Deficit: No deal is better than a bad deal

If the deficit supercommittee doesn’t agree on new deficit-reduction measures, non-defense discretionary spending will face about $300 billion in cuts. But proposals that the committee are considering could cut spending even more.

By , Guest blogger

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    Former Sen. Alan Simpson, R-Wyo., second from left, and Erskine Bowles, left, co-chairs of the National Commission on Fiscal Responsibility and Reform, offer their advice as the Joint Select Committee on Deficit Reduction holds a public hearing on Capitol Hill in Washington. Bernstein argues that the deficit supercommittee not coming up with a budget plan would be better than it coming up with a bad plan.

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I don’t like sequestration (the automatic cuts that kick in if the supercommittee fails to vote out a plan) any more than you do.  But a lot of what I hear shaping up sounds worse than the triggered savings of $1.2 trillion over 10 years—remember, Soc Sec, Mcaid, Mcare, food stamps, refundable credits for low-income families are all largely exempt from the trigger.  And half the triggered cuts come from defense.

And now, my CBPP colleague Paul Van de Water points out that cuts to the non-defense discretionary side of the budget—programs like education, training, R&D, transportation infrastructure, child care, Head Start, and more—could be larger in the deal under consideration than under the trigger:

If the congressional “supercommittee” doesn’t agree on new deficit-reduction measures, non-defense discretionary spending…will face about $300 billion in automatic, across-the-board cuts over the 2013-2021 period.  That’s in addition to the large cuts that the Budget Control Act already put in place.

But proposals that the committee is considering — such as the Democratic offer of early last week — could cut non-defense discretionary spending by even greater amounts…

The Democratic offer would cut discretionary spending as a whole — defense and non-defense combined — by $400 billion over ten years.  The offer states that these cuts would be divided equally between defense and non-defense programs, but it doesn’t explicitly include the critical mechanism needed to guarantee that this would happen:  separate caps for defense and non-defense spending for each year from 2014 through 2021.

Absent such caps, Congress could well poach savings from NDD to avoid cutting defense spending, and that could lead to cuts in excess of the $300 billion noted above.

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Moreover, as Paul points out:

Using the same baseline as the Bowles-Simpson commission, and including the spending cuts already enacted in the Budget Control Act, the ratio of spending cuts to tax increases in the Democratic offer is 14-to-1.  The Democratic offer also would make raising taxes more difficult in subsequent deficit-reduction efforts by locking in the Bush-era tax cuts for upper-income households.  As a result, its adoption would create substantially greater pressure to cut nondefense discretionary spending in the future.

That locking-in point is critical.  If the supercommittee agrees on a deal that locks in lower income tax rates, whether we’re talking permanent extension of the highend Bush cuts (locking in the current 35% rate) or the much, much worse idea from the committee R’s of taking that rate down to 28%, that way lies madness.  It’s really locking in the Norquistian starve-the-beast strategy where future rounds of deficit savings plans depend entirely on spending cuts, with no new revs allowed.

So fear not no deal.  That would be a lot better than what I’m hearing about.

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