The Deficit Commission Trap
Democrats now want Republican cover for their tax increases.
Originally Posted At The Wall Street Journal
December 29, 2009
After signing a $787 billion economic stimulus and embracing two annual blowout budgets that will double the national debt over 10 years even before ObamaCare, President Obama is poised to pivot next (election) year and denounce the horrors of deficit spending. So the White House is now floating a bipartisan commission to reduce federal borrowing, and much of the political class is all for it.
We only hope Republicans aren't foolish enough to fall down this trap door, though some are already tempted. A budget deficit commission is nothing more than a time-tested ploy to get Republicans to raise taxes. In the 2009 version, Republicans are being teed up to hold hands with Democrats and agree to become the tax collectors for Obamanomics.
The deficit reduction commission is a longstanding idea that is now being pushed with renewed fervor by Republican Frank Wolf of Virginia and Democrat Jim Cooper of Tennessee in the House and Democrat Kent Conrad of North Dakota and Republican Judd Gregg of New Hampshire in the Senate. All you need to know about the sincerity of the two Democrats is that they're both supporting the multitrillion-dollar health-care entitlement even as they moan about the fiscal dangers of current entitlements.
Mr. Wolf says the commission would be "a 16-member panel that would look at everything—from what the government is required to spend on mandatory entitlements to spending on all other programs to tax policy." Congress would agree to vote up or down on the package through expedited procedures without amendments. Messrs. Gregg and Wolf believe this is the only way to force a Washington consensus to slow the growth of federal spending.
They're correct that current federal commitments are unsustainable, starting with $37 trillion in unfunded Medicare liabilities. They're also right that a Washington consensus is likely to emerge from such a commission, but history shows it is unlikely to favor more than token future spending reductions. The real goal is to get GOP political cover for tax increases so Democrats aren't run out of town in 2010 and 2012 for blowing up the national balance sheet.
Let Mr. Conrad explain: "If one looks at the history of how these major [deficit reduction] agreements have been reached, it's almost always been through some sort of special process." He mentions in particular the 1983 Social Security commission and the 1990 budget deal.
Remember those gems? In 1983 Ronald Reagan and Congressional Republicans agreed to decades of job-destroying increases in payroll taxes to "fix" Social Security, which you may have noticed still isn't fixed. As for 1990, that was the infamous Andrews Air Force Base summit when President George H.W. Bush renounced his no-new-taxes pledge and made himself a one-termer. No wonder Mr. Conrad wants a repeat. The budget deficit nearly doubled in the year after that deal, and it wasn't eliminated until Republicans took Congress in 1994 and reduced the rate of spending increases.
Democrats are candid, at least in private, about the kind of the deal they have mind this time around. Democrats would agree to means-test entitlements, which means that middle and upper-middle class (i.e., GOP) voters would get less than they were promised in return for a lifetime of payroll taxes. Democrats would also agree to cut appropriations by two or three percentage points and live under pay-as-you-go budget rules—the same rules Democrats promised to live by in 2006 but have since violated routinely.
In return, Republicans would agree to an increase in the top income tax rate to as high as 49% and in addition to a new energy tax, a stock transaction tax, or value-added tax. The Indians got a better deal for selling Manhattan.
New taxes will only reduce the pressure to cut future spending. From 2001 to 2008, under President Bush, federal spending on discretionary spending grew by 54%. Mr. Obama's policies have expanded these agency budgets by another 57% over just two years. So an offer to cut these programs by 2% to 3% gives up very little.
The other big spending drivers are Medicare and Medicaid, which grew in fiscal 2009 by 10.1% and 24.6% respectively. But the House and Senate health bills would vastly expand the latter and likely retain the status quo for the former, at least at first. And rather than use repaid financial bailout money to reduce the deficit, Democrats are now moving to take $130 billion in TARP cash and spend it on a new "jobs" stimulus even as the economy has begun to grow again. Why should Republicans sign up as the tax collectors for this agenda?
The Democrats will use a tax-and-spend commission to confront Republicans with the false choice between huge tax increases or fiscal disaster. Republicans should respond with their own choice: They'll agree to a deficit commission only if it takes tax increases off the table and forces all of Washington to confront the hard spending trade-offs between guns and butter, old and young, the poor and middle class, and social welfare and corporate welfare. Otherwise, Democrats should be forced to defend and finance their own destructive fiscal choices.
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