Debt panel’s bind: Cut funds or hike taxes

Postponements and taxes and cuts — oh my!

The choices facing President Obama’s debt commission when it begins meeting later this month are obvious, but just as obviously unpalatable to voters who are not certain how big the problem is.

“The basic challenge is political in that we’ve gotten to a situation where the spending promises we’ve made can’t be financed with the levels of taxation we’ve agreed upon,” said Robert L. Bixby, executive director of the Concord Coalition, a long-standing bipartisan budget watchdog group. “Getting out of that dynamic requires either cutting back on the spending promises or raising taxes. Those are politically explosive choices.”

With the commission’s first meeting slated for April 27 in Washington, the debate already is gearing up. Last week, former Federal Reserve Board Chairman Paul A. Volcker, who is now an economic adviser to Mr. Obama, floated the idea of establishing a value-added tax, a type of consumption tax.

Mr. Obama has said everything from new taxes to cuts in spending will be on the table, and the commissioners already have a built-in mission. When Mr. Obama submitted his 2011 budget to Congress this year, he left a glaring hole in the future years that he said the commission will have to close.

The contours are clear. The Congressional Budget Office projects deficits averaging nearly $1 trillion a year for the next decade under the budget Mr. Obama submitted in February, and the total debt held by the public would reach 90 percent of gross domestic product.

When it begins, the commission will be repeating the work of watchdog groups such as the Concord Coalition and the Committee for a Responsible Federal Budget. Maya MacGuineas, president of CRFB, said it will be clear when they crunch the numbers that “the bulk of the problem is spending.”

“It’s a worthwhile strategy to say, ’Let’s find as many spending cuts as we as a country are willing to stomach, and then go ahead and find new taxes,’” she said.

How big that stomach is, though, is uncertain.

Democratic strategist James Carville and pollster Stan Greenberg finished a round of polling last month on closing the budget hole. Mr. Carville said little has changed since 1993, when spending also took top billing among issues of concern.

“The political will to deal with this today is no greater than it was in 1993, and the information about it has not really advanced, and so to ask the political system to do something that there’s no sense of urgency in the country to do is to ask a lot,” Mr. Carville told reporters in a briefing on the polling.

He and Mr. Greenberg found that nearly half of voters think government has enough waste and inefficiency to cut that it can control spending without touching Social Security or the other major benefit programs.

When forced to choose how to balance the budget, voters pick spending cuts over tax increases by a huge margin — 71 percent to 18 percent, in the Democracy Corps poll — but there is little agreement on what to cut, and voters usually rule out the major items.

A YouGov/Economist poll released last week found that of more than 15 proposed cuts, from Social Security to defense to environmental programs, only one - foreign aid - was acceptable to a majority of voters. In fact, at 71 percent, it was the only option that topped 30 percent acceptable.

But foreign aid accounts for less than 1 percent of federal spending, so eliminating it altogether would do hardly anything for the deficit.

Still, Ms. MacGuineas said, the public may understand more than many politicians the outlines of the debate and the pieces that must be on the table.

“They don’t understand in the end we’re going to have to do all of them, but they do understand there are big changes we’re going to have to be doing,” she said.

Analysts across the board said there’s not much low-hanging fruit left to pick when it comes to spending cuts or revenue increases, and those that did exist were used to help pay for the health care legislation that Mr. Obama just signed.

Douglas Elmendorf, director of the Congressional Budget Office, told reporters at a breakfast last week that over the past several decades, the government was able to expand the promises of Social Security, Medicare and Medicaid because spending on defense was gradually decreasing.

The amount of gross domestic product spent on defense has declined in mirror image to the amount of GDP spent on those safety-net programs, he said — and in almost mirror image to the social-safety-net spending.

But at 3 percent to 4 percent of GDP, defense spending is now likely at a floor, which means “the resources are not there to be freed up to pay for further expansion of Social Security, Medicare and Medicaid,” Mr. Elmendorf said.

The commission has 18 members, with the president appointing six and the House and Senate majority and minority leaders each naming three.

The congressional leaders all named members of their own political caucuses, but Mr. Obama went far afield, tapping a former Republican senator and a former White House chief of staff under President Clinton as co-chairmen, and adding a union president and a former top congressional budget official among his other picks.

Just getting the commission established was a drama. A bipartisan group of senators tried to establish a commission by law, which would have forced Congress to have to vote on the recommendations. But that effort was blocked, chiefly by Republicans, so Mr. Obama created this commission by executive order.

In order to force bipartisanship, a supermajority of 14 members will have to agree to recommendations.

She didn’t name names, but Ms. MacGuineas said: “There are a lot of folks on this commission who don’t seem the most likely folks for compromising.”

She and Mr. Bixby also raised the prospect of half-solutions.

“We’re not going to solve the problem with one big bang, so anything they can get 14 votes on, do it,” Mr. Bixby said. “Even if they can’t get 14, if they can get some number of people that can agree on some recommendations, I would then hope that the administration would put those recommendations in next year’s budget.”