Beltway insiders are praising the just announced budget deal between the Democrats and the Republicans. For example, a news analysis in today’s Wall Street Journal, “Accord Is Departure for Capitol”, suggests that budget politics may be changing, getting any deal is very hard, that perhaps bipartisanship isn’t dead in Washington but that there is still unfinished business. This is a purely euphemistic assessment. All this deal really does is to let the big spenders off the hook.
What it does is to relax the sequester by $63 billion for the next two years for very little in return. The $84 billion in new fees over ten years “officially” reduces the deficit by $21 billion but two year’s worth of new fees is just $16.8 billion. This means that the deficit will actually increase by $46 billion over the next two years.
But the real problem is that the leverage represented by the sequester is being thrown away for the next two years and this sets a bad precedent for the future. For example, we can now assume that the debt limit will also be raised for two more years in February 2014 because there will no longer be any leverage for bargaining for any other changes.
This in turn means that entitlement reform is for all practical purposes dead for the next two years. This is the really hard problem to solve. Big spenders will do anything to avoid dealing with it. Responsible fiscal conservatives know it must be addressed and need all the help they can muster to get something done.
What happens if the budget deal is not passed by Congress? It simply means that the sequester remains in effect and that discretionary spending will be $43 billion lower this current budget year than otherwise. The value of the sequester is to force action on the really thorny issue of reducing entitlement spending. Let’s preserve it for this purpose and not throw it away for nothing significant in return.
Leaders are supposed to address issues, not walk away from them!
After five years of enormous deficits, our national debt now stands at over $17 trillion. The only spending restraint that Congress has been able to achieve so far is an approximately one trillion dollar “sequester” over ten years, therefore amounting to about $100 billion per year in spending cuts. Federal expenditures have actually dropped for two years in a row now so the sequester really does work. Of course, almost everyone complains about cutting spending in such a “dumb” way. Why not make intelligent budget cuts by eliminating the least effective programs instead of having to make small percentage cuts in all discretionary spending, good and bad alike? Well, this really should not be all that difficult to do if Congress would try a little harder.
The Congressional Budget Office has just released a helpful report, “Options for Reducing the Deficit: 2014 to 2023”, which lists 103 ways for either decreasing spending or increasing revenues over the next decade. Amazingly, enacting all of these proposals would amount to a budget savings of $13 trillion over 10 years, ten times what is required by the sequester! Here are some examples of what could be done (along with the 10 year savings):
Eliminate direct payments to agricultural producers $25 billion
Increase federal insurance premiums for private pensions $5 billion
Reduce the amounts of federal pensions $6 billion
Tighten eligibility for food stamps $50 billion
Use more accurate measure of inflation for all mandatory programs $162 billion
Replace some military personnel with civilian employees $19 billion
Limit highway funding to expected highway revenues $65 billion
Eliminate grants to large and medium sized airports $8 billion
Eliminate subsidies for Amtrak $15 billion
Reduce the size of the federal workforce through attrition $43 billion
Tax carried interest as ordinary income $17 billion
Limit medical malpractice torts $57 billion
Raise the age of eligibility for Medicare to 67 $23 billion
Modify Tricare fees for working-age military retirees $71 billion
Total $566 billion
Right here is more than enough to offset half of the sequester. You don’t like these cuts? Then replace them with others from the CBO report. There are lots of options to choose from!