Why the Deficit Commission is Doomed to Fail

The most important thing to understand about the draft report on how to reduce the national deficit is that it is nothing of the sort. It is, rather, a political piñata.
President Obama formed the National Commission on Fiscal Responsibility and Reform only because Republican lawmakers scuttled efforts to create a congressional deficit committee and because, bowing to Tea Partiers, Democrats wish to project an image of fiscal sobriety. Already, both parties are whacking away at the report, politicizing a process that was established because politics had nixed any reasonable discussion about balancing the budget.

The second most important thing to understand about the proposals outlined in the deficit report, including whatever the final version contains when it comes out next month, is that they have virtually zero chance of getting passed in Congress. Remember that little spat over health care reform, or the one about repairing the financial system? Multiply by a really big number. The commission touches not one public-policy third rail, but many, including taxes, Social Security and Medicare.

Inevitably, Left and Right are tearing into the plan. Rep. Nancy Pelosi, D-Calif., bluntly derided it as "unacceptable." Progressive pundits like Matt Yglesias questioned the necessity of tackling the national debt now. On the other side, anti-tax advocate Grover Norquist attacked, unsurprisingly, the proposal to raise federal revenue by phasing out key tax deductions, while libertarians called for bigger cuts in federal spending.

Powerful interest groups are also wading in. AARP, which represents retirees, said the plan would hurt middle-class Americans and accused the commission of trying to cut the deficit by shifting health care costs onto seniors in Medicare.

You can see where the scrum is heading -- legislative paralysis. So is the deficit commission an exercise in futility? Not quite. For all the political gamesmanship around the report, it at least provides a way to begin talking about a genuine concern. Not so much our $1.3 trillion deficit, mind you. As economist Dean Baker notes, there are other ways to deal with a ballooning national debt than by yanking on fiscal levers:

There is no reason that the Fed can't just buy this debt (as it is largely doing) and hold it indefinitely. (The Fed has other tools to ensure that this expansion of the monetary base does not lead to inflation.)

That way, the debt creates no interest burden for the country, since the Fed refunds the interest to the Treasury every year. Last year the Fed refunded almost $80 billion in interest to the Treasury, nearly 40 percent of the country's net interest burden. This means that the fears... of an exploding debt reaching 90 percent of GDP by the end of the decade have no foundation in reality.

Because in fact there's plenty to like -- and, yes, dislike -- in the deficit report. As The New Republic's Jon Chait says, liberals should back the plan's move to tax capital gains and dividends as regular income and to protect retirement benefits for low-income workers. Conservatives, at least of the paleo sort, should embrace the commission's willingness to trim even the sacredest of government program cows in an effort to balance the budget. On these and other issues, both sides might recognize that the other has a point.

Ideally, that would open the door to further dialogue, and -- who knows? -- even progress. But judging from the early hysteria over the report, not to mention the ongoing "hot" war in Washington, it won't.

Thumbnail from Wikimedia, CC 2.0; interior image from morgueFile
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