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Peterson-Pew Proposal Lets Lawmakers Off the Hook

The Bowles-Simpson deficit-reduction plan (about which we blogged here) has overshadowed a report that the Peterson-Pew Commission on Budget Reform released last week.  Although the Bowles-Simpson plan relies far too much on program cuts and too little on revenue increases, at least it proposes specific policy changes to reduce deficits.  The Peterson-Pew Commission report, in contrast, lets lawmakers off the hook by blaming the budget process for much of the nation’s long-term fiscal problem.

The report recommends a series of budget process changes, including the imposition of annual debt targets and spending limits.  If Congress failed to meet these targets, they would be enforced through automatic spending cuts and tax increases.  As our new analysis explains, these changes would be ineffective at best and harmful at worst.

Congress tried to reduce deficits through fixed budget targets enforced by automatic cuts back in the 1980s.  It didn’t work then (Congress repealed the targets when it could no longer evade them), and there’s no reason to believe it will succeed in the future.

Moreover, if the proposed changes did work, they could exacerbate recessions and make recovering from them even more difficult, since they would require tax increases or spending cuts just when the economy was weakest.

The commission also proposes putting fixed-dollar caps on Social Security, health care spending, and tax expenditures once policy changes have been enacted to put the budget on a sustainable long-run course.  This proposal, too, raises serious concerns.

For example, an unexpected increase in the Social Security disability and retirement rolls during and after a recession would increase Social Security’s spending above its fixed-dollar cap and, thus, require cutting Social Security benefits.  Benefits would also have to be cut if inflation rose more than expected, even though that increase would raise Social Security benefits and revenues by similar amounts and thus wouldn’t affect the program’s financial situation.

Stemming the long-run growth of federal debt requires increasing revenues and reducing spending.  It’s that simple — and that difficult.  Debating budget process changes such as those in the Peterson-Pew report would only let lawmakers continue to avoid the real work of making tough choices about specific policy changes.