It can be hard to tell what's worth paying attention to in Washington, and what's safe to ignore. The recent vote in the House of Representatives on the misnamed "Repealing the Job-Killing Health Care Law Act," for instance, was a symbolic act by Republicans determined to institutionalize their opposition to President Obama's health-reform law. Even though it passed in the House, it has no hope of passage in the Senate, which is still controlled by Democrats. So if you bought the hype and caught all the proceedings on C-Span, you invested your time in a bit of Potemkin politicking.
Other Beltway maneuvers, however, should get everybody's attention, and those include the mounting pile of plans for reducing the ballooning national debt and making the federal government solvent again. Budget politics are impossibly arcane, with spending on thousands of programs controlled by mandarins on Capitol Hill and their special-interest cronies, all of whom excel at the dark art of disguising how they spend your money. Yet Washington's borrowing binge is almost over, and the endgame will directly affect millions of Americans. We're going to pay more in taxes and get less back from our government. So if you've been thinking of enhancing your civic involvement, now might be a good time.
The latest set of ideas comes from the Republican Study Group, made up of 174 House conservatives who want to shrink most of the government, except for defense. Like every caucus in Washington, they have a politicized agenda. Yet the budget gap is so big that any meaningful plan to plug it must include ideas from every political camp, ranging from liberals who want to tax the rich to conservatives who want to slash public benefits. There will be no other way to get an agreement, and even with everybody's pet ideas in the hopper, the odds of some kind of deal might be low.
The RSG wants to cut $250 billion in government spending each year—for a 10-year total of $2.5 trillion—by reducing non-defense spending to 2006 or 2008 levels (depending on the type of program) and killing or slashing more than 100 other programs. Here are some of the more popular things the RSG wants to cut funding for:
The Community Development Fund, which subsidizes development of low-income neighborhoods ($4.5 billion per year)
Intercity and high-speed rail grants ($2.5 billion)
Amtrak ($1.6 billion)
The Agency for International Development ($1.4 billion)
The Corporation For Public Broadcasting ($445 million per year)
The National Endowment for the Arts ($168 million)
The National Endowment for the Humanities ($168 million)
The RSG also wants to reduce the federal workforce by 15 percent, cut the government's travel budget in half, roll back $45 billion in unspent stimulus money, wind down the troubled housing agencies Fannie Mae and Freddie Mac, and repeal a recent $16 billion subsidy to help states cover Medicaid funding.
Many of these cuts have been on conservatives' wish list for years, but the programs have had enough popular support to survive repeated onslaughts by budget hawks. That includes mohair subsidies, which have been lampooned for years but apparently are still available to producers who need marketing assistance. The RSG's plan would save taxpayers $1 million per year by killing those for good.
Other ideas on the RSG's list sound draconian, like eliminating Fannie and Freddie, which are operating under government receivership since they cratered as quasi-public corporations. As dysfunctional as they are, the two agencies back more than 90 percent of all new mortgages, which means getting rid of them could freeze the entire housing market and even cause another recession. And rolling back stimulus-funded programs and Medicaid aid would simply leave a bigger hole in state budgets, passing the pain from Washington to a variety of state capitols.
It would be foolish, however, to dismiss ideas that once would have seemed like nonstarters, because the pain has to be felt somewhere. The scale of the debt problem helps make that clear. If all of the RSG's proposed cuts were enacted this year, saving $250 billion, the government would still have a deficit of more than $800 billion, according to projections from the Congressional Budget Office. If we stuck to the RSG's plan for the full 10 years, saving $2.5 trillion, we'd still add another $3.7 trillion or so to the national debt. So as awful as it might sound to kill public funding for the arts and humanities, give up on high-tech railroads like those popping up all over China, abandon inner-city neighborhoods, and tell the cash-strapped states to fend for themselves, such cutbacks would barely count as a first step toward paying down the debt.
What the RSG plan doesn't address, of course, is the other 58 percent of the federal budget that most elected officials are afraid to touch. That includes defense spending, Social Security, Medicare, and Medicaid. Since those four spending categories account for such a big portion of all federal spending, that's where the real money is. Another plan to pay down the debt, issued by President Obama's fiscal commission late last year, would make about $1.7 trillion worth of cuts in discretionary spending, over 10 years, about 32 percent less than the RSG plan calls for. But much of that would come from defense spending, with less coming from other programs.
The fiscal commission's plan would also touch other untouchables, including modest cuts in Social Security benefits ($100 billion over 10 years) along with Medicare, Medicaid, and other healthcare programs ($342 billion). It would also raise the national gas tax by 15 cents per gallon (raising $114 billion) and enact a whole range of other tax reforms that would raise another $785 billion. All of that combined still wouldn't pay off the national debt, it would just reduce it to more manageable levels.
Yet another plan, drafted by Republican Senator Pete Domenici and Democratic budget expert Alice Rivlin, would cut Medicare and Medicaid benefits by more, raise income taxes on most Americans, reduce the mortgage-interest deduction for most homeowners, and enact a soda tax. Others want to bypass the hard work of making hundreds of smaller changes by instituting a federal sales tax, which could bring trillions into federal coffers.
If you're not too depressed to keep reading, it might be worth considering a few more ideas from economist Joseph Stiglitz. He says America can avoid the privations of a severe austerity budget by slashing defense spending, eliminating corporate welfare, raising taxes on capital gains, dividends and income for top earners, and investing more in the kinds of infrastructure that yield a high return. But he also points out dourly that such a plan is practically hopeless, because the special interests that control Washington's political agenda would stand to lose the most.
[See who will prosper in 2011.]
In the end, Congress is going to have no choice but to adopt a combination of all these ideas. That could happen sooner, if Washington politicians find the courage to solve the problem before it gets worse, or later, if they wait for the huge financial crisis that will occur once investor lose confidence in Washington's ability to manage its debt, and start to sell off U.S. Treasury securities. If you depend heavily on subsidized mohair, it's probably a safe bet you can wait a few more years before you start to worry.