Deficit reduction: Common cents or common sense?

By NICOLE DEBEVEC, United Press International  |  Aug. 21, 2011 at 4:30 AM
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Solving the U.S. deficit crisis may be more a matter of common sense than dollars and cents.

A Democrat and a Republican unveiled propositions for reducing the deficit -- an imbroglio before President Obama and Congress reached a plan as part of raising the debt ceiling -- in recent weeks: One would change budgeting while the other changes how Congress approaches budgeting.

President Obama bluntly said just one thing stands in the way of the U.S. economy moving forward: politics.

"Around the world, people still understand the extraordinary power, but also the extraordinary hope that America represents," Obama said during a town hall meeting in Cannon Falls, Minn., and repeated several times last week. "So there is nothing wrong with America that can't be fixed; what's broken is our politics."

Rep. Mike Quigley, D-Ill., released what he said was the first in a series of reports meant to be a guide for "reinventing the federal budget" and reaping $2 trillion over 10 years in deficit reductions in the process, slightly more than the $1.5 trillion in deficit reduction the supercommittee -- a 12-member, bicameral, bipartisan panel -- is charged with identifying by Thanksgiving.

The report contains 15 recommendations Quigley says would "establish greater budgetary transparency and accountability."

"Our key finding is that the American public deserves more honest and transparent information about how their tax dollars are being spent," the report's executive summary said. "Taken together, our 15 recommendations will ensure that the federal budget is more transparent and accountable to its citizens."

Only with increased transparency can the country know where it's been and where it's headed, he said, as well as "where we have gone wrong, so it doesn't happen again."

Rethinking the institutional aspect of budgeting was the overarching goal of a proposal GOP presidential hopeful Newt Gingrich discussed last week during a speech at the Heritage Foundation.

That means abandoning sweeping legislation that does grand things all at once in favor of smaller pieces of reform legislation to streamline bureaucracy, sell government assets and increase energy exploration that would achieve savings greater than what the supercommittee would achieve.

"These grand compromises don't work very well. But 1,000 small, smart things would actually get more done," the former House speaker and architect of the "Contract with America" in the 1990s said. "My guess is you could be in the $3 trillion range by Christmas, scored over 10 years."

An example of the reforms Gingrich cited was a bill sponsored by Sens. Jim Webb and Mark Warner, both D-Va., that would expand offshore drilling, allowing the government to capture a percentage in royalties.

Gingrich also advocates implementing the waste-cutting management system called Lean Six Sigma, citing the comment by the system's developer that it could save $500 billion annually -- or $5 trillion over 10 years, more than triple the goal of the supercommittee.

"An intelligent Congress in a city that wanted to be intelligent would hold hearings, bring in the experts, figure out how to fundamentally change the government," he said.

He also recommended each house of Congress devote the first three days of the week to considering non-controversial legislation, and urged the House Republican leadership to legislate, not negotiate, and bring bills introduced by Democrats into the mix.

"I mean if Democrats introduce a good idea, pass it, because it starts to create a new rhythm," Gingrich said. "I proposed at one point in the middle of this mess that we adopt a principle that the first three days of the week you only bring up bills people agree on. Just to force people into a habit of looking for stuff to agree on because the psychology of saying, you know, yes, there's a way we can do that is so dramatically different than [saying] no, we can't do that."

Quigley said his plan "tried to make some of the tough choices."

"When we're borrowing 40 cents for every dollar we spend, we have to look at every part of the budget, not just the ideological hot buttons," he said. "For every dollar spent we have to ask if the investment is worth taking a dollar from our neighbor's paycheck and 40 cents from their children. There can be no sacred cows. "

For example, the report recommends "fundamentally reforming" healthcare delivery and payment stressing value over volume rather than shifting costs to the private sector or ending entitlement programs.

He recommended cutting outdated defense programs and consolidating duplicative ones "to keep our military as the strongest, most flexible fighting force in the world."

The plan also recommends cutting "hundreds of billions of dollars in tax expenditures that hurt the environment and subsidize unproductive behavior, and also propose(s) moving to an agricultural policy that uses market-based risk management tools."

He recommended keeping Social Security's basic benefit structure in place while putting the program on sounder financial footing.

"We also recommend that deficit reduction include reasonable cuts to non-defense discretionary spending," the Democrat said.

"These are not arbitrary recommendations -- our goal is not to cut spending simply for the sake of cutting it," Quigley said. "On the contrary, we believe that deficit reduction must serve the greater purpose of government as envisioned by our founders. Fiscal sustainability is a means to an end, not an end in itself, and we have to be mindful of government's mission when we set about reforming it."

University of Illinois economist Anne Villamil said the crisis brings into focus two legitimate concerns.

"First, the U.S. is on an unsustainable budget path. It has cyclical and structural budget deficits," Villamil said.

The severe recession and its accompanying job loss and tax revenue drops caused the cyclical budget deficit, which will improve over time, she said.

"Cutting spending and raising taxes during a recession would further depress the economy," the economist said, "so governments issue bonds to cover the gap and pay off the bonds when the economy improves.

The structural budget deficit indicates "a fundamental imbalance between spending and taxes even if the economy were at full employment," she explained.

Eliminating a structural deficit requires structural reform, such as cutting spending or the rate of growth of spending and increasing tax revenue.

The second concern she raised is that some people are concerned about inflation and whether the United States would induce inflation to decrease the value of its debt.

Inflation isn't a problem now in the United States, she said, noting that other countries devalued their debt through inflation in the past.

"High inflation is not a successful policy," Villamil said, "and the U.S. will not pursue it."

Despite vocal resistance from congressional Republicans to raising taxes on the wealthiest Americans, billionaire investor Warren Buffett urged Congress to do just that -- and his position was supported by President Obama and economists.

"As a successful entrepreneur myself, I agree with Warren Buffett. If you care about jobs, the economy and our nation's future, read our lips -- 'raise our taxes,'" said Dal LaMagna, co-managing partner of IceStone, a New York company that develops products fostering a sustainable environment. "Buffett was right when he warned that Wall Street's multiplying derivatives were financial weapons of mass destruction."

Obama has argued for allowing the expiration of tax cuts the wealthiest taxpayers have enjoyed since President George W. Bush's administration, arguing that "shared sacrifice" is necessary to put the country back on the right economic path.

The current tax code "has it backward," LaMagna said. "People earning their income by actually working for it are paying more in taxes than people who make it in the stock market. Millionaires like me want to reinvest in our nation and strengthen opportunity for the future -- not pull up the ladder behind us."

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