The country's fiscal health took a two-by-four to the head yesterday, as new estimates of our ten-year deficit jumped by $2 trillion to $9 trillion, setting the stage for what some budget experts are predicting will be the biggest deficit fight in US history. The Obama adminstration has promised a pay-as-you-go rule for new spending, which means that, as in health care reform, any new spending measures will have to be accounted for to stay deficit neutral, but an op-ed for the Washington Post says that won't be enough. Not nearly enough:
This is weak reassurance, since the administration's version of pay-go exempts the extension of the 2001 and 2003 tax cuts, patches for the alternative minimum tax and physician payment reforms under Medicare -- that is, most of the policies the administration complains about inheriting. The fact is that the administration supports the continuation of the prescription drug benefits -- which Democrats also advocated -- and continuation of the Bush tax cuts for 95 percent of taxpayers.
This highlights a fundamental challenge at the heart of deficit fighting. There are two ways to fight a deficit: You cut spending, or you cover spending with tax cuts. But meaningfully fighting the gargantuan deficit is going to be a bit like fighting a rabid grizzly bear with a butter knife, one arm tied behind your back and both you legs stuck in hardened concrete. The challenges are multitudinous:
1) Generally, cutting funding is really hard. This is self evident. It's nearly impossible to cut spending meaningfully because every billion dollars in the budget represents a somebody's billion-dollar interest that the government continue paying that money. Look how hard it was to cut funding for a F-22 jet we're not even using in Iraq and Afghanistan, and that was just $1.75 billion (our projected budget shortfall this year is about 1,000 times more than that.)
2) Augmenting that challenge will be the historical/Keynesian argument that we don't want to cut spending before the country emerges from the recession. In 1936 FDR began to reign in his expansive monetary policies and started working toward balanced budgets -- in 1937, the Great Depression double-dipped and unemployment exploded. You can bet that liberal economists will be pressuring Obama to continue to put off social services budget cuts for a long time.
3) Long-term budget cuts are hard to promise. Peter Orszag is fond of predicting that the IMAC -- an independent counsel to make hard decisions about Medicare payments and promote best demonstrated practices for treatment -- will help bend the cost curve of health care down. And he might be right. But we're also relying on the hypothetical power of an uncreated program staffed with unnamed doctors. Its potential effect is, admittedly, unscoreable.
4) Tax increases, the surest way to fill the deficit hole, are also arguably the hardest deficit fighting weapon to wield. As the WaPo editors wrote, Obama isn't willing to rescind the Bush tax cuts for 95 percent of Americans. Let's leave aside Republicans, most of whom have never met a tax cut they didn't love. Even supposed deficit-hawk Blue Dog Democrats are rather fond of (1) Bashing Obama for fiscal recklessness and then (2) Striking down proposed his tax increases.
Like I said, grizzly bear, butter knife, one arm tied, feet in concrete, etc. If you think health care reform is a pain, just wait until deficit battles. Did we mention that 2010 is an election year?