BACON: No cuts, no glory

OPINION:

As the old saying goes, be careful what you pray for: The gods just may grant you your wish. Republicans fervently hoped for a return to power, and thepolitical furies granted them their biggest win in six decades. Now the GOP must make good on its promises to cut spending, reduce deficits and stabilize the national debt.

Here’s the big question that no one asked during the campaign season: How much fiscal consolidation in the form of spending cuts and/or tax increases must Congress enact to put the nation back on a financially sustainable course?

In its Pledge to America, the GOP House leadership vowed to roll back government spending “to pre-stimulus, pre-bailout levels,” thus saving $100 billion in the first year alone and “putting us on a path to begin paying down the debt.”

Putting us on a path to paying down the debt? Whoever composed that line must have stayed up way too late and taken way too much No-Doz. It’s blather. Rolling back spending $100 billion a year won’t accomplish anything.

In the 10-year forecast submitted with the midyear review of the fiscal 2011 budget, President Obama already assumes a $75 billion reduction in discretionary spending between 2011 and 2012, thanks to resumed economic growth, reduced unemployment, higher payroll taxes and reduced entitlement payouts to the poor.

House Republicans might respond that the pledge also promises to put a “hard cap” on domestic discretionary spending to limit federal spending on an annual basis. Yet Mr. Obama, in his State of the Union address, already vowed to impose a three-year freeze on discretionary domestic spending. In his 10-year forecast, he sees such spending topping out at $533 billion in 2011 (the current fiscal year) declining to $459 billion in 2014, and rising slowly to $529 billion over the next six years.

In other words, House Republicans swore in their pledge to accomplish little more than Mr. Obama already has committed to deliver.

What if the GOP helps the president make good on his promises? Will that put the United States back on the path to fiscal sustainability?

Not by a long shot. The deficit, according to Mr. Obama’s 10-year forecast, will remain stuck at $1.416 trillion this year, bottom out at $698 billion by 2014 and rise slowly after that, reaching $900 billion by 2020. Those numbers, it is important to add, are predicated upon highly optimistic assumptions regarding economic growth (a business expansion almost as strong and sustained as the Clinton-era Internet boom) and persistently low interest rates (10-year Treasuries never rising rise above 5.3 percent for the decade), which means that, in all likelihood, they underestimate looming deficits by hundreds of billions of dollars annually.

But set those concerns aside. Even if the Obama forecast turns out to be accurate, the United States will continue to run a massive structural budget deficit for, well, basically forever. The smallest deficit, as noted, will be about $700 billion. The Obama team did not calculate what the deficit would be if the country lapsed into another recession - such an event occurs only to Republican presidents, apparently - but the number easily could match this year’s $1.4 trillion. Thus, over the course of a 10-year business cycle, the U.S. government needs to cut spending or raise taxes by roughly $1 trillion a year before it can even contemplate “paying down the national debt.”

Republicans can fulfill their piddly promises to cut spending by $100 billion and then cap discretionary domestic spending and the country still will face a long-term budgetary gap equivalent to about $850 billion a year, if you believe Mr. Obama’s economic projections, or more than $1 trillion if you expect slower economic growth or higher interest rates.

It’s not clear whether House GOP leaders underestimate the magnitude of the problem or if they cynically choose not to level with the American people for fear of being labeled deficit alarmists. In either case, Republicans won a resounding election Tuesday by positioning themselves as deficit hawks, so the onus is on them to deliver deficit and debt reduction. They had better not fumble the task. The American people will be watching - very carefully. And if the country-club Republicans running Congress fail to deliver, they will feel the electorate’s wrath as surely as the Democrats did on Tuesday.

James A. Bacon is author of “Boomergeddon” (Oaklea Press, 2010) and publisher of the blog of the same name.