Want to know a fast way to get rid of the federal deficit once and for all? Default on the national debt.
Think of the benefits. Right away -- without cutting one program or raising one tax -- the current budget would be almost in balance. That's because a single item -- interest on past debt -- will cost the government nearly $150 billion in the next year alone. The way things are going, by 1990 annual interest costs will reach $230 billion.
Defaulting would wipe out this big budget item in one fell swoop. Getting rid of the remaining $60 billion or $70 billion deficit projected for next year ought to be easy with a little trimming back of defense and a tuck here or there in the domestic budget.
This is no stopgap solution. Defaulting would not only put the current budget in balance, ensure that the federal government would never run a deficit again.
It would do this, moreover, without any need for a constitutional amendment, a line-item veto or even a congressional budget process. That's because no investor would ever again buy a federal note or bond. It's what you might call a "supply-side" solution. No supply of money to borrow, no way to fall in to debt.
The naysayers and hand wringers will say that so simple a solution will never work. The banks and other holders of government bonds will put up a fuss about having assets wiped out. The Eurobond markets, which have provided so many new buyers for our government debt, will go into a tizzy. Latin American debtors may start talking again about defaulting on their own piles of debt. But no one ever said that balancing the federal budget was going to be easy.
Is this a serious plan? Of course not. But neither is what Congress -- or for that matter, the administration -- has been doing. The trouble isn't simply that the budget conferees threw up their hands in despair before taking off for a prolonged celebration of American political, if not fiscal, independence. The trouble is that even as they get back to business, the course they're on doesn't lead far.
Both Senate and House have proudly produced budget resolutions that, they claim, will "save" more than $50 billion next year and put the federal budget on a safe course. But there is a great deal less to those claims than makes the headlines.
The House Wednesday Group, composed of moderate Republicans, has thoughtfully laid out the actual program cuts called for by each resolution. Discount program cuts so vaguely specified that there isn't a chance they would actually be made, such as the $400 million in "unspecified cuts" in "General Government"; simple bookkeeping subterfuges, such as shifting export loans off-budget; and widely inflated estimates (saving billions by reducing government contracting or improving customs service operations).
Be generous: Do not delete such politically difficult measures as reforming veterans' health care, dismantling Amtrak, or making big cuts in highway aid programs. Leave in unspecified savings of billions from farm programs despite the fact that farm bill conferees have been deadlocked for months and support costs are climbing.
And still the expected savings amount to a hill of beans -- at most $15 billion in the House plan and $24 billion in the Senate, with $7 billion of the Senate's savings coming from a three-year curb on Social Security and other retirement programs that some key House Republicans don't even support. These savings are barely enough to cover the increases in actual defense spending called for in both resolutions. (Remember that those defense "cuts" they talk about are simply reductions in still bigger increases wanted by the Defense Department.) It's always possible that Congress might coalesce behind a plan designed along the lines of the one being pushed by moderate Senate Republicans and Democrats. It calls for real cuts in some domestic programs, restraint on defense increases and a needed boost in federal revenues. It really would make permanent inroads in the deficit. But adopting it would require political courage and statesmanlike compromise on all sides -- scarce quantities in political life.
With congressional elections next year and the start of presidential campaigns to follow, this may be the best chance for real progress on the deficit for some time to come. Some people may judge that progress no more likely than a decision to default on the debt. But Congress should keep in mind that inaction -- or fake action -- is no less a default: a default on responsibility. The consequences, while deferred, may ultimately be even more catastrophic.