claims were made about the president’s budget. Stabilize is Washington-speak that suggests the debt no longer grows, when it would in fact continue to grow every single year. The term simply means that the authors of the proposal believe that growth in the economy will keep pace with growth in publicly-held debt so that it will remain at roughly 70 percent of GDP. But this number is dramatically too high— it would mean a gross debt-to-GDP ratio of roughly 100 percent or more (a figure estimated to result in at least million lost jobs a year).

Finally, I do not see evidence that this plan contains the type of entitlement reforms necessary to avoid an explosion of debt down the road.

So I do not see the Gang of Six plan as a promising means of resolving the debt crisis.

I am considerably more in sympathy with the “Cut, Cap and Balance” plan that passed the House yesterday. That plan is spot-on in its call for immediate spending cuts and a spending cap. But the idea of conditioning an increase in the debt ceiling on Congressional passage of a balanced budget constitutional amendment is misguided for two reasons.

First, there is no chance of the legislation getting through the Senate, so Democrats are credible when they denounce the act, in the context of the current debate over the debt limit, as political posturing.

Second, and more important, I think it would be a strategic mistake for conservatives to make a constitutional amendment the centerpiece of our fiscal strategy. We need control over federal spending now. We need entitlement reform soon. We need the federal debt to start coming down, not rising. Achieving these goals will not be easy, and may prove impossible. At best, it will require every ounce of energy and political capital a united conservative movement can muster. The last thing fiscal hawks need at this point is a diversion that will consume years in potentially fruitless, state-by-state efforts.

The call for a balanced budget amendment brings to mind the Equal Rights Amendment. In the early 1970s, the feminist movement was making great strides. Beginning in 1972, when the amendment passed Congress, securing its enactment became that movement’s central goal. The effort ended in futility, as the feminist movement’s political energies were drained over a period of years in an endless attempt to secure ratification in the necessary 38 states. In the end, while the ERA took the steam out of the feminist movement, it didn’t matter: equal rights became a reality even as the amendment languished, a few states short of the needed total. That, of course, won’t happen here: the federal spending problem won’t solve itself if conservatives’ energies are diverted to the endless pursuit of a constitutional amendment.

Setting to work on a constitutional amendment would put our government in a position analogous to that of an alcoholic who announces that he will immediately devote a million dollars to creating a foundation to combat alcoholism, and that he plans to quit drinking in ten years. The alcoholic needs one thing–to quit drinking, now. Our government needs one thing–to curb spending, now. Efforts devoted to collateral goals, however laudable they might be in principle, will distract from what must be done now.

So, where does that leave conservatives with regard to the debt ceiling issue? In the immediate term, Republicans and conservatives need above all to prevent the debt ceiling issue from turning into a disaster. If there is a last-minute grand bargain, negotiated behind closed doors, announced only in general outline and voted on before the public and most in Congress understand what is in it, we all know what the result will be: a fiasco for conservatives and for the American people. At this point, Republicans should just try to get something–anything–in exchange for their agreement to a higher debt limit. The best consideration would likely be a statutory spending cap.

Having achieved that limited victory, the GOP can go back to fighting the ongoing budget battle where it ought to be fought–in the legislative process. Jeff Sessions is the Republican who has seen this most clearly from the beginning. It is an absolute outrage–an illegal outrage, in fact–that our national government has functioned for more than two years without a budget. It is ridiculous that to this day, the Democrats in Congress will not propose a budget, nor will President Obama go beyond generalities and platitudes and put a spending proposal on paper. (He no longer pretends to defend his FY 2012 budget, which was essentially a joke and failed to garner a single vote in the Senate.) The only way that meaningful fiscal reform is ever going to happen is through the legislative process: a budget needs to be written, to be debated in committee, to be amended, to be published to the American people, to be studied by informed third parties, to be debated on the floors of the House and the Senate, and ultimately enacted. Secret, closed-door deals don’t work for conservatives. Political horse-trading will never generate fiscal responsibility. Conservatives should strive to put the debt ceiling issue behind us and move forward with a transparent process to constrain and reform federal spending.


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