Tuesday, December 29, 2009

Wall Street Journal on the deficit commission trap

The Wall Street
editorializes today against prospects for a bipartisan deficit commission, such as proposed by Sens. Conrad and Gregg and Reps. Cooper and Wolf. The commission, the Journal argues, is a sucker's bet for those who believe in small government.

Democrats now want Republican cover for their tax increases. After signing a $787 billion economic stimulus and embracing two annual blowout budgets that will double the national debt over 10 years even before ObamaCare, President Obama is poised to pivot next (election) year and denounce the horrors of deficit spending. So the White House is now floating a bipartisan commission to reduce federal borrowing, and much of the political class is all for it. We only hope Republicans aren't foolish enough to fall down this trap door, though some are already tempted. A budget deficit commission is nothing more than a time-tested ploy to get Republicans to raise taxes. In the 2009 version, Republicans are being teed up to hold hands with Democrats and agree to become the tax collectors for Obamanomics.

As evidence, they cite the 1983 Social Security reform commission headed by Alan Greenspan:

In 1983 Ronald Reagan and Congressional Republicans agreed to decades of job-destroying increases in payroll taxes to "fix" Social Security, which you may have noticed still isn't fixed.

The 1983 deal is hardly what I'd prefer, in particular the unintended "prefunding" through the trust fund. But overall I'm not sure it was a terrible deal for conservatives.

  • The increased retirement age reduces expenditures and keeps people working and boosts the economy.
  • While the average return on payroll taxes is bad, payroll tax increases are actuarially fair at the margin (meaning, if we increase them you'll get more or less the same amount back in benefits). It's not clear to me how many jobs they'd destroy so long as individuals are aware of the relationship between taxes and benefits.
  • The taxation of retirement benefits can also be interpreted as an effective benefit cut, which is better than raising some other types of taxes (say, the maximum taxable wage).

Certainly, the 1983 reforms were a better split between tax increases and benefit cuts than, say, the Diamond-Orszag plan, which is at the conservative end of what most Democrats would accept.

That said, there's an understandable temptation, from both a political and policy point of view, to let the left sleep in the bed they've made. As the Journal points out, it's a bit ironic to call for a deficit commission after pushing through stimulus and health plans that are likely to push the deficit and debt to record levels. They passed the stimulus bill with their own votes and their own priorities, so there's not a ton of reason to give them political cover. Even more tempting is to force Democrats to pass the Medicare cuts necessary to fund their own health care expansion. I'm all for cutting Medicare, since we don't have much of a choice, but it's not clear why Republicans should supports the left's ideas of how to cut Medicare and what to use the proceeds for. If cutting Medicare is to fund other spending rather than reduce the deficit, it's not clear conservatives should care much about the outcome.

Overall I'd favor Republicans taking part in a commission, since inaction leads to disaster and the other choices seem even worse. But they'd have to be very careful not to buy into certain tax increases and uncertain spending cuts. Yet, as I've argued elsewhere, it's really pretty discouraging that our form of government seems wholly unable to get on top of the entitlement financing problem.

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