issue: Fiscal Policies

The Defense Budget Sleight of Hand That’s Costing You Billions

Posted on by The Progressive Policy Institute

Look, I get it. If you’re not a budget wonk, I can understand how you might not care about this stuff. But if you’re a progressive and you’re concerned about the Tea Party destroying the EPA for no good reason, then that’s reason to pay attention.

I’ve written a policy memo about something else that is crucial to understand if we want to even the discussion of getting Defense spending under control: it’s simply vital that we end the practice of supplemental war funding bills.

Wait! Wait! Don’t fall asleep. Seriously. We’ve wasted $200 billion over the last ten years through a little-discussed system of back-door Pentagon budgeting, which essentially funds the stuff on DoD’s wish list by falsely calling them “emergency war necessities.” Why, for example, did Congress give Don Rumsfeld an $11 billion slush fund to spend as he pleases without any Congressional oversight?

We have to end this systematic abuse of your taxpayer dollars — start reading here to find out how.

Read the policy memo

State of the Union on Foreign Policy: Hardly an After-Thought

Posted on by The Progressive Policy Institute

Though the president failed to mention the words “foreign policy” until 80 percent of his speech lay in the rearview mirror, it very much served as the underpinning of the entire exercise.

“Winning the Future”, after all, is inherently a call to rise against two competitors: domestic political obstacles that restrain American growth and prosperity, and those nations who seek to best the American model of democratic free enterprise. In that sense, the best line of his speech–“We do big things”–was probably the most forceful testament to American greatness and world leadership of the Obama presidency. It was an effective reminder that despite the impasses our politics so routinely produce that our calling is at the head of the world’s pack, and for a damn good reason.

He used the buttress of China and India to raise the spectre of international competition, even though the notion of “competing” with with New Delhi and Beijing hardly boils down a zero-sum game.  But to gird Americans to tackle the huge tasks in their way, the frame was apt–other big countries are succeeding, and their models are sub-optimal.  We can be the best, he said, even though our democracy is messy.

Pundits may critique the speech for its lack of specific initiatives, that wasn’t really the point. Lofty rhetoric and inspirational moments fall well within the president’s balliwick, particularly at a political moment when a statement of first principles establishes the possibility of buy-in from erstwhile opponents. The specifics of regulatory reform, for example, may draw knee-jerk heckles from conservatives, but the idea of political cooperation that unleashes the power of American entrepreneurship and reestablishes American economic might on the world’s stage?  That’s rhetoric to start a conversation around.

When President Obama did get down to the foreign policy details, it was a mixed bag. Some, like Josh Rogin over at The Cable, took a cynical bent and criticized the president for glossing over some of the, er, finer details. Fair enough — I might disagree with some of Rogin’s “translations”, but he underlying point is that all isn’t going quite as swimmingly in the world of foreign policy as Obama makes it appear, and that’s about right.  Even if Obama’s foreign policy deserves, in broad strokes, a good amount of praise.

I wanted Obama to draw more of a line in the sand on foreign aid funding. With House Republicans set to eviscerate the foreign assistance line item in the federal budget, Obama could have used the moment to explain that if America is to remain numero uno in the world, it can’t retreat into isolationism. An America engaged with the world protects our security interests and advances our values, and engagement must be properly resourced.

And to conclude, I was pleasantly surprised at Obama’s forceful language on Tunisia and by subtle implication, the nascent rumblings in Egypt: “[T]he United States of America stands with the people of Tunisia, and supports the democratic aspirations of all people.”

Sure, platitudes come easy after a dictator has fallen, and Egyptians — as embodied in the “all people” tacked on the end — certainly wish Obama had been more direct. But in fitting with what I’ve said above, rhetoric is important and falls squarely within the president’s job-description.

Now let’s hope he has begun the process of cajoling our divided government into action.

Grading the State of The Union: A Solid B+

Posted on by The Progressive Policy Institute

Last week, the Progressive Policy Institute released a Memo to President Obama, which contained 10 Big Ideas for Getting America Moving Again. How did the President’s speech match up to our recommendations?

Overall, he did quite well. Eight of our ten ideas were largely consonant with proposals included in the address, and the future-oriented rhetoric echoes the language in our memo. We also appreciate his willingness to look to both sides of the aisle to find solutions.

However, we were disappointed that he did not discuss the sluggish housing market, and that he did offer any ideas to address the roots of the partisan rancor in Washington.

Our overall grade: B+

Here’s a proposal-by-proposal scorecard:

 

1. Removing Obstacles to Growth: A Regulatory Improvement Commission

 

We proposed: A periodic review process conducted by a Regulatory Improvement Commission, modeled loosely on the BRAC Commissions for military base closures.

The President said: “To reduce barriers to growth and investment, I’ve ordered a review of government regulations.”

Analysis: The President clearly understands that we need to prune obsolete and ineffective regulations and stimulate economic innovation and entrepreneurship. But agency self-review is inadequate.

Grade: A-

2. Internal National Building: A National Infrastructure Bank

 

We proposed: Smart, innovative financing solutions that enable us to restore the backbone of our economy. A well-structured National Infrastructure Bank can play this role by leveraging public dollars with the participation of private-sector investors.

The President said: “The third step in winning the future is rebuilding America.  To attract new businesses to our shores, we need the fastest, most reliable ways to move people, goods, and information — from high-speed rail to high-speed Internet.”

Analysis: Making infrastructure one of five sections of the speech gave it real prominence. But the President needs to do more than just propose “that we redouble those efforts.”   He needs to lay out a mechanism to do that rationally, and to identify clear funding for it. A National Infrastucture Bank could accomplish that.

Grade: A-

3. A Way to Pay for High-Speed Rail

We proposed: Restructuring the Highway Trust Fund into a Surface Transportation Trust Fund that recaptures its original mission—to build and maintain an efficient national transportation network—and updates that mission to reflect 21st-century priorities, including upgrades to our passenger and freight rail systems.

The President said: “Within 25 years, our goal is to give 80 percent of Americans access to high-speed rail. “

Analysis: We applaud the President’s full-throated commitment to high-speed rail. However, he’s going to need to figure out a way to pay for it. We suggest he read Mark Reutter’s excellent memo on how to finance high-speed rail.

Grade: A-

4. Restoring Fiscal Discipline in Washington

 

We proposed: Restoring fiscal discipline in Washington by trimming the $1.1 trillion in outdated tax expenditures, capping domestic spending (including defense), eliminating supplemental defense budgets, and slowing mandatory expenditures by reducing benefits for affluent retirees.

The President said: “Starting this year, we freeze annual domestic spending for the next five years… we cut excessive spending wherever we find it –- in domestic spending, defense spending, health care spending, and spending through tax breaks and loopholes… we should also find a bipartisan solution to strengthen Social Security for future generations…we simply can’t afford a permanent extension of the tax cuts for the wealthiest 2 percent of Americans.”

Analysis: The President clearly gets the seriousness of the looming debt crisis, but understands the difference between smart cuts and needed investments. But he could have come out more strongly in favor the Fiscal Commission’s work, and he only paid lip service to entitlements.

Grade: B+

5. Setting National Targets: A Balanced Energy Portfolio

We proposed: A national Balanced Energy Portfolio with a target fuel mix allocated into thirds by 2040: one third of our electricity generated by renewable resources, one third by nuclear power, and one third from traditional fossil fuels.

The President said: “By 2035, 80 percent of America’s electricity will come from clean energy sources.  Some folks want wind and solar.  Others want nuclear, clean coal and natural gas.  To meet this goal, we will need them all — and I urge Democrats and Republicans to work together to make it happen.”

Analysis: The President is thinking big, but also recognizing that nuclear and natural gas need to be part of any energy mix.

Grade: A

6. Greening the Pentagon: An Energy Security Innovation Fund

We proposed: An Energy Security Innovation Fund, housed in the Pentagon, to help companies bridge the gap. Such a fund would leverage public dollars with private money to support research and deployment of the most promising green products.

The President said: “We’re telling America’s scientists and engineers that if they assemble teams of the best minds in their fields, and focus on the hardest problems in clean energy, we’ll fund the Apollo projects of our time.”

Analysis: The next clean energy breakthrough is going to require support from the government. But Obaa should look beyond the Department of Energy and recognize that the military can be a fertile source of innovation, too.

Grade: A-

7. Bringing Public Education into the 21st Century

We proposed: To radically transform public education by growing charter schools, ending teacher tenure as we know it, spurring a network of “Innovation Zones”, and creating a “Digital Teacher Corps”.

The President said: “Our schools share this responsibility.  When a child walks into a classroom, it should be a place of high expectations and high performance.  But too many schools don’t meet this test.”

Analysis: Education is clearly the key to our ability to “win the future,” and the President understands this. We support his Race to the Top program and the call for more bright young people to go into education. But we also hope he thinks more creatively about radical new ideas for 21st century education, embracing the possibilities of charter schools, digital education, and “innovation zones.”

Grade: A-

8. Lifting Housing Markets: One Million Homeowner Vouchers

We proposed: An innovative way to jump-start the housing market would be for the federal government to provide a million vouchers that allow low-income renters to become homeowners.

The President said: (Nothing)

Analysis: Surprisingly, the President failed to mention the sluggish housing market, which many economists believe is one of the leading factors holding back an economic recovery.

Grade: F

9. Align Innovation and Immigration

We proposed: Aligning innovation and immigration by providing a citizenship path for foreign students with advanced technical degrees and illegal immigrants’ children who are interested in national service.

The President said: “I strongly believe that we should take on, once and for all, the issue of illegal immigration… I know that debate will be difficult.  I know it will take time.  But tonight, let’s agree to make that effort.  And let’s stop expelling talented, responsible young people who could be staffing our research labs or starting a new business, who could be further enriching this nation. “

Analysis: The President deserves points for having the courage to bring up immigration reform. But he clearly gets it: our global competitiveness depends on continuing to be a magnet for the world’s best and brightest.

Grade: A

10. Taking Power from Special Interests: A Fair Way to Finance Elections

We proposed: A hybrid Fair Elections system introduced by Sen. Dick Durbin (D-Ill.) to allow federal candidates to choose to run for office without relying on large contributions by using federal money to match small donations.

The President said: (Nothing)

Analysis: Campaign finance reform is not on the agenda, and the President does not seem particularly interested in putting it there. This is too bad. A great way to break the partisan rancor in Washington would be change the way politicians get elected to office. As long as congressional campaigns are privately funded, and as long as the big donations come primarily from ideologues and special interests, pragmatic candidates are going to have a tough time raising the resources they need to get started, and a difficult time winning in all-important low-turnout primaries.

Grade: F

Conclusion:

Overall, it was a great speech. It laid out the problems that we face as a nation, and provided a vision of an America that invests smartly in the future, building infrastructure, providing educational opportunities, and remaining a magnet for the best and brightest in the world, and all in a way that could move us past partisan divides.

Howard Berman Stands Up for Foreign Assistance

Posted on by The Progressive Policy Institute

Foreign aid doesn’t have a constituency, and is often first on the chopping block, a maxim that is no different in the Tea Party Congress. In their haste to slash every penny of government spending (save the tough bits, of course), they have again failed to appreciate why foreign aid exists in the first place.

Unveiled last week was a Republican proposal to slash everything under the sun when it comes to aid: 84 percent of the USAID budget, the U.S. Trade Development Agency, the Woodrow Wilson Center, the USDA Sugar Program, economic assistance to Egypt, and many other programs.

To be sure, America needs a serious discussion about foreign aid reform. But we shouldn’t be questioning its very existence.

That’s why much credit is due to Rep. Howard Berman (D-CA), ranking member (and former Chairman) of the House International Relations Committee, who rises to stand in the path of neo-isolationism:

We all remember the period when the United States tried to go it alone, unwilling to cooperate with other countries and demonstrate global leadership,” We’ve finally begun to turn that all around.  Let’s not go back to the bad old days when the U.S. turned away from the rest of the world, and lost so much of its influence and respect.”

This is nothing short of casting the ideological die. On one side is the principle of standing for an America whose security is enhanced and values forwarded by being engaged as an active world leader. On the other side is an America that shirks from its vast and critical international responsibilities because most conservatives lack the gumption to have a tough discussion on revenues and spending.
Let’s talk about reforming aid and protecting America’s interests and values, not about taking our ball and going home.

New Congress and Military Spending: This is Going to Be Fun

Posted on by The Progressive Policy Institute

Last week, Secretary of Defense Robert Gates announced plans to pare back another $78 billion in Pentagon spending, a sum on top of the $100 billion in efficiencies he’s promised to find.  And while one fight’s a-brewing over what to do with those savings (Gates tried to get out in front of the coming austerity package by investing his savings back into DoD, while Obama’s deficit commission wants to use that money to pay down the national debt), a much bigger one is taking shape in the Republican party.

In response to Gates’ proposed savings, the GOP leadership — including new House Armed Services Chairman Buck McKeon (R-CA) — was typical: plow more money into the Pentagon, even when the Pentagon doesn’t want it.

“We are fighting two wars, you have China, you have Iran: Is this the time to be making these types of cuts?” says McKeon.

But the Tea Party — which backed a large percentage of the 85 new Republicans in Congress – has other ideas. Tea Party leader Judson Phillips has posted a letter (restricted access) on the Tea Party Nation website demanding “serious and meaningful cuts in the budget.”  It’s little wonder why so many leading conservatives are trying to paint on the blank canvass of Tea Party intellectualism and co-opt the movement before its heart-felt but un-Washington ways engulf the Republican party.

Most Democrats and progressives understand the need for fiscal restraint at the Pentagon.  After all, solving the deficit requires increasing revenues, fixing entitlements, and counting on a contribution from the government’s largest agency, the Pentagon.  The public knows this too – a new poll suggests that over half of Americans support reduced military spending.

In other words, we could be approaching the tipping point on fiscal responsibility and military spending.  Mainstream Republicans, who want to shovel money towards the Pentagon that even it doesn’t want, are beginning to swim upstream more and more.

White Voters vs. Obamacare

Posted on by The Progressive Policy Institute

House Republicans want to repeal health care reform in the worst way, even if it means doing what they slammed President Obama for doing last year: taking their eye off Americans’ economic travails.

They’ve convinced themselves that health reform is a drag on recovery, even though its main provisions won’t kick in for several years. They also claim a popular mandate to undo reform, even though polls show the public evenly divided on the issue.

There is one significant voter block, however, that strongly backs repeal: white voters, and especially white blue collar voters. Health care, unfortunately, is an issue that illuminates a deep racial/ethnic fissure in American politics.

As Ron Brownstein reports in a fascinating National Journal analysis of new exit poll data, 56 percent of white voters back repeal, while an overwhelming majority of minority voters favor either expanding or maintaining Obama’s reforms.

It’s already been widely reported that white voters backed Republican candidates in last year’s midterm 60-37 percent. That’s the lowest percentage Democrats have garnered from white voters since modern polling began. Brownstein’s analysis sheds new light on those voters’ attitudes toward Obama’s policies and government’s role in general. For Democrats and progressives, it’s not a pretty picture:

  • Three fourths of minority voters, but only 35 percent of whites, approve of Obama’s performance.
  • Whites are strongly skeptical of expansive government: 63 percent say government is doing too many things best left to people and businesses. An almost identical percentage of minorities say government should do more to solve problems.
  • Whites give priority to reducing government deficits; minorities to more public spending to create jobs.
  • Nearly half of whites who voted in the midterm identified themselves as conservatives.
  • Blue collar (non-college graduates) whites form the hard core of skepticism toward Obama and his party. They backed GOP candidates by 2-1.
  • Democrats were only competitive among whites in 2010 in two demographics—college-educated women and under 30-voters.

It’s always a mistake to over interpret the results of a single election, but it’s been a very long time—the post-Watergate election in 1974—since Democrats won an outright majority of the white vote. The defection of blue collar Democrats, the mainstay of the grand old New Deal coalition, also is old news.

Margins matter, of course, and Obama will have to narrow the racial-ethnic chasm to win reelection in 2012, even as he re-energizes his base of minority and young voters, and college women. But electoral calculations aside, the appearance of what Brownstein calls a new “color line” in U.S. politics isn’t good for the nation’s political soul. Progressives need to engage white voters more directly on questions about the size and role of government. We should be serious about making government more accountable, about enabling citizens and communities to do more for themselves, and about reining in runaway federal deficits and debts. But we should also stand firmly for public activism to rebuild America’s productive capacities, particularly our run-down infrastructure, curb out-of-control medical costs and make the promise of equal opportunity real for all citizens.

Obamacare, in fact, is a good place to start that conversation. Progressives ought to be open to refinements and improvements (especially strengthening its cost containment provisions), while remaining resolute in defending the core achievement of extending, at long last, basic health protection to all Americans. After all, blue collar white voters are not natural allies of health insurance companies. They have as much interest as anyone else in having access to affordable care, not losing coverage if they get injured or sick or change jobs, keeping their kids covered through age 26, and in encouraging medical providers to charge based on the quality, rather than quantity of care they deliver.

Progressives should also take the opportunity to remind white voters that Obamacare is no alien import from Canada or Europe, but a national version of Romneycare – the comprehensive coverage approach pioneered in Massachusetts with the full support of that notorious socialist, then-Gov. Mitt Romney.

It’s time, in short, to bring the health care debate down from the level of ideological abstraction – the only level on which conservatives can win – to the concrete realities facing U.S. families struggling with soaring health costs and spotty coverage.

GOP: Soft on Deficits

Posted on by The Progressive Policy Institute

Republicans talk a big game on fiscal responsibility, but don’t be fooled: Today’s GOP has gone soft on budget deficits.

This week, the new House Republican majority adopted rules aimed at controlling federal spending. That sounds innocuous enough, but a closer look at the new rules reveals the GOP’s dirty little secret: in their zeal to shrink government, Republicans have abandoned the fight to rein in America’s colossal budget deficits.

This year’s budget deficit is estimated to be about $1.7 trillion. Since House leaders adamantly oppose raising taxes to close the gap, they’d have to make epic cuts in federal spending to make even a modest dent in the deficit. But as the New York Times reports, House GOP leaders already are backing off on their promise to hack $100 billion out of domestic spending this fiscal year. Since Republicans also insist on sparing the Pentagon from the budget ax, that would have meant draconic cuts (between 20-30 percent) in domestic programs. Sobered GOP leaders are now talking about cuts in the $50 billion range.

The assertion, pressed most vehemently by Tea Party types, that fiscal discipline can be restored through spending cuts alone is new. Don’t forget that Ronald Reagan signed 11 major tax increases, including a whopper in 1988 amounting to 2.7 percent of GDP. George Bush’s willingness to boost taxes (and tax rates) as part of his 1990 budget helped set America on a course toward the budget surpluses later achieved on Bill Clinton’s watch.

By taking taxes off the table, House Republicans are breaking with their own party’s tradition of fiscal rectitude and saying, in effect, they don’t care all that much about deficits. Evidently for this curious new breed of fiscal “conservative,” expanding deficits in pursuit of smaller government is no vice.

That’s the real message sent by the new rules adopted Wednesday, which seem calculated to lock in big deficits as far as the eye can see.

Most egregious, for example, is their new “cutgo” rule. Under existing “paygo” rules, new tax cuts or spending increases must be offset with tax increases and/or spending cuts. Cutgo, in contrast, says that any new spending must be paid for by spending cuts alone, and it exempts tax cuts from offsets altogether. In other words, their costs will simply be added to the deficit. Similarly, changes in budget reconciliation rules would bar spending increases in reconciliation bills, but allow tax cuts. Expect a torrent of new tax expenditures as lawmakers realize that they can dole out new tax favors without the bother of paying for them.

If the new rules weaken fiscal discipline on the tax side of the federal budget, they do strengthen constrains on the spending side. For instance, they include a new point of order on legislation which increases mandatory spending at any point over the next four decades. They also repeal the “Gephardt Rule,” which allows lawmakers to avoid an on-the-record vote on raising the debt ceiling. The Committee for a Responsible Federal Budget offers a detailed analysis of the new rules here.

Unfortunately, the overall effect of the new rules will be to undermine serious bipartisan negotiations to curb both federal spending and deficits. The Senate, still controlled by Democrats, rightly will reject the GOP’s transparent bid to force all the painful decisions to the spending side of the ledger. As a slew of recent reports by bipartisan fiscal commissions show, there’s no plausible way to deal with America’s debt explosion without closing tax loopholes and raising revenues. Even such hard-core fiscal conservatives as Sen. Tom Coburn (R-OK) recognize the need to curb tax expenditures. By impeding the search for common ground on fiscal issues, the House GOP’s anti-tax fundamentalism only delays the inevitable day of reckoning, at enormous cost to the nation’s economic prospects and the public’s confidence in their government’s ability to solve urgent problems.

Unlike House Republicans, U.S. voters think deficits matter, not just the level of public spending. This is especially true of independents, who abandoned Democrats in last year’s midterm elections in part because of their spendthrift ways. To these voters, big deficits connote not just chronic mismanagement of the nation’s economy, but also a breakdown in political responsibility in Washington.

That’s why President Obama and progressives should miss no opportunity to drive home the reality that Republicans are now the party of big deficits.

Framing the Fiscal Battle

Posted on by The Progressive Policy Institute

Republicans are convinced they have a mandate to cut government down to size. That’s hard to do when you only control one House of Congress, and harder still when your fiscal plans are fraught with internal contradictions.

It’s not even clear, for instance, what Republicans really want to accomplish. Senator-elect Kelly Ayotte, delivering the GOP’s weekly address Jan. 1, said that “Job one is to stop wasteful Washington spending.” At the same time, she said that “Congress must get serious about meaningful debt reduction.”

So which is it—cut public spending or cut public deficits? That’s a distinction with a difference, especially to investors worried about the basic soundness of the U.S. economy. To them, deficits are simply the arithmetic result of government spending too much, taxing too little or both, as is clearly the case today. Last month, Republicans struck a deal with President Obama on a tax cut package that will add $950 billion to the nation’s debts. Key GOP House leaders have made it clear they will oppose any tax hikes to solve the budget crisis, which they pretend is purely a matter of overspending.

Ayotte seemed closer to the mark in saying Republicans come to Washington to “make government smaller, not bigger.” In practice, however, that ideological goal may not be compatible with what the public seems to want. Independent voters especially have focused on narrowing the enormous deficits that force America to get deeper and deeper in hock to Chinese and other foreign lenders.

And if Republicans are serious about taking taxes off the table, they’ll have to make even deeper cuts in public spending—including Social Security, Medicare and Medicaid—to close our yawning budget gaps. It will be interesting to see which GOP bravos are willing to walk that plank. Thus far, House Republicans are proposing only cosmetic cuts, like trimming the House budget by $25 million. It’s a good idea for the House to discipline its own spending, but in a $3 trillion budget, that’s chump change.

Meanwhile, the GOP is planning to vitiate budget caps imposed by the previous Congress. Under the caps, any new spending or tax cuts would have to be offset by equivalent spending cuts or tax hikes. Republicans would eliminate the later requirement, so that tax cuts too would trigger deeper spending cuts. This of course is a formula for a deepening fiscal crisis and intensifying polarization between the two parties. And House Republicans will take a run at repealing Obamacare, which would certainly reduce federal spending but actually increase future budget gaps. In any event, it’s not happening

Some of the more fervid Tea Party types are even threatening to vote against raising the debt ceiling in March if Democrats don’t agree to new spending cuts. If they are serious, this could mean America would default on its debts for the first time in history. It would be, as Obama’s chief economic adviser, Austan Goolsbee, said yesterday, an act of political insanity, the equivalent of taking yourself hostage and threatening to shoot.

Finally, there’s the crucial question of timing. Incoming House Budget Committee Chairman Paul Ryan reportedly is planning a package or rescissions aimed at cutting about 21 percent from 2011 spending Congress approved last year. The aim is to return domestic spending to its 2008 level, before Obama took office.

The risk is that withdrawing a significant chunk of fiscal stimulus could abort an economic recovery that at last seems to be getting traction. There’s no question that Americans want to restore fiscal discipline in Washington, but what they want even more is for the economy to grow and unemployment to start falling.

Goolsbee hinted that Obama’s next budget also will contain some spending cuts. But the GOP’s ideological zeal to cut government gives Obama an opportunity to offer a more pragmatic approach that puts jobs growth first, while taking balanced and gradual steps to put the federal government on a fiscally sustainable course.

Progressives do need to get serious about getting federal spending under control. But by framing the coming fiscal battles as a choice between a more robust economy and a smaller government, they can speak directly to Americans’ number one priority and thereby regain the political initiative.

The Remarkable Inability of Americans to Support Their Deficit-Cutting Aspirations

Posted on by The Progressive Policy Institute

In the latest Washington Post-ABC poll, released today, contains a remarkable though not surprising finding. Americans may profess to be deeply concerned about the budget deficit. But when it comes to solutions, not a single one of the nine major proposals to cut the federal budget receives majority support.

The same disconnect jumps out from a Pew poll released last week. An impressive 93 percent agree that the federal deficit budget is a major problem, and 70 percent say it must be addressed now (the other 23 percent think it needs to be addressed when the economy gets better). Yet only two of 12 proposals to reduce the deficit received majority support.

Like St. Augustine asking for “chastity and continence, but not yet,” the American public knows that the current budget deficit of almost $14 trillion is downright sinful. But actually doing something about it, well, hold on a minute now buddy, you can’t raise my taxes or cut any of these important programs! Certainly not now!

In the Pew poll, the only two things that receive majority support are raising the Social Security contribution cap (64 percent) and freezing salaries for federal workers (59 percent). Obama’s already on top of the pay freeze.  He estimates it could save approximately $5 billion over two years, cutting the deficit to a much more manageable $13.995 trillion.

Reducing Social Security for high-income seniors wins the approval of 48 percent of respondents in the Pew poll, and 49 percent of respondents in the Post/ABC poll. Reducing defense spending gets 43 percent approval in the Pew poll and 44 percent approval in the Post/ABC poll. The most widely unpopular proposal was increasing the federal gasoline tax by 15 cents per gallon. Only 22 percent of respondents in the Pew poll and 21 percent of respondents in the Post poll approved.

Interestingly, Pew broke down the figures for Tea Party supporters, 84 percent of whom say that the federal deficit is a major problem that the country needs to address now. Yet, on seven of the 12 deficit reduction proposals, Tea Party supporters are less supportive the proposals than the general public. Again, that is LESS supportive! The only deficit reduction proposal with majority support among Tea Partiers is the aforementioned federal salary freeze (at 74 percent). And the only other to receive majority support is reducing Social Security for high-income seniors (by a narrow margin of 50-48 percent).

In a recent P-Fix post, Elbert Ventura noted that “Americans may profess to hate European-style states, but the disconnect between their hatred of taxes and love of benefits may well hasten the day of a European-style collapse.”

This is spot on. The disconnect is downright maddening. I want to shake some of these people, show them the federal ledger, and say: Here is the reality. If we want to make a dent in the deficit, we are going to have to make some choices that involve real tax increases and real cuts to benefit programs. There is no more free lunch. We can pretend that somewhere there is a $10 trillion line item labeled “waste” that politicians are conspiring to protect, or we can have an intelligent conversation about this. If we stay in a fantasy world, the inevitable reckoning is going to be a lot more painful.

Now, if only there were some political leader out there with the courage to say something like that. Because this is one of those issues where the public is simply not going to come around on its own. Sure, perhaps better economic times would make some respondents slightly more willing to see higher taxes or reduced benefits. But real sacrifice, real hard decisions? That’s going to take political leadership. Any takers?

Photo credit: mchmlbrk

Obama Doubles Down on High-Speed Rail Investments in California and Florida

Posted on by The Progressive Policy Institute

The Obama administration yesterday called the bluff of two newly elected Republican governors and regained control of its high-speed rail program. Confronted by Governor-elects Scott Walker of Wisconsin and John Kasich of Ohio, who vowed to kill the administration’s signature high-speed transportation initiative in their states when they take office next month, U.S. Transportation Secretary Ray LaHood preemptively yanked $1.195 billion not yet spent by the states.

This is good news and something we had urged. It shows resolve by the administration against politically motivated obstructionism. A backlash has been growing in Wisconsin against Walker’s anti-rail rhetoric. Now voters can mull over how he “saved” them money by destroying thousands of construction jobs that the proposed Milwaukee-Madison rail line would have created. Plus Wisconsin and Ohio may owe the federal government upwards of $25 million already spent on rail planning.

The administration said it would redirect the bulk of the freed funds to California and Florida, assuring that these truly transformative projects can move forward even if a Republican House blocks rail funds in the upcoming federal budget.

California will receive $624 million of the redirected funds, adding to the $3 billion previously awarded toward the construction of a 220-mph railway between Los Angeles and San Francisco. Combined with matching state funds from a voter-approved bond referendum, California now has $7 billion committed to the project.

Both outgoing Republican governor Arnold Schwarzenegger and incoming Democratic governor Jerry Brown are strong supporters of the rail project, despite California’s current budget woes. Last week, the California High Speed Rail Authority approved construction of the first leg of the line, a 65-mile stretch in the Central Valley running through Fresno. The redirected funds are likely to enable the authority to extend construction to Bakersfield.

Florida will get $342 million on top of the $2.05 billion previously allocated to build a high-speed train on a new right of way between Orlando and Tampa.

Incoming Republican governor Rick Scott initially opposed the line, but has softened his position, saying he is in favor of high-speed rail so long as Florida taxpayers don’t have to foot the bill. Yesterday’s allocation basically closes the funding gap. It strengthens LaHood’s prediction that the Florida project will break ground next year.

Of the remaining $230 million redirected by LaHood, the state of Washington will receive $162 million to rebuild trackage and signaling on an existing Amtrak route between Portland and Seattle. The other major recipient ($42 million) was Illinois, whose re-elected Democratic Governor Pat Quinn is an ardent rail advocate.

Focusing federal funds on a few core projects is a smart strategy as the administration realizes that additional rail allocations in a Republican-controlled House are far from certain. The redirected rail funds give the administration breathing room to keep the program afloat at least through the 2112 election cycle.

Rep. John Mica (R-Fla.), the likely chair the House Transportation and Infrastructure Committee in January, has been critical of rail projects – such as the now-rescinded Wisconsin and Ohio lines – where trains would only reach maximum speeds of 110 mph.

Mica has repeatedly said he favors speeds of over 150 mph and wants private partners to help fund the projects. Earlier this week, a consortium led by Central Japan Railway said it may offer $210 million in loans to help pay for the Tampa-Orlando line if its high-speed equipment was selected by the state.

Debt Commission Rises to the Occasion

Posted on by The Progressive Policy Institute

President Obama’s deficit commission fell short today of the 14 votes necessary to submit its debt reduction plan to Congress for a vote. Don’t believe for a moment, however, that the commission has failed. On the contrary, co-chairs Erskine Bowles and Alan Simpson have forged a bipartisan majority for a plan that creates the basic template for any credible effort to restore fiscal responsibility in Washington.

In pushing back against special interests and partisan polarizers, the commission has done this country a tremendous service. Whatever happens next, its members have been responsive to the solid majority of Americans who say they want to the two parties to work together to solve the nation’s toughest problems.

As the bipartisan duo of Bill Galston and David Frum noted in today’s Washington Post, a post-election Pew poll found that 55 percent of the public wants Republican leaders in Washington to work with President Obama “even if it means disappointing some groups of Republican supporters,” and even more want Obama to do the same. Independents, whose defection from Obama’s winning 2008 coalition largely accounted for the GOP’s midterm sweep, likewise express a strong preference for compromise.

To a surprising degree, that problem-solving spirit seems to have infected the deficit commission, which has been deliberating since February. Republicans don’t come any more conservative than Sen. Tom Coburn of Oklahoma, but even he is now drawing fire from anti-tax absolutists for daring to support the commission blueprint. GOP Senators Mike Crapo of Idaho and Judd Gregg of New Hampshire also endorsed the plan, while several Members from both parties in the more partisan House oppose the plan.

On the Democratic side, Sen. Dick Durbin of Illinois broke ranks with liberals to back the plan, while centrist Sen. Max Baucus of Montana raised eyebrows in opposing it. Sounding a parochial note, Baucus criticized the commission’s sensible plan to raise gas taxes by 15 percent, saying it would “paint a big red target on rural America.”

Mostly, however, reactions to the commission’s plan have divided along predictable lines, with support concentrated in the political center and opposition hardening as you move toward either end of the spectrum. Arch-conservatives decry its emphasis on cutting tax expenditures (though we’re proud that the commission adopts a long-standing PPI proposal for a “cut-and-invest” commission to go after these loopholes and subsidies), a trillion dollar drain on federal revenues. Nor are they mollified by its significant cuts in income and corporate tax rates, or its 3-to1 ratio of spending cuts to tax increases.

The left, meanwhile, is in full cry over the commission’s allegedly draconian cuts in Social Security benefits. In fact, the proposal boosts the minimum Social Security benefit for low earners, makes the benefit formula more progressive, and very gradually increases the retirement age to 69 (normal) and 64 (early) by 2075. Only today’s toddlers will be affected, and their average life expectancy probably will exceed 80 years by then. The lefty blogosphere and cable shows nonetheless have worked themselves into a hyperbolic lather about President’s Obama mean ole “catfood commission.”

This is ludicrous. The commission’s plan doesn’t actually solve America’s fiscal crisis, it merely slows spending growth to sustainable levels, and stabilizes the national debt at 60 percent of GDP by 2013. That ratio doesn’t return to 40 percent – where it was before the financial crisis hit – for 25 years. In truth the plan does not impose a pitiless austerity on America. Nor would it jeopardize economic recovery, since its changes won’t kick in until unemployment starts falling to normal levels.

Liberals are on firmer ground in arguing that the plan sets unrealistically severe limits on federal spending. It aims to get federal spending down (and revenues up) to 21 percent of GDP by 2035. Whether that is enough to meet the needs of a much grayer America, where over 20 percent of the population will be over 65, is open to doubt.

But the commission’s plan doesn’t have to be perfect. It only has to be plausible, and it more than meets that test. Although it won’t be guaranteed a vote in this Congress, there’s nothing to prevent its supporters from introducing it into the next Congress. Given the countless hours of negotiations that have shaped it, the extent to which it has absorbed the best ideas from previous fiscal reform blueprints, and its rare, bipartisan backing, the proposal could become the point of departure for next year’s debate.

That will be especially true if President Obama embraces the plan, or something very close to it. He has largely stood aloof from the commission’s deliberations, but he urgently needs to regain the political initiative after the midterm debacle. House Republicans no doubt will devise an alternative, likely drafted by Rep. Paul Ryan, a commission member who opposes its plan, that emphasizes spending cuts almost exclusively. It may also include a push to repeal Obamacare. In any case, the GOP approach won’t get much Democratic support, especially now that the ranks of moderate Democrats have been drastically thinned.

In short, President Obama has an opportunity to seize the pragmatic center in the coming debate about putting America on a fiscally sustainable course. And he can thank his Commission for dealing him a very strong hand.

In Defense of Obama’s Federal Pay Freeze

Posted on by The Progressive Policy Institute

Obama is getting a lot of flack for agreeing to a two-year wage freeze for federal employees.  “Why give away a negotiating chip?” ask the commentariat, “and with nothing in return!?”  Or as Kevin Drum put it:  “Obama has another two or three weeks to prove he’s not an idiot.”

Actually, there are three solid political reasons to freeze federal pay (even if the policy wisdom is debatable). First, it means he (not Republicans) get credit for something likely to be popular politically; Second, he shows he is capable of taking decisive action; Third, and most important, if he wants to negotiate successfully in the future, he’s going to need to rebuild his popularity.

In short: the pay freeze decision makes sense if you think of it not as a preemptive good-faith giveaway, but as a moment of leadership aimed at rebuilding public approval and all the bargaining power that goes with it.

Richard Neustadt’s classic Presidential Power offers this pithy aphorism: “Presidential power is the power to persuade.” By which he means not personal charm and clever argumentation, but a power that comes from public popularity and reputation. A president esteemed by the people and regarded as competent is in a significantly better negotiating position than one who isn’t. What Neustadt understood is that bargaining depends much more on public prestige than on the individual chips.

We just had an election in which big government was a starring villain, in which real concerns were expressed about runaway federal spending, and in which many swing voters lost faith in the Democrats. Obama is now preparing for a two-year battle in which he and the Republican leaders are both going to be appealing to the American public in a popularity contest that will determine who has to give in and how much.

Freezing federal pay for two years is a small move, but it’s a symbolic move. It signals that Obama understands that the public is unhappy with the size of government, and that he is doing something decisive about it.  It also shows he is acting as a leader.

By contrast, if Obama had ultimately frozen federal pay after Republicans had pressured him into doing so, you can be sure Republicans would be claiming all the credit, and would be spreading the narrative of Democratic capitulation.

The latest Gallup poll puts President Obama’s approval rating at 45 percent, and his disapproval rating at 47 percent, more or less where it has been since June. Not terrible, but not great, and right now about equivalent with John Boehner (41 percent favorable, 39 percent unfavorable) and Mitch McConnell (38 percent favorable, 36 percent unfavorable).

On the big issues ahead – well, basically taxes and deficit reduction are probably going to dominate the agenda – there are not only going to be two competing arguments, but two competing spokespeople making those arguments.

Republicans have demonstrated time and again that they are not interested in playing nice and engaging in the sort of polite bargaining chip negotiations that many commentators seem to want Obama to conduct. All indications are that they are not particularly interested in compromise, and are probably willing to do what it takes to pummel Obama and the Democrats into accepting complete tax cut extensions and massive federal spending cuts.

Essentially, this leaves Obama with two choices. One is to continue to operate in good faith, proposing reasonable fig leafs, and let Republicans continue to take the fig leafs and offer nothing in return because they don’t feel they have to. This makes Obama look weak and ineffectual, and also allows Republicans to claim equal credit for any popular compromises.

The other choice is to show some leadership and build back public support with issues designed to win back lost swing voters. Some on the left might call the federal pay freeze a milquetoast bipartisan compromise. But Obama can and should call it taking the initiative and a way to shift the narrative. He needs to say: “I’m listening to the American public, and I’m taking decisive and smart action to limit federal spending and getting the government’s fiscal house in order. I know you are concerned about our long-term future, and so am I. I get it. If Republicans want to put petty politics aside and work with me, I welcome their input and partnership. But if they’re more interested in posturing, then I’m going to take care of business without them.”

Choice one is doing the same thing over and hoping for a different result, which is one popular definition of insanity. Choice two is a gamble. It may not work. But right now it’s the best gamble he’s got.

Do Deficits Really Matter Most?

Posted on by The Progressive Policy Institute

As Bill Galston points out, there’s no longer much doubt that deficit reduction has become a very large public concern over the last year. It’s a separate question as to whether Americans are willing to support actual spending reductions or tax increases proposed by either party, and thus whether there is really a popular base for a deficit reduction compromise. But no one should argue any longer that the whole subject is just being cooked up by elites.

Still, the current extend-the-tax-cuts debate in Washington demonstrates pretty conclusively that deficit reduction is not, in fact, the preeminent value of either party in Congress. Both are pursuing a path guaranteed to increase long-term deficits and debt. And since the wealthy benefit disproportionately from an income tax rate reduction in the lower brackets (that’s how marginal tax rates work), even the Democratic approach elevates tax cuts for “all Americans” (to use the Republican battle cry) over deficit reduction.

Matt Yglesias sums up the ironic situation well:

[T]here’s no debate in Washington about whether rich people should get a permanent tax cut. Nor is there any debate in Washington about whether rich people’s tax cut should be financed by long-term borrowing. Nor is there any debate about whether rich people should get a bigger tax cut than middle class people. But we “can’t afford” unemployment insurance, we “can’t afford” to pay bank regulators competitive salaries.We have a bipartisan consensus that the short-term deficit should be made smaller and the long-term deficit should be made bigger even when all the economic logic points in the opposite direction.

Now Republicans, of course, dispute that we’re talking about “tax cuts” at all, and maintain that failing to extend the Bush tax cuts represents a tax increase, even though the reversion to earlier rates has been established in current law from the beginning, and even though the original rationale for the Bush tax cuts was to “rebate” unnecessary revenues when the federal budget was in surplus. But that’s just another way of saying that low tax rates, particularly for those “job creators” at the top, are an end in themselves for Republicans, crucial in every fiscal or economic circumstance, and thus far more important to them than deficits-and-debt.

This article is cross-posted at The Democratic Strategist

Photo credit: Dave Morris

How Two Republican Governors Are Giving High-Speed Rail an Unintentional Boost

Posted on by The Progressive Policy Institute

Talk about a blessing in disguise. Just as the Obama administration’s high-speed rail program was running out of congressionally-appropriated cash, Governor-elects Scott Walker of Wisconsin and John Kasich of Ohio have come chugging to the rescue.

By vowing to kill planned passenger train lines in their states, the newly elected Midwest Republicans have potentially freed $1.2 billion in federal rail money that can be used to build “true” high-speed routes elsewhere. The windfall represents more than the $1 billion that the White House has requested from Congress in next year’s budget. It gives the administration breathing space to keep the program going even if the Republican-led House blocks rail appropriations in 2011.

Since the Wisconsin and Ohio grants are of secondary importance to the national goal of getting a 150-mph-plus rail line up and running, the governors’ anti-train stance amounts to an unintended gift to the Obama administration

To be sure, benefiting high-speed rail was not the intent of Walker and Kasich. Both politicians have a history of hostility to public transit. Walker has opposed light rail, commuter rail and other transit initiatives in his current job as Milwaukee County Executive. Kasich, a former Ohio Congressman turned Fox News host, likes to say that the only kind of train he approves of is a freight train.

Both have called on Washington to divert the rail money to state highway projects. Ray LaHood, U.S. secretary of transportation, said this isn’t permitted under the law. LaHood told a rail conference last week that he plans to reallocate the money to other states and will bill Wisconsin and Ohio for federal funds already spent on the suspended rail lines.

Poor Choices for Rail Aid

The $810 million in Wisconsin money was to extend Amtrak’s existing Milwaukee-Chicago Hiawatha line to Madison, with a top speed of 79 mph in 2013, rising to 110 mph in 2015; Ohio’s $400 million was to build a Cleveland- Columbus-Cincinnati route operating at 79 mph maximum speeds over existing freight tracks. It received a $400 million grant.

The Obama administration funded these projects largely because they were “shovel ready” (a key criteria of the stimulus act that provided $8 billion in rail aid to states) and because they represented “regional balance” for the Midwest that Congressmen from both parties demand when money is allocated for highways.

As we have argued, spreading out federal funds to too many marginal projects is a mistake operationally and politically. Operationally, intercity passenger rail will succeed only if it provides an obvious and understandable margin of superiority over highway trip times. Politically, moderate-speed lines advertised as high-speed (or as “emerging high speed,” in Obama administration nomenclature) confuses the public and opens up the federal initiative to legitimate criticism.

Studies indicate that somewhat-faster service will not create the transformational transportation that will get Americans out of their cars and jumpstart regional economies. This was underscored by a recent study of high-speed rail compared to conventional rail commissioned by the U.S. Conference of Mayors.

Because the up-front costs of truly modern train lines are high, the administration needs to concentrate on finishing one or two routes with state-of-the-art equipment to prove that fast rail is an efficient and even profitable venture once construction is completed.

Florida Should be Centerpiece

The administration now has the opportunity to fund true high-speed rail by reallocating the Midwest money. It can fully fund the high-speed Tampa-Orlando line in Florida as well as help get a segment of California’s proposed 200-mph railway between San Francisco and Los Angeles into revenue service. There may even be money left over to accelerate “shovel-ready” projects in busy rail corridors with proven ridership in Illinois and Connecticut.

Newly elected California governor Jerry Brown (D) is a strong supporter of his state’s rail program – as is outgoing Republican governor Arnold Schwarzenegger. Both Illinois incumbent governor Pat Quinn (D) and  Connecticut governor-elect Dan Malloy (D) are also pro-train.

Florida’s Republican governor-elect, Rick Scott, initially opposed the Tampa-Orlando line (the current governor, Charlie Crist, supports the project). But Scott has recently relaxed his rhetoric and says he is in favor of high-speed rail so long as Florida taxpayers don’t pay for it.

What reportedly swayed Scott was $800 million in fresh federal funds for the project last month. Florida now has $2.05 billion to complete the $2.6 billion line, including the $1.25 billion in federal funds it received in January.

Public-Private Partnerships

By reallocating a portion of the Wisconsin-Ohio funds, the $550 million gap could be closed. Or better yet, Washington could encourage private companies to invest in the Florida line by using federal funds as an incentive. Already Siemens, the high-speed locomotive maker, has announced interest in bidding on the Florida project if government shares a portion of the operational risk.

Such a public-private partnership would appear to satisfy Scott’s objections and could go a long way to appease Rep. John Mica (R – Fla.), a fan of public-private rail partnerships who is expected to become chairman of the House Transportation and Infrastructure Committee in January.

All of this could leave Wisconsin’s and Ohio’s new chief executives on the wrong side of the tracks. Or as a transportation official told the Milwaukee Journal Sentinel last week, “Expanding passenger rail is a national priority. Just because Wisconsin says no doesn’t mean it’s going away.”

A Deficit of Common Sense

Posted on by The Progressive Policy Institute

‘Tis the season for deficit commissions. The past week has brought not one, not two, but three stabs at solving America’s looming fiscal crisis. And just yesterday, the Brookings Institution hosted a panel discussion on “The Politics of Entitlement Reform and the Budget Deficit,” featuring a murderers’ row of budget experts across the ideological spectrum. All the activity underscores just how much concerns about the deficit have taken over the Washington conversation.

But will all that hand-wringing lead to anything concrete and enduring? I have my doubts. The substantive merits and faults of the plans aside, what’s striking is, frankly, how unlikely any action seems to be.

Too pessimistic? Perhaps. But at the Brookings event, there was a subterranean motif that tempered any enthusiasm one might have for any ideas put forward. Isabel Sawhill, director of Brookings’ Budgeting and National Priorities project, at one point said, “The public is in denial about the scope of the problem.” Meanwhile, Eugene Steuerle of the Urban Institute sounded another note of consternation: “Both political parties are afraid to ask the middle class to do anything.”

There, neatly stated, are two fundamental problems that stand in the way of fiscal balance: a public in denial, a politics in retreat. Simply put, the American public simply has no idea how much the government that they like to have around costs. They may profess to hate big government, but ask about cuts to the entitlement programs – by far the largest contributors to our long-term deficit – and what do they say? Hands off! Even 62 percent of Tea Partiers say that Social Security and Medicare are worth the cost of the programs; the general public is even more supportive, at 76 percent.

Recent research by Cornell political scientist Suzanne Mettler underscores the disconnect between the kind of government Americans say they want and the government they actually use. In a recent paper that takes a look at Americans’ relationship with the “submerged state” – federal policies that incentivize and subsidize behavior by individuals – Mettler found that most Americans have little awareness of how the state affects their lives. Most alarming were the results of a survey of program beneficiaries who were asked if they had ever used a government program. Forty-four percent of those collecting Social Security retirement and survival benefits said no; 43 percent who had benefited from unemployment insurance said no; nearly 40 percent of Medicare said no. There’s more: 47 percent who took home earned income tax credit said no; 53 percent of those who took Pell Grants said no; and 60 percent who benefited from the home mortgage interest deduction said no.

So the governed don’t know. What about those who govern? Alas, our political elite seems to have lost all sense of responsibility at steering the ship of state to calmer waters. The fault lies mainly with the right. Yes, Nancy Pelosi’s declaration that Social Security and Medicare cuts are off-limits is easily caricatured as liberalism at its worst, but let’s face it – Pelosi faces a lot of opposition on her side on that front. There is a genuine debate going on under the big progressive tent about just how much entitlements should be touched, if at all, and it’s testimony to the vibrancy – and fractiousness – of progressivism.

Contrast that with the right, which has become an all-tax-cut, all-the-time movement. Grover Norquist, in whose image today’s Republican Party has been modeled, dismissed the Bowles-Simpson report, with his organization, Americans for Tax Reform, calling it “a plan to raise taxes cloaked in the veil of bipartisanship” – this in response to a plan that, by any objective measure, by far does more on the spending side than the revenue side. If their starting point is no revenue increases at all, then the right has all but written the obituary on any attempt to narrow the budget gap.

So there you have: a failure of government, a failure of the governed. Until the American public begins to accept responsibility for the current fiscal straits – and it begins by asking serious questions about what they’d like to see from government and how much they’re willing to pay for it – there really is little hope that we’ll see movement on the issue. Meanwhile, the only institution that can give them that nudge, our political class, isn’t up to the task.

When asked about the worst-case scenario that would finally force policy-makers’ hand to do something, Brookings’ Henry Aaron had a one-word response: “Greece.” Americans may profess to hate European-style states, but the disconnect between their hatred of taxes and love of benefits may well hasten the day of a European-style collapse.

Deficit Commission and Defense Spending: A Scorecard

Posted on by The Progressive Policy Institute

Fully half – $100 billion – of Deficit Commission Chairmen Erskine Bowles’ and Alan Simpson’s reduction proposals target that infamous five-sided building on the Potomac. In a paper containing at least something for everyone to hate, you can almost hear the battle lines being drawn from parochial quarters: weapons makers, veterans groups, and personnel contractors will all howl as their respective cash cows linger in the cross hairs for uncomfortably long periods.

When parsing Bowles’ and Simpson’s suggestions, it’s worth bearing in mind the authors’ guiding principle: “America cannot be great if we go broke.” In essence, the proposal channels the White House’s own National Security Strategy, “Our economy… serves as the wellspring of American power.”

That’s the bad news: both the Deficit Commission and administration are right, and the country is in a bad spot.  Here’s the worse news, as told in the introduction of the Deficit Commission’s Report: The Problem Is Real; the Solution Is Painful; There’s No Easy Way Out; Everything Must Be On the Table, and Washington Must Lead.

The Bowles/Simpson proposals do deserve serious consideration. They also must be placed in context — first, they are “illustrative” cuts, ones that are on the table and illustrate how the Commission might save $100 million in defense over five years. These cuts are on top of Secretary of Defense Bob Gates plan, announced over the summer, to wring $100 billion out of the Pentagon’s $700+ billion budget over five years, by reducing contractors, saving on personnel costs, and riding herd on and/or canceling over-budget and delayed programs. While many of Gates’ plans coincide with Bowles/Simpson (contractors and V-22 Osprey, for example), reconciling what to do with the savings is sure to cause a fight.  More on that below…

It’s most useful to evaluate the Bowles/Simpson illustrative cuts against three core criteria:

  1. Does a proposal fundamentally weaken the country’s ability to defend itself?
  2. If not, does a proposal fundamentally weaken the country’s core non-military national interests?
  3. If not, does the savings benefit to the country outweigh the parochial interest of the proposed cut?

With that in mind, on balance, most of the Commission’s proposals on Defense spending are quite sensible.  For readability’s sake, I’ll lump several of the proposals into larger categories.

First, a starting point:

A simple way to enforce budgetary discipline at the Pentagon starts with one basic policy adjustment: end the practice of supplemental budgeting. DoD has three budgets, not one: a baseline appropriation, plus two “supplemental” appropriations that are supposed to pay for the war, but do oh-so-much-more. I’ve written about the problem for Forbes.com, and you can see an excerpt here:

Having three budgets is like having three strikes in a baseball at-bat — you have the luxury to swing and miss twice. Projects that don’t make the baseline DoD budget (strike one!) can be considered in either of the additional supplementals (strike two! strike three!) before they’re “out.” Ending the supplementals would be like giving the batter just one strike. By combining all defense spending into one (larger) appropriation each year, the batter has just one swing — miss the first time, that’s it. The practice would force Congress to make hard choices that prioritize the war-fighter.

If we have just one budget, it would be much easier to implement many practices recommended in the Bowles/Simpson plan, such as “reducing procurement by 15 percent” and “reduce ‘other procurement’”.  Procurement is bloated with multiple, supplemental budgets.  Having just one a year forces appropriators to make hard choices.

Savings over five years: $28.5 billion, per Commission estimates.

Next, the low hanging fruit amongst the “illustrative” cuts:

Salary freezes for civilians and military, doubling cuts to contracting personnel and replacing some with civilians. These check all categories without question. The commission could perhaps go even further by advocating a freeze in combat pay as well — Yes, our military has performed heroically in difficult circumstances, but we’re talking about not increasing warzone pay, we’re not talking about eliminating it.  Reducing contractors is a no-brainer.

Troop reductions in Europe and Asia. Europe is the easier sell: Twenty years after the Cold War and with staging needs for Iraq and Afghanistan winding down, the American military does not need as extensive a footprint on the European continent.  The Commission proposes reducing American forces in Korea by 17,000 troops, which leave 11,500 by my math. That’s hardly a comforting thought, with an unstable and nuclear-minded North Korean regime in the midst of a power transition.  We would continue to maintain 32,000 in Japan, and it perhaps makes more sense to split reductions between the two countries, even though removing troops from Japan has been a local political hot potato of late.

Modernize TriCare: Let’s be honest: this isn’t a move to “modernize” defense health care, it’s an effort to bring the military’s health system’s co-pays and deductables in line with cost-structures of private insurers.  Does it seem like we’re giving our servicemembers the shaft?  Yes.  But are military health care costs, “are eating the Defense Department alive,” according to Secretary Gates. It’s unfortunate, but servicemembers’ premiums must rise to correct this problem.

Reduce base support, facilities maintenance, retail activities, and DoD schooling: With the exception of closing unused DoD schools, there’s no question these cuts will hurt.  But is reducing the deficit more important?  In these times, yes.

Savings over five years: $45.1 billion, per Commission estimates.

Slightly tougher to swallow:

Weapons Cuts: Not all platforms are created equal: certain are needed for modernization, others for replacement, and yet others to fill niche capabilities.

The Joint Strike Fighter (JSF) takes a beating from Bowles/Simpson, something followers of the program probably suspected.  After all, when procurement of the F-22 was ended last year at 187 planes, DoD proclaimed itself ready to buy 2,443 F-35 JSFs instead.  At the time, 2,443 JSFs seemed a preposterously and unrealistically large number.  It still does, which is why a revised purchase plan, mixing in refurbishments of cheaper F-16s and F-18s while cancelling the USMC’s version of the JSF outright, falls within my comfort level.

We’ve already purchased 288 V-22 Osprey, which is two-thirds of the planned buy, and enough to meet the lion’s share of mission requirements.  Along those lines, the Expeditionary Fighting Vehicle’s (EFV) capabilities are ably substituted by other technologies under development, allowing for EFV’s cancellation.

The Joint Light Tactical Vehicle, Ground Combat Vehicle, and Joint Tactical Radio would be delayed, not canceled, under the Bowles/Simpson plan, which seems reasonable as the Army’s tactical vehicle fleet received an unexpected influx of cash to procure IED-hardened MRAP vehicles for Iraq.

Reduce R&D: This might seem unwise (“Why do we want to cut R&D while we’re dropping weapons? Shouldn’t we invest in developing weapons even if we don’t end up producing them?”), but it’s not as big a deal as it originally seems.  Fact is, by combining the defense budgets and reducing certain weapons buys, R&D organically decreases as a natural function of those actions.

Knowing how Congress works, it’s highly unlikely that these planned weapons buys will be fully endorsed.  But they will likely be negotiated reductions, in order to maintain capability while sending a strong signal that there’s a changing culture of fiscal discipline.

Savings over five years: up to, but probably less than $30.45 billion, per Commission estimates.

Up in the Air:

Secretary of DefenseBob Gates came out with his own plan to trim $100billion from the Pentagon’s budget, which he intended to reinvest in DoD modernization plans. He was coyly getting out in front of Bowles-Simpson, who want to take Gates’ savings and apply them not to modernization, but rather to deficit reduction.

The trick is convincing the Secretary to follow through with these plans, knowing that the Pentagon won’t get to keep all the planned savings. The good news is this fight probably won’t happen, as Gates will likely leave his post before final decisions are made. Savings reinvestments is just one of the reasons the new Secretary’s views on deficit reduction will have to align with Obama’s.

You Can’t Touch This:

The only illustrative cut in the Bowles-Simpson plan that I whole-heartedly disagree with is the notion of canceling the Navy’s Future Maritime Prepositioning Force. These plans are currently under study, and if executed correctly, could end up saving money while allowing the Navy to project force more efficiently in an era of restrained budgets. There’s still work to be done here, and at $2.7 billion in potential savings, isn’t exactly a budget buster.

Photo credit: pingnews.com