One of the best, and maybe only ways, for the US to arrest its spiral of deficits and debt is a new bipartisan fiscal commission. — Bloomberg
THE recent surge in bond yields is directing renewed attention to America’s grim fiscal outlook.
The harder you look at those numbers, the more intractable the problem seems.
Because the situation has been allowed to fester so long, the usual patches and short-term fixes will not be enough. Higher bond yields could abruptly deepen the fiscal hole.
So what’s to be done? My main suggestion will make your eyes roll: Establish a fiscal commission, with buy-in from both Congress and the administration, and task it to find answers.
Yes, sigh, it’s been tried before. And yes, these initiatives have rarely succeeded as hoped. Granted, in today’s hyper-polarised political climate, calling for bipartisan consensus-building seems absurd.
Bear with me.
For a start, the record of previous fiscal commissions is better than sceptics claim. The last ambitious effort was the Simpson-Bowles commission (as it came to be called) established by president Barack Obama in 2010.
It produced an impressive blueprint for spending cuts and tax increases that would have put the economy on a stable fiscal footing.
Then Congress refused to enact the plan, and over the next decade and a half, the ratio of federal debt to gross domestic product roughly doubled.
The effort may have failed, but it wasn’t a waste of time. It forced politicians to confront the problem and argue about what to do. And although they never passed the hoped-for grand package of policy changes, Simpson-Bowles did materially slow the growth of debt.
Congress enacted cuts in defence and discretionary spending much as recommended. Bits and pieces of tax reform and tweaks to mandatory spending programmes – Medicare and Social Security – fell far short of the panel’s proposals but did cut deficits further.
Altogether, the enacted savings lowered deficits by a cumulative US$2 trillion between 2011 and 2020. Not enough, but not nothing.
Now and then, more narrowly focused commissions have also worked much as intended.
Various rounds of the Base Realignment and Closure commission since 1988 turned out to be the most effective efficiency programme the Pentagon ever undertook.
In the early 1980s, the Greenspan commission came up with a plan to address the looming insolvency of Social Security by raising the retirement age and the payroll tax.
Its adoption put the system on a sound financial basis for the next four decades. Social Security is now expected to exhaust its Trust Fund in 2034, at which point benefits would have to be cut by about a quarter.
Unfortunately, the current fiscal problem is the opposite of narrow. The scale is such that more pruning of discretionary spending can’t solve it: Taxes and entitlements, the budget’s main components, must be on the table.
And the numbers are daunting: Stabilising the debt ratio, never mind reducing it, would require tax increases and/or spending cuts amounting to US$9 trillion over the next 10 years.
This optimistically assumes that Congress does not extend most of the tax cuts introduced by the 2017 Tax Cuts and Jobs Act, which both parties currently seem inclined to do.
In one way, of course, the breadth and complexity of the necessary changes strengthen the case for empaneling a new commission, rather than asking Congress to keep fumbling its way through further ineffective piecemeal adjustments and close-to-worthless fiscal deadlines.
Speaking of which, yet another debt ceiling looms, with the Treasury Department again adopting the now-standard “extraordinary measures” to avoid the next x-date (penciled in for the summer) when the government will have to start shutting down.
There’s no denying the difficulties a fiscal commission would face – but really, apart from eventual default, what’s the alternative?
Sceptics, conceding much of this, might say it ignores my prescription’s fatal flaw.
To get off the ground, never mind succeed, a new commission needs a sufficient willingness to cooperate – a measure of bipartisan consensus on the gravity of the problem and the need to solve it.
But this era of hyper-polarisation makes the idea ridiculous. Not to mention President-elect Donald Trump’s apparently insatiable appetite for conflict and division.
A commission won’t fly without buy-in from, and preferably sponsorship by, the White House. It’s unimaginable.
Well, it might not happen, but I don’t find it so hard to imagine. What do Trump’s opponents least expect? An initiative to unite the country in solving a seemingly intractable problem.
A leader who likes nothing better than to confound his critics, and who’s starting to think about his legacy, might see an opportunity.
In addition, hyper-polarisation need not be quite the obstacle it seems. A paradox of politics in the age of Trump is that Democrats and Republicans are more polarised on questions of culture and values than on matters of economic policy.
These days, Democrats like lower taxes, and Republicans like entitlements. —Bloomberg
Clive Crook is a Bloomberg Opinion columnist. The views expressed here are the writer’s own.
