Friday, July 27, 2012

On course to collide with fiscal cliff Promises to slash spending are broken already

With nearly every major fiscal policy scheduled for a recalibration by the end of the year, the sirens are luring Congress and the economy toward a fiscal cliff with the promise of a grand bargain. The song is a predictable one, enticing budget hawks to relax their fears about deficits and debt by trading some spending cuts for a portion of tax increases. Often the sirens coo for a 3-1 deal like the one from the Simpson-Bowles deficit reduction commission: $3 of spending cuts for every $1 of tax increases. This path is folly, and we don’t have to look any further than last summer’s debt-ceiling deal to see why.

Last summer, Congress passed and President Obama signed the so-called Budget Control Act (BCA). In exchange for immediately raising the debt ceiling by $2.1 trillion, the BCA installed budget caps that promised to cut $900 billion over 10 years and scheduled another $1.2 trillion in automatic reductions after the supercommittee failed to reach consensus. That presumably was a 1-for-1 trade — $1 in spending cuts for every $1 in higher debt. Even though the deal hasn’t been in place for a full calendar year, Washington already has broken it.
This summer, both the Senate and House passed a reauthorization of surface-transportation programs, with a student loan interest rate reduction and national flood insurance tacked on for the ride. This was classic Washington maneuvering, with competing bills rolled together into a massive package in conference committee and then hurriedly passed in a matter of hours before anyone could see what was in the package. Lost in the campaign rhetoric over who cares more about the student vote, that is, student loan interest rate reductions, was the Congressional Budget Office (CBO) score showing the package would increase spending by $2.5 billion in its first two years, violating the BCA’s spending caps. The CBO also showed the package cut deficits over the 10-year window but the bill violated the BCA over the 27 months the transportation programs were authorized.
Sen. Bob Corker, Tennessee Republican, took to the floor and implored his colleagues: “This body is getting ready to spend more money than the Budget Control Act last year when the country almost shut down trying to save a mere $900 billion. So a vote today for this piece of legislation is basically a vote to say the Senate cannot be entrusted to carry out what it laid out last August to keep us from spending money we do not have.”
With an uncaring vote of 63-30, senators ignored their Tennessee colleague and brushed aside the spending caps they had promised less than a year earlier. In the end, it wasn’t just the Senate that couldn’t be trusted: The House followed suit with a rousing, bipartisan 373-52 vote to embrace more spending and reject last year’s promise of fiscal discipline. Votes this lopsided are replete with Democrats and Republicans joining hands to drive spending ever higher. Votes are one place in Washington where bipartisanship is alive and well. Mr. Obama promptly signed the bill into law, and just like that, the BCA’s tether on federal spending was broken.
None of this is surprising. The idea that lawmakers would find a “measly” $2.5 billion in savings out of a $260 billion bill — a scant 1 percent reduction — when they can just waive their promises with a vote and a laugh is indicative of business as usual in Washington and that it was foolish to expect it to occur in the first place. Unfortunately, such casual treatment of a newly minted promise doesn’t bode well for a nation on the edge of fiscal calamity.
The drumbeat for 3-1 or 5-1 spending cuts to tax increases already has started. Those who resist higher taxes are being cast as extremists and protectors of moneyed interests. In reality, we must resist tax increases because more revenue for the federal government just makes it easier to spend more, not less. It takes the pressure off lawmakers to make much-needed spending cuts — ones that are always promised in the grand bargain but never seem to materialize in yearly budgets.
That dynamic is no longer hypothetical or a repetition of budget deals past. The spending cuts we were promised in exchange for the debt-ceiling increase just last August are starting to vanish already.
Beware the siren’s lure of a grand bargain as the ship of state approaches the fiscal cliff. The tax increases will stick, but it’s the failure to cut spending that will dash us upon the rocks.
James Valvo is director of policy at Americans for Prosperity.

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