Op-Ed: We Avoided a Shutdown, But We Still Need a Goldilocks Budget That's Just Right

Washington Post | April 8, 2011

There’s nothing like watching Washington debate ideology on a deadline. In the end, the battle over the federal budget came down to frantic negotiations — and thousands of lawmaker hours spent — on some final reductions: Do we cut $60 billion from this year’s budget (roughly 2 percent of the total), or do we cut $30 billion (about 1 percent)? Or somewhere in between?

The real focus, of course, should be on forging a multi-year budget deal, not a short-term accord that averts a government shutdown but still marches the country toward a fiscal crisis. Unfortunately, neither President Obama’s budget (too tepid) nor the plan put forward by House Budget Committee Chairman Paul Ryan of Wisconsin (too lopsided) would do the trick. What we need is a Goldilocks budget — one that is just right.

It won’t be easy, but there is a way to get there, if we’re willing to borrow a little from all the ideas to shape a single, workable plan.

Late last year, the bipartisan deficit commission chaired by Erskine Bowles and Alan Simpsonoffered one path in that direction, making a series of proposals to back us away from the precipice toward a sustainable fiscal course. But when the new budget cycle began, our politicians responded with a fizzle, then a bang.

First, the White House budget blueprint, released in February, was, to put it mildly, a dud. Deficits over the next decade would average a whopping $950 billion per year. What kind of fix is that? White House officials didn’t even fully embrace it, describing it as a “down payment” on reform and arguing that if they had put forth a serious proposal, Republicans would have skewered it so badly that all its recommendations would have been even harder to pass. Maybe true, but the president has to lead, and so far he hasn’t.

Enter Ryan, who is never scared to be bold, and who for years has brought a megaphone to the risks of deficits and debt. The Republican’s proposal, issued this past week, would bring spending down to 15 percent of gross domestic product by mid-century, the lowest level since the 1950s. Getting there would require incredibly aggressive cuts, and sure enough, Ryan’s budget would drastically scale back Medicare, Medicaid, food stamps and several other federal programs. However, by leaving some parts of the budget off the table — he would cut defense by only a symbolic amount and not increase revenues at all — he has to make severe cuts, including to a number of programs for the poor. Thus, back in the real world, the budget is a nonstarter.

Of course, these budget plans may merely constitute opening bids, with the president preparing his party and the country for deficit reduction and Ryan laying the foundation for larger structural reforms to health care down the road. But if this is all part of a delicate dance between the different players, tick, tick, tick . . . time is running out.

Some hedge fund managers are speculating that the markets could run out of patience for our dithering ways, not in the next three to five years, as we used to worry, but as soon as six to 18 months from now. We would then see a spike in interest rates as creditors look for safer bets, a choking off of credit for families and businesses, and a run-up in the government’s borrowing costs. The ensuing recession would make the one we recently exited feel like a dress rehearsal.

The beginnings of a solution can be found, believe it or not, in the Senate — yes, in that dysfunctional upper chamber paralyzed by bickering, filibusters and secret holds.

There, a small group of senators — a new Gang of Six that includes Republicans Tom Coburn (Okla.), Mike Crapo (Idaho) and Saxby Chambliss (Ga.), and Democrats Kent Conrad (N.D.), Dick Durbin (Ill.) and Mark Warner (Va.) — is working to develop a compromise. Meanwhile, 64 senators, including these six, recently wrote to the president, urging him to develop a comprehensive plan to rein in America’s debt and to build upon the deficit commission’s vision. “While we may not agree with every aspect of the Commission’s recommendations,” they wrote, “we believe that its work represents an important foundation to achieve meaningful progress on our debt.”

The six senators are basing their work on the commission’s bold yet realistic prescriptions. Aggressive cuts to both domestic discretionary and defense spending? Check. A plan to fix Social Security? Check. Reductions in health-care spending, agriculture subsidies and public-sector compensation? Check, check, check. And finally, a proposal to significantly simplify the tax system, dramatically lower rates and reduce the deficit? Yes, an actual tax three-fer!

No one in Washington will like this plan, because it is filled with the tough choices that politicians so assiduously try to avoid. (Then again, no one ever said that cutting $4 trillion from the budget would be fun.) But it could eventually be embraced by both sides of the aisle and could even benefit from some additions from the Obama and Ryan playbooks.

Even though Obama’s budget punted on some of the hard long-term choices, it did put forward an important description of how to proceed in the near term: An aggressive plan that brings down the debt over the coming decade should not come at the cost of disrupting the still-fragile economic recovery. Protecting public investment, facilitating private investment and overhauling the tax code, including corporate taxes, are all part of increasing our competitiveness and expanding the economy. We must cut spending aggressively, as Republicans have pushed for, but wisely, as the White House has argued, in order to achieve the right balance.

If there is one Achilles’ heel in the Simpson-Bowles plan, it is in the need to control health-care costs over the longer term. While the commission suggested creating a budget to limit those costs, it didn’t provide details about how that would be achieved.

This is where Ryan’s ideas can come in. Whether you love or despise last year’s health-care overhaul, there is no question that further fundamental and structural reforms to the system will be needed. And Ryan proposes some intriguing changes, including shifting more responsibility to states and individuals for covering their costs, thereby creating greater sensitivity to prices and helping cut overall costs.

It’s hard to see how changes as large as those he proposes could be put in place this year; they need and deserve more thought, research and comparison to other approaches for cost control. But if I were betting, I’d say we’ll see a Ryan-like structure of creating block grants for Medicaid and making Medicare a more individually based system by the end of the decade. Former senator Pete Domenici (R-N.M.) and budget guru Alice Rivlin have a similar proposal that would retain the traditional Medicare program (with the new premium support system) and allow for more generous federal funding; such modifications could make Ryan’s ideas more appealing.

We face a critical moment to chart a new fiscal course for the country. If the bipartisan efforts in the Senate are overtaken by the polarized extremes, it becomes immensely difficult to see how we can fix the problem in time. But it doesn’t have to take a fiscal crisis to force needed changes, and the momentum behind the six senators makes it less improbable that we could reach a compromise. As contentious as the political environment seems today, remember that the last government shutdown was followed by an eventual budget deal between President Bill Clinton and the GOP. If we replace denial with reality and posturing with cooperation, we might just pull it off again.