There’s a Hole in the Bucket, Dear Leaders, Dear Leaders

December 9th, 2010
by Jonathan Leidy

The 18-member, bi-partisan committee on deficit reduction:  The National Commission on Fiscal Responsibility and Reform, released its recommendations last week, aimed at reducing both the current deficit ($1.3T) and the national debt ($14T). Ominously entitled “The Moment of Truth,” the report included the following suggestions:

  • Discretionary Spending Cuts:  Enact tough spending caps for Congress, and initiate a series of cuts to “low-priority programs” across the board.
  • Comprehensive Tax Reform:  Retool the tax code to eliminate most deductions, exemptions, etc., and instead use a set of uniformly lower tax rates.
  • Health Care Cost Containment:  A total rebuild from top to bottom including cost containment measures for physician payments, malpractice, prescription drugs, and more.
  • Mandatory Savings:  Another sweeping measure whereby reforms would be made in agricultural subsidies, military and civil service benefits, student loans and at the Pension Benefit Guarantee Corporation.
  • Social Security Reform:  Ensure the sustainability of Social Security through increases in the standard retirement age as well as the income level subject to payroll tax.
  • Process Changes:  Modify the budgeting process such that spending is capped, inflation is accurately measured, and “taxpayer dollars go where they belong.”

Two things are striking about this report:  a) how commonsensical it is and b) how impractical it is.

The commission’s report contains intellectually appealing approaches to addressing virtually every political “hot potato” of the last half century.  Each of the highlighted issues desperately warrants our nation’s creativity and attention.  However, do we really expect either the executive or legislative branches of our government to adopt policies that hamstring their aging voter base or worse… themselves?

If the last 30-days are any indication, fiscal responsibility does not seem to be the government’s mandate. Congress passed the “doc fix” bill, which postpones physician pay cuts under Medicare, and the food safety bill, which enacts higher safety standards for processed foods, apart from meat. Combine that with the likely extension of the Bush-era tax cuts and unemployment benefits, and within a month the US will have increased its already distended 3-year deficit by roughly $365B.

Now it is clear that the economy is fragile, and no one wants to upset the proverbial apple cart with a dose of wide-sweeping, short-run austerity. But as we slowly wean the economy off of life support, all of the same challenges facing us today will remain as will an even larger Matterhorn of debt.

You want the real “Moment of Truth?” It is the moment when we, as a nation, realize that not only are our long-term fiscal policies untenable, but so is our collective expectation that our leaders are willing to take the difficult and politically unpopular steps necessary to revamp them.

“As a very important source of strength and security, cherish public credit. One method of preserving it is, to use it as sparingly as possible; avoiding occasions of expense by cultivating peace, but remembering also that timely disbursements to prepare for danger frequently prevent much greater disbursements to repel it; avoiding likewise the accumulation of debt, not only by shunning occasions of expense, but by vigorous exertions in time of peace to discharge the debts, which unavoidable wars may have occasioned, not ungenerously throwing upon posterity the burden, which we ourselves ought to bear.”

—George Washington

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