The Disappointing Liberal Reaction to the Deficit Commission

Let's be clear about what the National Commission on Fiscal Responsibility and Reform is. Created by presidential order, it is an effort to take the necessary, but ugly, work of deficit reduction out of politics, put it in a safe room where electeds can talk like wonks instead of politicians, and create a plan that spreads the pain.* This way, if Congress voted to turn it into law, both parties would lose a little. And in the zero-sum world of partisan politics, that means nobody would lose at all.

Well, that was the strategy at least. But then yesterday, we saw the plan -- not the actual deficit commission report, but a working draft prepared by commission chairmen Alan Simpson and Erskine Bowles. Predictably, everybody found something to hate.

The liberal and conservative media universally panned the proposal as too regressive and too progressive; destroying Social Security but also turning it into a welfare program; raising taxes too little and raising them over their historical average ... and you get the point.

Three-hundred sixty degree criticism is the intended consequence of "spreading the pain." But in today's media environment, where the loudest voices are 180-degree polar opposites, a strategy to spread the pain seems to have merely convinced both sides that the proposal is DOA.

Since I lean left on budget issues, I'm most stung by the liberal reaction to the bill. The most disappointing criticisms have come from economist Brad DeLong on the plan's approach to tax reform.

In order to demonstrate the cost of tax expenditures (such as the mortgage interest deduction and the child tax credit), the plan includes a slide that eliminates all tax expenditures and lowers tax rates to 8, 14, and 23 percent. Then it forces Congress to raise rates for each tax subsidy it restores. Clever! DeLong, rather than see this as a smart strategy to line up tax expenditures and tax rates, pretends the plan is to actually lower the top tax rate to 23 percent. I've spoken to a senior commission official to confirm this: the plan is not a Trojan Horse. It's just a frame for lawmakers to see tax expenditures and tax rates as part of the same system. Professor DeLong should know a sly teaching tactic when he sees one.

The second most disappointing criticism comes from writers like Felix Salmon on the discretionary cuts discretionary spending (ie, not health spending, not Social Security). Discretionary cuts are difficult to recommend, because unlike Social Security, you can't make one big tweak and suddenly save a $100 billion dollars. Instead, you have to make a million little tweaks: reform agricultural subsidies, make congresspeople fly coach, hire fewer clerks, that kind of thing. So the commission provides a menu of $400 billion of cuts from which Congress would choose only half. Felix has some fun with this, writing

Some of the small savings have to be seen to be believed. The deficit commission, charged with coming up with a bold plan to bring the nation's finances into order, really does propose:

  • Increasing the amount of time spent on instant messenger, to reduce travel costs;
  • "Reduce copying use by putting the default option on copiers to double-sided";
  • Merging the Commerce Department with the Small Business Administration;
  • Charging a fee to Smithsonian visitors.
  • Etc.

Faulting these admittedly small ideas for their smallness is like saying you can't win a land war with a single pair of shoes. It's true, but shoes don't hurt, do they? Surely, we should all prefer the federal government use IM rather than spend Felix' hard-earned tax dollars on flights to Singapore. Printing double-sided is easy to snark, but the chairmen aren't pretending we can collate our way to fiscal responsibility. They're just saying, "Here's some waste."

The third most frustrating criticism comes from folks like Kevin Drum, who claims that any effort to reduce the deficit that isn't 98% health care reform isn't serious. The fact is, there are no feasible ways to definitively curb health care inflation starting today (if Kevin has some in mind we need to hear them!). We can shoot a thousand arrows at the medical inflation monster -- health care reform, to its great credit, does. We can nudge providers and customers away from pay-for-service, which rewards over-treatment. We can increase cost-sharing to help patients react to prices, increase transparency and quality through exchanges, and so on. But these are efforts, not answers. If we waited for the messianic Answer to health care inflation, we might never act on the budget. I can't imagine that's what Kevin would prefer. Instead, we should make the changes we can make today, slowly.

The fourth most frustrating criticism can be found in Matt Yglesias' and Tim Fernholz' work. Both writers seem to acknowledge that a deficit crisis looms over the horizon of the recovery, and that while we shouldn't do anything drastic to jeopardize the fragile recovery, it would be better to pass something that slowly reduces the debt today rather than be

MORE ON The Debt Report:

Andrew Sullivan: The Simpson-Bowles Breakthrough

Megan McArdle:So, About That Deficit Commission

forced to eat a crap sandwich of stark cuts tomorrow. I agree, I agree!

So why is Matt writing "the budget deficit isn't currently a problem, but it almost certainly will be in the future and that's when congress will act to deal with it." Wait until it's almost too late is not an ideal solution to any slow-burn crisis, whether it's climate or fiscal. Matt's concerns about Social Security reform I think are also slightly overblown. Forty percent of the Social Security shortfall comes from taxes on higher income -- a progressive solution. Benefits for low-income recipients are scheduled to rise slowly to 200 percent of the poverty line, a welcome reform in line with the mission of Social Security to reduce senior poverty. And that horribly maligned retirement age will increase so slowly that it only hits 69 in 2075, when Matt will be well into his 90s.

Tim Fernholz seems to share my principles about the budget without sharing my premise that the chairmen's plan is useful. "We need to get our long-term spending under control," he writes. "The longer we delay making sustainable budgeting decisions, the harder it becomes to make them." Totally! Tim has correctly described the necessity of the deficit commission. So why doesn't he love the deficit commission? Because even after raising Social Security taxes, and allowing tax revenue to reach historical highs, he would like more revenue. I would like more revenue, too. But that's a reason to engage with the report, not to lump it with Greek austerity.

Of course I have my misgivings, too. I'm confused by the decision to "cap" revenue at 21 percent of GDP, since revenue as a percent of GDP can rise without us touching tax rates due to rising incomes. I wish the committee considered more innovative tax reforms, like implementing a carbon tax to replace parts of the corporate tax code, or implementing a progressive value-added tax to promote savings and replace parts of the Social Security tax. But I also recognize that these are ideas have no legs in Washington. The commission's mandate was to find Washington's sea legs on debt reduction.

I have reservations about this report, but I commend it. For months, liberals (including myself) have said the Tea Party doesn't understand the deficit, and the Republican Party has no plan to fix it. Well, here's a plan to fix it. Why can't we understand that?


* A cynic might say the president established the commission hoping it would fail. Why would he do that? So that he could both claim the mantle of fiscal responsibility ("I tried to reduce the deficit, see!") while never ruffling feathers by cutting spending or raising taxes. A cynic could also say the deficit commission encouraged the release of this markup so that it would be eaten alive by the press, absolving members of responsibility if they voted against it. But that would be cynical!