Will Treasury Secretary Tim Geithner give the negotiators more time by juggling the cash flow until after the Labor Day recess (which follows the Memorial Day recess and the all-important July 4 recess)?
Will the Senate’s bipartisan “Gang of Six” produce its long-awaited long-term budget blueprint to bring the deficit under control?
I don’t know about you, but the prospect of an endless summer of budget posturing and brinksmanship is probably more than I can take. Can’t we just hand this whole thing over to the Navy SEALs?
Imagine it: The unmarked choppers flying in low over the Mall. The guys in black rapelling down the Capitol dome. Members of the budget committees rounded up from their chambers, and from their hideaways, dragged into Statuary Hall and subjected to “intense interrogation techniques.” President Obama and the National Economic Council watching it all in real time from the White House Situation Room. And then, in less time than it takes the Senate clerk to complete a quorum call, the politicians crack and agree to a budget compromise. Geronimo, baby.
The “intelligence” work for this operation has already been done, most recently by the bipartisan deficit commission. Given the political and economic realities, it’s pretty clear how it’s going to play out:
Federal spending will decline to 22 percent of GDP at full employment. That reflects the historical average of 20.6 percent, plus an increase to reflect the
demographic reality of an aging population.
To get there, the burden will be evenly split between revenue increases and tax cuts in the early years, shifting gradually to three dollars of spending cuts (including reduced interest payments) for every dollar of revenue increases as long-term entitlement spending is contained.
On expenditures, investment spending will be budgeted separately and rise even as consumption spending falls. Discretionary spending cuts will be split evenly between domestic and national security. Social Security will be returned to long-term actuarial balance through a combination of progressive reductions to the cost-of-living formula, increases in the cap on income subject to the payroll tax and very gradual increases in the retirement age. Medicare and Medicaid spending will be capped at a growth rate of GDP plus 1 percent per year per average beneficiary. Cuts would take effect automatically if Congress fails to act.
On taxes, the top marginal earned rate of 35 percent will be left in place, but limits on deductions will increase revenue from taxpayers who itemize. The corporate rate will be reduced to 25 percent, and then only for profit earned in the United States, but elimination of deductions and loopholes will raise more money for the government, not less. Revenue from a modest new carbon tax, along with existing fuel taxes, will finance public infrastructure spending through an independent infrastructure bank.