Congress has struggled to agree on how to rein in entitlement spending, and voters aren't too pleased about making radical changes, either. In a new report, Taxpayers for Common Sense has tried to get around the problem by offering a sequestration alternative that doesn't touch Medicare, Social Security, or any other entitlement program. The proposal manages to find $2 trillion in savings through other cuts, which goes well above the $1.2 trillion in deficit reduction needed to avoid sequestration. The problem is, the group's biggest proposed cuts may be even more politically untenable.
In Taxpayers for Common Sense's long list of proposed cuts, two of the biggest sources are the mortgage-interest deduction ($645 billion) and defense contractors ($372 billion), which combined make up more than $1 trillion. In a conference call Monday, the group said its proposed reductions were "no-brainers." But many legislators from both parties likely would disagree.
As many economists have pointed out, the mortgage-interest deduction isn't a great way to promote homeownership for ordinary, middle-class Americans as it disproportionately benefits wealthy homeowners by saving them money on second homes and house-flippers. The report proposes that the deduction only apply to homes under $500,000 or so, rather than the current threshold of $1 million.
But politically, that's not likely to be easy: While both Obama and Romney have proposed to reduce the deduction for wealthy Americans, a proposal to reduce it more dramatically would be a tough sell, particularly when the housing market is still recovering and legislators are anxious about promoting homeownership.
And the real-estate lobby has serious political clout: At August's GOP convention, the party's platform-writing committee rejected a plank that called for preserving the deduction. Immediately, allies of the real-estate industry leapt to action and successfully pressured them to put in compromise language. And as the broader public sees it, touching mortgage-interest deduction is akin to touching Social Security benefits, as the New York Times explains. In the newspaper's view, "It’s political suicide. It will crush an already anemic economy. It’s downright un-American."
The group's other proposed cuts would face similarly fierce backlash. The report calls for even bigger cuts to defense than would be in the sequester, proposing $672.5 billion in targeted cuts in place of a $600 billion across-the-board reduction. More than half of those cuts would come from reducing defense contracts, which would put legislators against a deep-pocketed defense lobby that's already proven it's clout in the backlash against the sequester.
That's not to say that these areas shouldn't be mined for savings. But it's worth keeping in mind that cutting them back may be just as politically controversial as squeezing savings out of entitlements, if not more so.