Post election, Congress can't ignore the deficit

After midterms, Congress must tackle $1 trillion budget deficit. Proposed: crack down on tax evaders, cut non-war defense spending, and let tax cuts for the wealthy expire as scheduled.

Scott J. Ferrell / Congressional Quarterly / Newscom / File
William A. Galston, senior fellow at The Brookings Institution, and Maya MacGuineas, president of the Committee for a Responsible Federal Budget, during the November 2009 Senate Budget hearing in Washington. They have strong deficit-cutting suggestions for the lame-duck session, which must pass a budget soon.

Once past the midterms and the usual campaign blarney – "no new taxes" and so on – Washington is going to have to seriously tackle the budget deficit. It's now more than $1 trillion a year, threatening to drag the United States down a dark fiscal hole.

"It must be put at the top of the national agenda," says Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a Washington think tank. There are reasons to believe it will be.

Congress has to pass a budget when it reconvenes later this month. By Dec. 1, President Obama's bipartisan National Commission on Fiscal Responsibility and Reform is due to make its deficit-cutting recommendations. It might miss the deadline by a week or two. Some observers suspect it will be unable to get a necessary 14 of its 18 members to agree on a bipartisan report.

Already a host of those who submitted testimony to the commission – as well as many who haven't – have been making public their deficit-slashing suggestions. Here are a few:

Shrink the tax gap. Every year, the US fails to collect an estimated $345 billion in revenue because of fraud. That's a "tempting target for deficit crusaders," says OMB Watch, an advocacy group formed to "lift the veil of secrecy" shrouding the White House's Office of Management and Budget. But that alone won't fix the deficit.

Cut defense. Some 57 members of Congress, led by Reps. Barney Frank (D) of Massachusetts and Ron Paul (R) of Texas and Sen. Ron Wyden (D) of Oregon, called on the commission to seek "significant reductions" in non-war portions of the defense budget.

Tax the rich. Mr. Obama proposes to keep the Bush tax cuts for the middle class but not for the well-to-do. "As an interim measure it has a lot to recommend it," says William Galston, an analyst at the Brookings Institution in Washington. It would boost revenues by $970 billion over 10 years.

Probably the most comprehensive detailed proposal so far comes from Ms. MacGuineas and Mr. Galston. Their 18-page report puts everything on the table (including that third rail of politics, Social Security). It shares necessary budgetary sacrifices and attempts to keep from derailing the economic recovery by holding back on broad tax hikes and spending cuts until 2012.

After that, the plan relentlessly shrinks the deficit. In the case of Social Security, for example, it would raise the maximum income subject to the payroll tax – maybe from about $110,000 now to around $180,000, says Galston. But it also suggests boosting revenue by speeding up the currently scheduled increase in the normal retirement age to 67 and then indexing it to increases in life expectancy.

In 2020, the overall plan would cut $400 billion in spending and raise $400 billion in taxes. The result: a deficit less than 1 percent of gross domestic product by 2019. It's now 8.9 percent.

"We are on a [budgetary] course that cannot be sustained," says Galston. Fiscal restraint would lower interest rates below what they would be otherwise and further encourage private business by offering a "more stable and predictable economic climate." The longer Washington waits to shrink the deficit, "the harder it gets," he adds.

"The American people want their leaders to treat them like adults who are capable of accepting the truth," the report says. These leaders must begin to act as adults interested in solving problems and "not just scoring political points."

We shall see if our leaders pay heed.

David R. Francis writes a weekly column.

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