As rumors of a deal on fiscal policy that might get the votes in Congress for an increase in the federal debt ceiling propagate, it is wise to listen carefully. A “deal” to get Congress past the present debt ceiling battle is far different than a “deal” that addresses the underlying causes of the looming federal debt crisis.
House Speaker John Boehner has said that if the debt ceiling is to be raised by $2.4 trillion, then deficit reduction of that same amount is necessary. The now-defunct Biden talks featured leaks that at least $1.2-1.5 trillion of sending restraint had gained agreement by the participants. Other demands include a ratio of at least 3 dollars in spending cuts for any 1 dollar in revenues.
It is unfair to call $2.4 trillion trivial; but it is not unfair to call saving $2.4 trillion over a decade (when our indebtedness will be about $23 trillion at the end of the decade) grossly inadequate. Indeed, it is relatively easy to concoct a plan to reduce projected debt by $2.4 trillion without doing anything to the structural causes of American indebtedness.
Here’s just one easy example of a plan to get to that magic $2.4 trillion without much political sweat:
- take credit for the anticipated troop draw-down in Iraq and Afghanistan: $1 trillion;
- incorporate some of the savings recommended by Defense Secretary Gates: $0.2 trillion;
- freeze domestic non-security spending for five years: $0.4 trillion;
- make minor changes in mandatory programs, like agricultural subsidies, add changes to the Consumer Price Index (CPI) used to increase many government spending programs, and let attrition remove at least one-third of projected Department of Defense federal employee openings over the next decade: $0.2 trillion;
- take credit for interest payment savings that would result from doing the above: $0.3 trillion;
- close “tax expenditures” in the tax code such as the ethanol credit, mortgage interest deduction on all second homes, and a few other small loopholes: $0.4 trillion.
Total: $2.5 trillion. Voila! We have just surpassed the $2.4 trillion goal. So, Congress and the Administration might say, now we can increase the debt ceiling by $2.4 trillion and that will get the pesky debt question out of the way until after the 2012 elections. Sadly, none of the above changes any of the structural spending problems that will project the nation into unsustainable and economically damaging indebtedness within the next 15 years. Indeed, a cynic (who has been through these debt ceiling battles before) might note that all of the savings above change almost nothing. Our projected indebtedness evolves from sky-rocketing Medicare, Medicaid, and pension costs. End of discussion. One could do none of the suggestions above, but phase in the kinds of changes advocated by our Debt Reduction Task Force, and come very close to stabilizing our national debt at more or less 60 per cent of Gross Domestic Product. So, watch out for deals that sound too good to be true. They usually are just that—too good to be true.