Commission to the Rescue!

It looks like President Obama is going to create the bipartisan commission to cut the deficit that Kent Conrad and Judd Gregg have been pitching–except that now Judd Gregg is against it.

According to the original Conrad-Gregg plan, the commission would have eighteen members–eight named by Congressional Democrats, eight by Congressional Republicans, and two by the administration, for a ten-eight split; if fourteen of the eighteen could agree on a deficit-reduction plan, Congress would have to vote it up or down without amendments. The Conrad-Gregg proposal is expected to be voted down in the Senate. So instead, Obama would appoint a commission by executive order, with six people named by Congressional Democrats, six named by Congressional Republicans, and six named by the administration, including at least two Republicans–for a ten-eight split; if fourteen of the eighteen could agree on a deficit-reduction plan, Congress would vote it up or down without amendments; however, Congress could separately choose to amend it. According to the Washington Post, Gregg “called a presidentially appointed panel ‘a fraud’ designed to do little more than give Democrats political cover.” Huh? I’m guessing Gregg’s objection is that Obama’s plan is based on an agreement with Congressional leaders, rather than actual legislation–but if you can’t pass the legislation, what else do you want Obama to do?*

More, important, is this a good thing? My prediction is that it will amount to exactly nothing, although there is a possibility it could turn out badly. I simply don’t see how any plan can get the agreement of fourteen commission members–meaning all the Democrats and four of eight Republicans, or all the Republicans and six of ten Democrats, or something in between.

Some people like to point to the Social Security commission of the early 1980s, but Jackie Calmes’s article in the New York Times showed that that commission was a failure. We only got Social Security reform because (a) the administration negotiated with commission members after the commission itself broke down (remind me again, why was Alan Greenspan appointed Fed chair in the first place?) and (b) Congressional Democrats added a provision to increase the eligibility age. (b) is the rough equivalent of Congressional Republicans adding a tax increase today, meaning it ain’t gonna happen now.

Others point to the commission to close military bases. But that was a very different issue, because base closure was a district-by-district, state-by-state issue–not a Democrat-Republican issue like taxes and government spending.

So my prediction is that the administration, meaning Orszag’s brainiacs, will put forward some sensible solutions that include tax increases and modest entitlement reductions; Congressional Democratic appointees will oppose the entitlement reductions but go along grudgingly because they want to accomplish something while Obama is in office; Congressional Republican appointees will oppose the tax increases and  not go along; and we’ll end up with gridlock. Even if by some miracle something comes out of the commission, if it contains a single dollar of tax increases (or even something that can be spun as a tax increase, like allowing any of the Bush tax cuts to expire on schedule), it will be rejected by Republicans in Congress, who will probably have more votes next year than they have now. As Ezra Klein said, “You can’t govern this country if the party that doesn’t control the White House simply refuses to give the party that does control the White House any accomplishments.”

But there is a bad scenario, as Mark Thoma warns. The Obama administration could appoint six people who are willing to gut the safety net further in order to balance the budget, and it might be able to pressure Pelosi and Reid to appoint moderates instead of liberals. Then you might be able to come up with fourteen votes for a package that only includes entitlement cuts and no tax increases, which would be acceptable to Congressional Republicans and their veto-wielding minority.

Would the administration actually do this? I like to think they wouldn’t, but at times they seem to care about balancing the budget more than how they balance the budget. I think it was pretty clear in the health care process that their one non-negotiable priority was fiscal balance over ten years. In other words, they want to save the country from future deficits so much that they might convince themselves it’s better to accept whatever the Republicans give them than not do a deal at all. Which puts us in this curious situation where the party with the White House and the largest Senate majority in decades ends up letting the other party govern the country.

Although I expect the commission to be a dud (or worse), in the short term I think the politics are good for the administration and the Democrats, because they can say they are doing something about the deficit–and it is actually something favored by deficit “hawks”** like the Peterson Foundation. And maybe that explains why Judd Gregg is suddenly against his own idea.

* And besides, I don’t see how Congress could prevent a future version of itself from amending the plan put forward by any commission. It could, conceptually speaking, simply retype the entire plan, add a few changes, and call it a new bill, couldn’t it?

** Always put in quotation marks because most “hawks” supported the Bush tax cuts and the unfunded Medicare prescription benefit.

One More Thing . . .

. . . on that deficit commission. If I were Peter Orszag, I would be tearing my hair out. (Or maybe not, since he’s happily engaged to be married later this year.)

It’s obvious, and I’ve said it before, but I’ll say it again. The big long-term national debt problem is all about health care. This chart is from the January 2008 Budget and Economic Outlook of the Congressional Budget Office–for those keeping score, that’s one year before President Obama took office. It shows projected federal spending as a percentage of GDP.

The situation has gotten worse since then–overwhelmingly because of lost tax revenues due to the financial crisis and recession, not “big government” as some would have you believe–but the change over the last year is a rounding error compared to that huge light-blue wedge of Medicare and Medicaid. The health care bills now passed by both houses include, at the urging of Orszag and the administration, the most serious proposals ever put forward in Congress to curb the long-term growth of health care costs. In other words, no administration in my lifetime has ever tried as hard as this one to solve our nation’s long-term fiscal problem (although they may have bungled their management of the financial system).

And what do they get for their efforts? Popular backlash against “big government” and “deficits” and Scott Brown in the Senate (although Martha Coakley had a lot to do with the latter). If politicians were actually serious about deficits, they would vote for health care reform 100-0 in the Senate. And pigs would fly.

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About James Kwak 133 Articles

James Kwak is a former McKinsey consultant, a co-founder of Guidewire Software, and currently a student at the Yale Law School. He is a co-founder of The Baseline Scenario.

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