If the president’s deficit commission cannot agree on a bipartisan plan to reduce the federal debt, Congress will have to take enough significant steps in that direction to avoid a European-like debt crisis in the financial markets.
Can lawmakers do even that?
The bold plan – three-quarters spending cuts, one-quarter tax adjustments – may well win the support of a majority of the 18-member commission. But it’s unlikely to gain the required supermajority of 14 votes needed to formally send the entire plan to Congress for consideration.
A likely Plan B, though not designated as such, will be for lawmakers – as well as President Obama – to take up pieces of the commission plan (or other ideas) as they fashion the next federal budget.
The two parties will compete on what steps to take first, but they’ll both be in a race against a greater foe: global financial markets.
The “markets” are merciless, indiscriminating, and unpredictable in timing. They don’t care if a country manages its government well (Ireland) or poorly (Greece). If a nation’s debt looks unpayable, bam, the markets lower the boom. They basically say: We’ll lend to you again once you can show us how you will pay us back.
That has suddenly put both Greece (last spring) and Ireland (now) on a severe long-term spending diet that is highly unpopular with citizens. As Mr. Obama’s commission co-chairs have repeatedly warned, this could happen to the United States.
As painful as it may be, cutting the military budget and federal workforce – as the commission co-chairs recommend – are unlikely to be interpreted as serious measures. Why? Because they leave the big budget busters, entitlement programs, untouched.
Encouragingly, Republican budget leaders in Congress and the White House have indicated they might be willing to take on one of those entitlements, Social Security, this year. The commission report from the co-chairmen suggests a gradual rise in the retirement age to 69 in 2075.
And Republican budget leaders and the White House may be able to make progress on tax reform. The Bowles-Simpson report suggests simplifying taxes – reducing income and corporate tax rates while limiting a slew of deductions, including the popular one for home mortgage interest.
But the mastodon in the room is health care, specifically Medicare for seniors. The commission co-chairs recommend higher premiums for Medicare, but commission member Paul Ryan, a Republican congressman from Wisconsin who is expected to become the House budget chairman, says he’ll vote against the plan precisely because of how it handles health care.
Instead, he is touting a Medicare solution that he’s worked out with Democratic commission member Alice Rivlin. It would grandfather in people aged 55 and older to the current Medicare system, but provide “means-tested” vouchers for people after that to buy their own health insurance.
The Congressional Budget Office says the Ryan/Rivlin proposal would make Medicare solvent, and it’s certainly worth a look. But when?
Congressman Ryan, at a Monitor breakfast with reporters Thursday, said he did not expect the White House and Republicans to agree on health care, and that it would be an issue for voters to decide in the 2012 elections. So, the giant elephant in the room is ignored for two more years? Will the markets wait that long?
What Congress and the White House need to remember is that the more important race is not 2012. It’s with that unpredictable adversary: the markets.