The Obama Deficit Commission: Five Issues to Watch

By :: April 27th, 2010

President Obama’s Bipartisan Commission on Fiscal Responsibility and Reform is having its first meeting today. As I peer at my bookshelf full of well-meaning policy prescriptions produced by similar panels over the years, I am skeptical at best. These enterprises are, as Dr. Johnson said of second marriages, “a triumph of hope over experience.” Still, you never know. As my colleague Gene Steuerle reminds me, few thought tax reform would get off the ground in 1984-85. Yet, by mid-1986, it had happened.

As you consider the deliberations of the latest panel—a bipartisan gang of 18 that has until Dec. 1 to send Congress a non-binding deficit reduction proposal—here are five issues to watch. If the panel seems to be reaching consensus on these, maybe it can accomplish something. If not, as Senate Majority Leader Dick Durbin (D-IL) told The Washington Post’s Lori Montgomery, “It would take a miracle.”

1. No New Taxes: Republicans will have to extricate themselves from their pledge to never raise taxes on anyone at any time. It is not possible to resolve the fiscal mess without new revenues. The honest discussion is what mix of revenues and spending cuts is best, and where to collect new taxes. If the Rs are willing to have that conversation, this panel will have achieved a major breakthrough. If not, our time will be better spent watching Dancing with the Stars.

2. No New Taxes on the Middle-Class: Similarly, commission Democrats need to help  Obama extract himself from his own pledge, made repeatedly in the campaign and in the nearly 18 months since, that he won’t raise taxes on those making less than $200,000 or couples making less than $250,000. Even if Congress could agree to control future spending, there are not enough rich people to finance a government that spends, say, 20 percent or 21 percent of Gross Domestic Product. As the Tax Policy Center has shown, a deficit reduction plan that exempts those $200,000 earners from tax increases would drive top bracket rates to close to 80 percent. In a recent interview with The New York Times correspondent  John Harwood, Obama appeared to be leaving himself some wiggle room. The panel can help bail him out, but eventually he will have to do a lot more than wiggle.        

3. Social Security Reform: For Democrats, Social Security is what health reform was for Republicans: They think their best response to any change is “No.” The Social Security shortfall is, as these things go, easy to fix: A small payroll tax increase here, a bit of benefit rejiggering there. Well-designed reforms could even put more money into the pockets of those elderly who need it most. But commission Democrats will have to drop  this potent political bludgeon to make a fiscal deal.

4. Medicare Cost-savings: I remain flabbergasted that Obama and congressional Democrats were willing to take steps in the health bill to control future cost growth in Medicare—and were opposed by Republicans. GOP commission members need to get serious and work towards responsible cost-cutting in the government’s biggest cost driver. This can be done without jeopardizing anyone’s health but it requires pols of both parties to tell seniors that more medical care is not necessarily better medical care.   

5. The Atmospherics: These matter. Will this commission look like it is driving towards a common goal of deficit reduction, or will it be a platform for pols to pander to their constituencies? It will require somebody to break from type and lead the group to consensus. Watch to see if anyone steps up. 


  1. Anonymous  ::  6:09 pm on April 27th, 2010:

    Some increase could be marketed as part of simplification. The words, Revenue Neutral, will hopefully never be said as a goal (nor Deficit Neutral).
    There are a variety of little taxes that can be combined into a coherent and simplified tax system. We will see if the commission actually does anything with what people send them – as they are supposedly taking input – or whether Austen Goolsbee and the Commission staff already have their minds made up.

  2. Anonymous  ::  7:53 pm on April 27th, 2010:

    “I remain flabbergasted that Obama and congressional Democrats were willing to take steps in the health bill to control future cost growth in Medicare—and were opposed by Republicans.”
    This is a total hack job. Delivery system reform, is, and has been, supported by Republicans. What was opposed was the overall bill and the balance of its components.

  3. Anonymous  ::  8:52 pm on April 27th, 2010:

    Republicans seeking reform would have had more credibility if they offered amendments that would have, if passed, had them promise to vote for final passage. There is absolutely no credibility in insisting on ones amendments without promising to support the final bill. This is what happens when seasoned policy staff are let go in favor of PR types. There is more to being a legislative aide than writing witty floor speeches for the consumption of voters back home.

  4. Anonymous  ::  12:16 am on April 28th, 2010:

    Obama spent all his political capital on a 100% partisan push to expand government health care promises by $1T or more. Then, fresh from enlarging the fiscal hole, he asks for bipartisan agreement on filling it. Really. Imagine if Bush had tried such a thing. Talk about chutzpah.
    If Obama agrees that step 1 will be repeal of ObamaCare, then anything will be possible. Otherwise nothing is possible.
    Realistically, politicians were highly unlikely to agree on austerity before the government runs out of ability to borrow. Then Obama burned any bridges that could have made it possible. That will go down in history as the stupidest move ever, not least because the bond market crash will make the promises of ObamaCare evaporate. They will vanish in the whirlwind of depression and hyperinflation, along with the half of the current Medicare and Social Security promises that could never be paid.
    Obama preferred to expand the government's domain when he should have been building defenses for the welfare state. This crash will destroy the credibility of government promises of a safety net for generations.
    Progressives will then realize that much of this long-term damage to their agenda could have been avoided by scaling back government promises modestly in anticipation of the crash, for example by cutting a deal with Bush on Social Security, means testing Medicare, and refraining from expanding third-party payments and government-funded health care.
    Republicans likewise could have helped avoid the crash by refraining from cutting taxes just because they could. They should have taken Al Gore's lockbox idea and run with it.
    I take only mild solace in the fact that it will be close to 100 years after the coming crash before anyone tries to sell the public on the virtues of a comprehensive welfare state. It would be a great thing if it actually worked.

  5. Anonymous  ::  12:55 pm on April 28th, 2010:

    You talk about tax increases as if they're inevitable, but fail to question when congress will stop spending like drunken sailors. There is a fairly simple yet difficult solution to our deficit problem: get people off the take. With nearly half of the country paying little or no federal income taxes we have a near majority of Americans on the take from the government. The only way to fix the deficit is to cut spending substantially, after all, name one thing the government does well? The post office? nope, schools? the very definition of fraud waste and abuse, social security? I'll take my 401k.
    The truth remains that individuals are far more capable of making their own decisions than the government, but there must be personal responsibility for those decisions, Americans must understand that everything you say yes to by the law of non-contradiction causes you to say no to other things. Send disadvantaged youths to college on the government dime, middle-class youths will be forced in to debt because of their parents increased tax burden. Provide health care for everyone, create a shortage of doctors for those who contribute to society, spend a dollar to educate illegal aliens, spend one less dollar to educate America's children. As Margaret Thatcher said, “The problem with socialism is that sooner or later you run out of other people's money.” America's deficit is driving this point home, whether we choose to see that or not.

  6. Anonymous  ::  1:00 pm on April 28th, 2010:

    Fair enough on points 1, 2, and 5 but 3 and 4 are really a mess.
    As to Social Security, what's the point in treating SS like a discrete program. It's like me arguing whether my car or my mortgage is paid for when I don't have enough money to pay the bills. It's either all paid for or it isn't. Arguing program A is paid for when programs B through F are not is just so much silliness.
    Point 4 is even worse. HCR used “savings” from Medicare (said savings are unspecified and Congress can void them if it chooses) to pay for an additional program and then make the deficit picture worse. It equally added taxes “to Medicare” and used these additional taxes to pay for a new program. Thus, a trillion dollars of deficit reduction potential has instead been spent on a new government program. To use that evidence to argue the seriousness of the Obama administration on deficit reduction is truly staggering.

  7. Anonymous  ::  1:50 pm on April 28th, 2010:

    This article (opinion) is pure bull.
    Tax increases will cost so much economic growth they should not be the focus of defict reduction. Our only solution is to grow the economy though policies that reward businesses.
    Within less than two years, the Obama administration has pushed policies that have so greatly increased the costs and liabilities on profitable business models that the economy continues to bleed jobs.
    The number one step this commission needs to consider is REPEAL of much of the legislation put forward by a polarizingly partisan congress that has ignore the bipartisan consensus in opposition to the radical ideology put forward by Obama & Pelosi.
    We need to nurture back to like the goose that has layed the golden egg for 250 years. We need a rebirth of the American success story. Lets look at American corporations as the solution, instead of the problem.

  8. Anonymous  ::  2:57 pm on April 28th, 2010:

    Your argument is entirely irrelevent to my objection to Gleckman's assertion that Republicans oppose delivery reform. That's just flat wrong, and it has nothing to do with the average age of Hill staffers. He's either lying or so uninformed as to render him unqualified to pretend to speak with any authority on the subject in the first place.

  9. Anonymous  ::  2:58 pm on April 28th, 2010:

    Repeal is impossible as long as Obama is president. Indeed, the likelihood that the Democrats will lose either house is getting smaller all the time. If Rubio is the nominee in Florida or Hayworth is the nominee in Arizona, both states will be in the Democratic column come January. Rand Paul also could give Kentucky to the Dems.
    Bush did enlarge the fiscal hole by passing an unfunded Medicare prescription drug expansion, as well as overturning prior cuts to providers, without paying for it in the only reasonable way – raising the payroll tax on Hospital Insurance and expanding it to cover the drug liability. This must still be done, since the chance that there will be permanent cuts in either area is nil. The best cover for this would be to bury all health subsidies and taxation into an expanded business income tax – which could quietly be raised when Wall Street realizes that the mandates in reform don't adequately offset pre-existing condition reform – resulting in the failure of private insurance and the introduction of single-payer insurance.
    Medicare retirement is best assured by raising the income cap – while blowing the cap away would necessitate the introduction of personal accounts – however personal accounts would have to shift the redistributional functions of Social Security from benefit distribution to the distribution of funds into the personal accounts. The way to do this that makes the most sense is to distribute the employer contribution equally (and recalculate prior contributions by the same standard) and then change the bend points in the benefit formula so that you get out what was put in. Under such a regime, eliminating the income cap would be a real possibility as well. The question then becomes what to invest the accounts in. Given the recent crash, there is no stomach for index fund investment – so the only alternative is direct investment in the stock of the employer – with a third of this stock going into a mutual insurance fund of like companies in exchange for stock in the entire fund (which would insure the shares outside the fund as well, so if a company pulled an Enron, the employees would be compensated). Employees in non-stock companies would either be entirely in the old system or be given shares in the insurance fund.
    If Social Security, Medicare and health insurance reform are handled as above, defense procurement is pared back and forces are withdrawn for south Asia, while taxes on the wealthy are allowed to go to Clintonian levels, the bond markets will not crash and in a hundred years there would be no stock or bond markets because employee owned firms would eat both markets by accumulating capital internally. Of course, there would not be any super-rich in such a scenario either – and no celebrity CEOs or legacy billionaires.

  10. Anonymous  ::  3:16 pm on April 28th, 2010:

    Tax increases are inevitable. The only question is whether the tax cuts on the lower end of the scale can be preserved. It all depends on Harry Reid engineers the next tax bill and whether the GOP can effectively hold making tax cuts for the working class permanent hostage to tax cuts on the upper brackets. If Harry can out flank the GOP, tax cuts are inevitable. If not, then the current rates may be extended for a year or two providing Obama goes along. If he does not, however, the entire Clinton era tax system goes back into force on January 1 of next year pretty much automatically.
    The way for real deficit reduction is eventual withdrawl from the war in Afghanistan – which seems to be inevitable – as well as Iraq – which held their election and is about to have a peaceful transfer of power – giving us our ticket out. Iran is no real threat, since any nuclear activity on their part will kill more Arabs than Jews and will poison Iran itself (which is downwind of Israel). The Bush era Pentagon spending binge on modernization WILL be ended, so I predict there will be budget cuts on the military side in a few years. Nothing is more socialistic than military spending. When I worked for the Air Force, some Red Flight pilots described how Soviet aviation was funded and I could not help but notice the irony in comparison to how American aviation is funded (at the public teet).
    Children of undocumented immigrants who are born here are American citizens and are entitled to a quality education as such. To suggest otherwise dances on the border of racism. As far as college debt costs, they are much cheaper since the banks have been edged out of the college loan market – leaving students with the full amount of their loans without the bank origination fees which came off the top. Many of the best schools are about to alter the market by simply ending tuition and going to 100% endowment funding. If they don't do something like that, school costs will be so expensive that employers will have to hire students and pay for their tuition in order to still get top talent – and the schools don't want this because they know that having to bargain with businesses over tuition for a group of students is a lot less lucrative than dealing with students on an individual basis.

  11. Anonymous  ::  3:25 pm on April 28th, 2010:

    Many of the health care reforms were for Seniors, such as closing the donut whole on prescription drugs – which weakens your argument.
    How can you argue that Social Security should not be treated as a discrete program (even though there is justification for doing so) while at the same time saying that health care reform cannot be? Your arguments contradict eachother. Pick one.
    I have no doubt that health care reform will lead to higher taxes – but that is only because mandates are too weak in the bill to not have the private insurance industry fail once pre-existing condition reforms kick in (although anticipation of this or the efforts to overturn the mandates judicially may have this happen more quickly). Of course, for many, the higher taxes on health care will entirely replace what they are paying in premiums – indeed many will save money given how quickly premiums have been going up of late. This is why tax reform is important – it has to be able to incorporate funding eventual tax increases for single payer insurance. This is why I favor shifting health payroll and disability taxes to an expanded business income tax on all business types which also taxes payroll. When single payer happens, either by law or by TARP, the rate will go up and the insurance exclusion will be ended.
    Will the Administration admit this now? Of course not, since it would push the insurance industry over the edge. It is, however, inevitable.

  12. Anonymous  ::  3:35 pm on April 28th, 2010:

    The reason the Congress was polarized was that the Republicans wanted no deal at all costs, thinking that this would provide a 1994 style electoral advantage. They likely miscalculated. Talk of repeal is just silly, since Rubio can't beat Crist in Florida (who will caucus with the Democrats). Mr. Club for Growth cannot win in Pennsylvania and Mr. Tea Party can't win in Arizona. The Senate is safely Democratic and the chance that a gerrymandered House will turn over 40 seats is pretty slim.
    Last I heard, the economy is no longer bleeding jobs. Indeed, the bleeding was largely stopped by Obama's policies in the auto industry. As soon as the new mortgage assistance initiatives work their way through to the states, the housing market will begin to rebound nicely as losses are taken in an orderly fashion. Since Obama did not immediately slash defense spending, those jobs aren't yet bleeding either (give it time). Finally, the Clinton era taxes on the wealthy will likely generate jobs, since they will pull funds into the consumption sector from the speculation sector (where they were mainly funding junk paper), thus increasing jobs.

  13. Anonymous  ::  3:54 pm on April 28th, 2010:

    Since our anonymous poster has called me a liar, uniformed, and a hack for suggesting the GOP opposed efforts to control Medicare cost growth, let me briefly respond. Here is what RNC Chair Michael Steele had to say in his own Washington Post op-ed:
    “We need to outlaw any effort to ration health care based on age. Obama has promoted a program of “comparative effectiveness research” that he claims will be used only to study competing medical treatments. But this program could actually lead to government boards rationing treatments based on age.”
    You may recall other Republicans referred to these as “death panels.”
    Steele's entire column is here:

  14. Anonymous  ::  5:43 pm on April 28th, 2010:

    Couple things. I made the point that your segment about Republicans opposing delivery reform (not you) was a “hack job.” I stand by that. Second, with respect to that point, I argued you were either lying OR uninformed. Leaving aside the fact that you ignored that distinction, saying you lied may be a bit harsh, so I'll fall back to my original point that your argument was staggeringly misleading — and you help make the case with what I assume is your factual backup for your assertion. You note the virtuous work of the President and “congressional Democrats…willing to take steps in the health bill.” Ok, so this universe of folks is confined to Obama and Democrats in Congress, so naturally the universe of opposition should presumably be equally constrained. Not so! Rather, you broaden the universe to include the RNC head and an out of work governor to capture the outliers that you claim oppose delivery reform. Further, Steele's argument, however inartful, is one of opposing using comparative effectiveness research to “ration” care. I didn't hear too many Democrats support that either. Is that the beginning and end of delivery reform in your eyes, such that opposition to that alone (note it is the use of CER to limit care, not the research alone, that was opposed) equates to opposing delivery reform generally? If who supports it? And so therefore point 4.) should just be: establish a U.S. version of the British NICE, and do not pay for any procedures that do not conform to its edicts? Umm. Sorry, there's more to delivery reform than just that. So yeah, maybe you didn't lie, but you sure as heck didn't tell the truth. Or maybe, you just don't know any better.

  15. Anonymous  ::  7:07 pm on April 28th, 2010:

    Michael Bindner –
    How can providing healthcare access to 30 million more people while doing nothing about the spiraling increase in healthcare costs do anything other than bankrupt this nation quickly?
    And precisely when do you see joblessnes go under 10% again? Will it ever with economy where success is punished? Where failure is rewarded?

  16. Anonymous  ::  7:37 pm on April 28th, 2010:

    Joblessness is 9.7% now. Keep up with events.
    30 million people are getting health care – in emergency rooms. There is a better chance in reform that they will get it in cheaper settings now, thus saving money. Of course, a sick leave entitlement should have probably been included as well, since some people go to the ER more because they can't get off work to go to the doctor because they are on Medicaid and working and can't get the day off. If we include opportunity cost in the calculation than sick leave reform is necessary to realize the most cost savings.
    Many employers will offer it, provided that there competitors offer it and incur the same costs as well. That is the function of law – to keep a level playing field.

  17. Anonymous  ::  7:42 pm on April 28th, 2010:

    They favor reform and I will concede that and now that the law is passed they can try for it again and may get it enacted. They had no expectation of having any reform they favor included if they aren't willing to then support the amended bill. That's how things happen in Congress. You vote yes, your piece goes in. You vow to vote no regardless of what happens, your reform dies – and should. Now that the President has the upper hand, they can try again for reform – however they have to be able to compromise and give the White House something it wants – like the public option.

  18. Anonymous  ::  8:44 pm on April 28th, 2010:

    What about cutting military spending? HELLO — we outspend everyone else combined. We could reduce it by half, take care of the deficit and continue to be safe. But that is the third rail, isn't it?

  19. Anonymous  ::  8:50 pm on April 29th, 2010:

    All for that. I even mention it once or twice above. It won't be cut now, but military cuts are inevitable as we leave south Asia and start cutting back on weapons systems – although maybe a base closure style commission to cut out unneeded systems is called for.

  20. Anonymous  ::  10:33 pm on April 29th, 2010:

    Reagan + Bush Tax cuts since 1985 equaled 26,500 Billion
    Today a 14,500B Surplus if no tax cuts.
    Three so called Conservative presidents borrowed 9000B.
    It was less than 1000B when they started in 1981.
    That borrowed money went to enrich the rich.
    In 1980 the Top 1% owned 20% of Total Finanical Wealth.
    In 1989 it was 36%. An 80% increase of the total thanks Ronnie for my 60% Income Tax Cut.
    In 1980 =10 Billionaires In 1989=51
    In 2007–Total Financial Wealth
    80%=7%(120,000,000 workers)
    Tax & Spend=Pay Your Way
    Spend & Borrow = kids pay tomorrow

  21. Anonymous  ::  7:20 pm on May 7th, 2010:

    Joblessness is 9.9% now. Keep up with events please.
    Sorry but you tax-loving policy nerds need to understand even the most competent politician cannot create more temporary government jobs to replace the private sector jobs you are killing.
    And wait until all the private companies opt out of providing employees healthcare as they opt for the less expensive fins—-the floor will fall out from under the deficit.
    Obama and Pelosi were counting onnot having that happen until they could pass much more radical policies such that democracy and capitalism are permanently killed.
    Now at least we may still have a fighting chance—-but first things first LOWER TAXES ARE NEEDED!

  22. Anonymous  ::  8:58 pm on May 10th, 2010:

    Sorry but closing the Donut hole is spending more money not less.
    Social security isn't discrete because the government has a unified budget and a unified deficit. Use the analogy of your two pockets. Let's say you typically pay for lunch out of your right pocket and dinner out of your left. Now let's say your short $1 for lunch and $9 for dinner. If you take a dollar our of your left pocket and put it in your right, you've now balanced your lunch budget but done nothing overall. Now let's imagine that you spend $50 on average for lunch but only have $49 in your right pocket. Many people can make due on much less than $50 for lunch but if you “solve” your lunch problem by finding an extra dollar, you've ignored the opportunity to cut your lunch budget by $10 and solve the overall problem. That's what's wrong with “solving SS independently” of hte overall problem.
    On HCR, I'm simply saying this. The government needs to save money. It took one of the easier ways of saving money (controlling the growth in Medicare/Medicaid) and instead of closing the overall budget gap, spent the money on a new program. From a unified budget perspective, we are worse off in total. Forget Medicare finances, the unified budget is worse off as a consequence of HCR.
    As to your tax proposal, you basically want to raise business taxes which are, of course, paid by you and me and not by businesses. That's the coward's way out. If you want more of the people's money, just take it directly.
    When single payor happens, I quite hope to be in my grave but that's a separate issue.

  23. Anonymous  ::  7:23 pm on May 13th, 2010:

    So there answer is for the government to just redistribute to something you think is “fair.” It makes me terrified thinking about the government deciding how much private wealth is someone's “fair share.”

  24. Anonymous  ::  2:56 pm on May 14th, 2010:

    It is only terrifying if you believe that the government is somehow imposed upon you rather than something that arises from the people themselves. Also, taxes mostly redistribute income, not wealth. Big difference. Lastly, wealth has been redistributed up for quite some time, usually under rules that enrich the wealthy. While repealing these rules is preferable, it won't happen overnight. Until it does, redistribution of income is necessary.

  25. Anonymous  ::  9:22 pm on May 14th, 2010:

    What are these government rules that have caused wealth redistribution? If you can please provide specific rules and their impact on wealth distribution.
    I rather doubt you can. There is enormous redistribution of income today but rather than from the rich to the poor it is from the young to the old. Since the old are, on average, wealthier than the young, it's exactly the opposite of Robin Hood.
    If you think the Federal government is not imposed upon you, please provide an example of how you personally were able to influence the role of the Federal government in your life.

  26. Anonymous  ::  2:30 pm on May 19th, 2010:

    I have just one question: what state institution is in charge with monitoring and evaluating the progress of the Obama Deficit Commission? I think transparency is a key element in any deficit commission.Mark Trianz

  27. Anonymous  ::  11:17 pm on October 11th, 2010:

    Social Security is still taking in more than they are spending. The difference, between what they take in and what they spend each year, is placed in bonds and now amounts to about $2.7 trillion. Where do they get the idea that it is a drain on the economy. The economic reform committee should leave Social Security alone. If they know something we don't they should let the people know in plain English.

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