OK, so we beat the debt ceiling deadline by a few hours and will cut spending by more than $900 billion over the next decade. Problem solved? Not at all.
The debt ceiling agreement, which President Obama signed Tuesday, calls for a 12-member commission to cut another $1.2 trillion from the next decade's deficits. But here's the problem. Our annual deficit right now is more than $1 trillion. Cutting a trillion over 10 years amounts to cutting one tenth of the deficit each year. That's the equivalent of paying the minimum payment on a credit card that you've just used to buy a $10,000 vacation. You'll never pay it off!
The commission, to be composed of an equal number of Democrats and Republicans, will have to tackle some spending that no one wants to touch — Social Security, Medicare, federal pensions (including military), defense spending, ethanol subsidies, farm subsidies, federal salaries and other big, popular programs — and it will have to address revenues. There is no way the United States is going to dig its way out of the hole it's in with spending cuts alone. We could eliminate the Defense Department or decimate Social Security and still not have a balanced budget. Increasing revenues will be a necessity, and the Tea Party conservatives have to realize that, regardless of how many "no new taxes" pledges they might have signed.
Revenues can be raised with minimal impact on the middle class. Tax reforms, eliminating some wasteful business deductions and expanding the tax base can generate some additional revenue. Increasing the tax rate for the highest earners can also be done without touching 95 percent of all earners. The home mortgage deduction can be modified so that it doesn't apply to vacation homes or to $1 million mansions.
Perhaps the biggest challenges will be Social Security and Medicare. These popular programs have strong lobbying support, but you cannot effectively reduce the deficit without addressing the programs that consume more than half the budget. These issues should have been addressed 20 years ago; each passing year makes resolution more difficult. Whether the solution is higher payroll taxes, higher full-retirement age, adjustments to cost-of-living increases or some combination, the issue will have to be faced.
Washington's goal should be to eliminate the budget deficit. That won't be done by a couple of trillion dollars in cuts over a decade, and it won't be done without increasing revenues. Rep. Paul Ryan's austere budget proposal does not eliminate the deficit, nor do any of the other plans currently being discussed. A balanced budget amendment will not achieve that goal without monstrous cuts in spending or large tax increases. But unless the goal of eliminating the deficit is addressed, the current $14.3 trillion federal debt will keep on growing.