The Committee for a Responsible Federal Budget, a Pete Peterson-funded front group associated with the Fix the Debt campaign, basically the biggest deficit scolds out there, wrote this piecetrying to differentiate their thirst for austerity from the fiscal cliff, which is an austerity package in and of itself.
They claim that it’s important to “go smart” on the deficit, rather than the big, apparently dumb cuts of the fiscal cliff.
…just because the cliff would reduce the deficit does not mean that it is good fiscal policy. Going over the cliff would also likely send the U.S. into another recession, seeing how the cliff would be among the largest single years of deficit reduction in the past 75 years. When compared with a comprehensive plan that would gradually put debt on a downward path, it is very frontloaded and often across-the-board in nature, eschewing the kind of targeted changes that a fiscal plan would make [...]
This is why comprehensive plans like Simpson-Bowles and Domenici-Rivlin gradually phased in cuts, delaying much of the deficit reduction until when the economy has had more time to recover. Simpson-Bowles specifically put off cuts for a year and phased them in very gradually beyond that–and even then, most of the cuts that took place upfront were discretionary spending cuts which have already taken place. Domenici-Rivlin even included some additional stimulus in the form of a full payroll tax holiday. We have pointed out before that going big on longer-term deficit reduction allows room for short-term stimulus measures or at least slowly phased-in cuts.
It’s very nice for these folks to claim that they want to fix the economy first before going full-bore into deficit reduction. But keep in mind that both Bowles-Simpson (I prefer the B-S ordering of their names) and Domenici-Rivlin were put together 2 years ago. If either of their plans were followed, we would be in the midst of austerity budgeting today. And I seriously doubt that economic conditions would cause them to call for a change in course.
Here’s Domenici-Rivlin’s executive summary. It did call for a full payroll tax holiday, on the employer and employee side. However, that would only have been for the 2011 budget year. So we would be a year removed from that. Furthermore, Domenici-Rivlin wanted the primary budget deficit, i.e. the budget minus interest payments on the debt, to be in balance by 2014. So we would be in serious budget-cutting mode at this point.
Now, maybe that full payroll tax holiday, with 6 times the impact of what we saw in 2011, would have been very stimulative. But over the same time period, Domenici-Rivlin would raise Medicare premiums, turn Medicaid into a managed care program (which would only save money through cost-shifting), freeze all domestic discretionary and defense program spending (we’d be in the third year of that), and force OMB to do across-the-board spending cuts – in other words, EXACTLY WHAT THE SEQUESTER WOULD DO – if spending exceeded a certain cap. So those measures would tend to balance out the one-year effect of the payroll tax holiday, and once that went away, we’d be streaming toward austerity. To get on a path to balance the primary budget deficit by 2014, we’d have to be something like $500 billion under current policy right now.
Similarly, Bowles-Simpson would have begun its cuts in Fiscal Year 2012. They offered no economic stimulus, so we would have seen the same economy that we have today, only one year into austerity.
The idea that these people, who have demanded deficit reduction for most of their adult lives, would have stepped in and called for a delay on the grounds of poor economic performance strains credulity. They would have said that America could not show weakness by delaying the plan, and must face up to the moment of truth. We’d be well into austerity by now, which from the experience of Europe we know would mean significant economic hardship. And the Bipartisan Policy Centers of the world would be hard to find for comment.
Photo courtesy National Archives