Hey Congress, Wake Up and Take Fiscal Responsibility

Donald Lambro

11/23/2010 8:57:35 PM - Donald Lambro

WASHINGTON -- The budget-cutting, debt-slashing proposals from the National Commission on Fiscal Responsibility have drawn big yawns from Congress, President Obama and the nightly news.

Co-chairmen Erskine Bowles, a Democrat, and Alan Simpson, a Republican, threw everything they could into a plan that they have presented to the 18-member panel, which will be voted on Dec. 1. Indeed, there are enough fiery issues here to start a war among pacifists: cutting Social Security and raising eligibility ages; curbing Medicare benefits and making rich people pay more for them; raising the gas tax by 15 cents a gallon; ending the mortgage interest deduction; freezing federal pay; and cutting Pentagon spending so deeply that Defense Secretary says it will be "catastrophic" to our national security. But apart from some fulminating Op-Ed columns here and there, the country has yet to become fully engaged in what will likely be one of the most contentious debates in modern American history.

Much of the tepid response we've seen so far has to do with the national exhaustion that follows a two-year midterm election battle. Republicans have taken a strong hold of the House and are now in the process of plotting their agenda strategies. Democrats are barely holding on to the Senate amid deepening doubts concerning their working majority.

Recent private strategy conversations between the White House and Democratic leaders reveal that their party is more divided than ever over their next steps. Besides, reining in the budget isn't on congressional minds right now as they head into a lame-duck session that is focused on what to do about the 2001-2003 Bush tax cuts, which are set to expire Jan. 1. If they do expire, taxes revert back to their higher top rates under President Clinton.

As for the budget -- which is running up a $1.3 trillion deficit -- the Democrats have failed to pass any of their appropriations bills this year. The best they can hope for next month is a resolution to keep the government funded at present levels until the new Congress takes over in 2011.

Meanwhile, the commission's proposals, if they are able to muster a majority for them, will give the next Congress plenty of ideas to rein in spending and borrowing. Obama and the Democrats have given us both unprecedented spending levels and a feeble recovery too weak to make a dent in a nearly 10 percent unemployment rate.

Getting the American economy back on track is going to require a set of market-oriented reforms, enacted separately from each other. Among them:

-- Discretionary spending reductions: House Republicans have already pledged to roll back overall discretionary spending to fiscal 2009 levels. That's a start. But reducing spending is going to require cutting the size of government and that means ending programs and agencies and entire departments. Privatize home mortgage giants Fannie and Freddie and other money-losing agencies like Amtrak; end farm subsidies, Legal Services, public radio and television financial support, the Ex-Im Bank and dozens of other needless programs, and consolidate departments like Labor, Commerce, and Interior and USDA.

-- Raising the economic growth rate to 4 percent or more is the critical second leg of putting the deficit on a downward trajectory. That means closing tax loopholes and cutting income tax rates, as Bowles and Simpson's plan will set into motion.

Ending the home mortgage deduction or enacting a national sales tax isn't going to happen. But we can eliminate hundreds of billions of dollars in corporate welfare and lower the top tax rate to 28 percent. President Reagan did it in 1986, with bipartisan support, and it put the economy on a growth path for more than a quarter of a century and boosted tax revenues to boot.

-- Entitlements: Slowly raising early and standard retirement ages, and implementing a lower cost-of-living measurement, would help strengthen Social Security, but slashing benefits is a nonstarter.

Raising future benefits for younger workers by letting them put a small portion of their payroll taxes into a diversified bond and stock fund, just as federal employees do now under their pension system, is the best way to save Social Security and boost long-term benefits. Medicare and Medicaid similarly need to be reformed with market mechanisms to slow or even reduce the growth in health-care costs.

That's the voluntary plan the late Sen. Daniel Patrick Moynihan, Democrat of New York, crafted as head of a commission to save the system from bankruptcy. These are not all reforms that can be made in a year or in several years, but over time. The first goal is to immediately put spending on a downward curve and maintain a strong economic growth rate that will boost tax revenues. But do we have the political will to support such long-term, sweeping reforms, and will they come in time?