All the talk surrounding the fiscal cliff has been about the big numbers of how much revenue raisers and spending cuts would be necessary. But there’s been very little about the small ball numbers and how to actually turn off sequestration and delay the tax hikes.
Nobody really expects a grand bargain in the next couple weeks. Instead a framework of the future grand bargain will likely be adopted. But policymakers also have to adopt a credible down payment that will allow them to kick the can down the road without spooking the markets. Simply delaying the impending across the board cuts of sequestration and extending the tax cuts will not work.
Here’s what the can should look like:
1. Revenues: Increase revenues by at least $90 billion over the next two years. There are a variety of ways to achieve this such as by capping deductions at $50,000, eliminating certain tax breaks, increasing tax rates for higher income earners, or some combination thereof. The time has come for compromise. The 2001 and 2003 rates are not some sacrosanct baseline and neither are the 1993 rates from before. Comprehensive individual and corporate tax reform should be taken up by the 113th Congress and start from a zero based approach to tax expenditures that sets the stage for balanced budgets over time.
2. Entitlements: Enact initial and modest curbs on entitlement spending to encourage a thoughtful approach reform. Specifically, policymakers should link Social Security benefits to average prices instead of average earnings, yielding $30 billion in deficit reduction by 2020. Also, shifting the cost-of-living adjustments to a chained consumer price index for all urban consumers would save an additional $20 billion over the same period. Minimum out-of-pocket requirements under TRICARE for Life would chip in an additional $5 billion over that time period.
3. Discretionary Spending: The lack of prioritized spending has led to overspending in general. To prioritize our limited resources, highway spending should be tied to actual gas tax revenues deposited in the highway trust fund, reducing the deficit by $11 billion by 2020. Further, to help rein in unsustainable growth in the Defense budget, half of the mandated defense sequestration cuts for 2013 should be retained with the Department of Defense allowed to allocate the reductions (instead of mandated across –the-board cuts) yielding an additional $27.3 billion. Similarly, halving the non-defense sequestration for 2013 would yield another $17 billion in deficit reduction. This would result in roughly half of discretionary savings coming from defense and half from non-defense (though over different time periods).
4. Debt Limit and Enforcement: The debt limit should be increased and specific targets for spending, revenue, and entitlement savings adopted. These targets must be made enforceable through the budget reconciliation or other measures to ensure consideration in Congress. Further, sequestration provisions from the Budget Control Act should be delayed, but not repealed until the savings are realized.
Enacting credible deficit reduction proposals will give lawmakers and the President breathing room until the 113th Congress can resolve the issue with fundamental tax, spending, and entitlement reform. The package shouldn’t be gummed up with gimmicks or promises of false savings like the proposed Farm Bill.
It is not enough to promise future spending, tax, and entitlement reforms. That sounds too much like the creation of the Simpson-Bowles fiscal commission that was largely ignored, or the Budget Control Act of 2011 that brought us sequestration. The President and Congress must have a concrete short-term plan and structure in place to enact comprehensive reforms.
Ryan Alexander is President of Taxpayers for Common Sense.