Here's How To Get To A Debt Ceiling

The theatrics of the past two weeks aside, the wink and the nod seem to be already communicated as the President, the Speaker of the House, and the Senate Majority and Minority leaders begin the next phase of the drama.

Both sides have now solidified their bases in Congress.  “No new taxes” now balances “The end of Medicare as we know it.”  Neither will happen to any significant degree and the press releases for back home can be written well in advance.

The question arises, then, if the negotiations ignore 70 percent of the problem, what kind of deal could pass muster with a majority in both the House and Senate?

Here’s the dirty little secret—it isn’t that hard to meet the targets set out by either side.

Let’s start with the basics.

To get a debt ceiling increase that will take Congress and the Administration beyond the November, 2012, elections, requires approximately $2.4 trillion.  Speaker Boehner has declared that he wants that much in spending restraint, dollar for dollar.

Selected leaks from the now-defunct Biden meetings crowed about getting as much as $2 trillion.

Can either target be met without confronting the underlying structural changes in entitlements that would truly change the debt trajectory?

Yes.

Here’s a “back of the napkin” plan to reach the Speaker’s goals and not harm entitlements.

A—accept approximately $1.1 trillion in defense savings over the 10-year period by simply counting the money that will be saved as we draw down troops from Iraq and Afghanistan.

B—freeze non-defense, domestic appropriated accounts for five years, saving $400-$500 billion.

C—make minor changes in small entitlements like agricultural subsidies, change the Cost-of-Living index used to calculate increases in various federal programs, and allow many of the openings in the federal work force the next decade to go unfilled, saving another $100-$200 billion.

D—accept a freeze on new defense spending, outside the troop drawdown savings, for enough time to get $300 billion.

E—close a couple of tax loopholes—like the ethanol subsidy, some of the “tax extenders” for special purposes, and remove the mortgage interest deduction entirely for second homes—and save another $600 billion over the decade.

F—finally, add to these savings the amount of federal interest payments that such savings would produce, another $300-$400 billion.

Lo and behold, you’ve done it.   These changes from the Congressional Budget Office current policy baseline for the next decade amount to even more than $2.4 trillion.  And, better yet, the savings from “cuts” in programs outweighs the new revenues from loophole closings by about three to one.  That is another stated goal of whatever package emerges.

Republicans get to claim that they held on “no new taxes.”

Democrats get to shout that they kept “hands off our Medicare and Social Security.”

And both sides can do all this without having to reduce Medicare payments to doctors, or to expand the reach of the Alternative Minimum Tax (AMT), or to reform almost anything of significance.  Better, if the 113th or 114th Congress confronts a serious international challenge, those folks can always increase defense spending as needed.  One Congress cannot bind another—a basic law of legislation.

No one will notice, except for budget geeks and some cranky media types, that the total indebtedness of the federal government will total $23 trillion ten years from now.  This means that the $2.4 trillion in savings barely achieves 10 percent of anticipated debt.  Worse, such a deal allows Medicare, Medicaid and most other entitlements to continue to climb without restraint.

Why does this outcome seem probable?  Because we have been down this road before.

In the Reagan years, Congress promised a package of deficit cuts that would be three-to-one spending changes compared to tax changes.  When all was said and done, and we looked back a couple of years later at our handiwork, much more was said than done.  The package never achieved three-to-one spending versus taxes and deficits barely budged from projections.

Yes, the package may contain serious process reform and enforcement mechanisms that promise to save more in the future.  But such an outcome will hardly satisfy those who want real fiscal reform and real stabilization of the federal debt.

Kicking a can down the road really is fun.  You watch kids do it all the time.