How to Pass the Deficit Reduction Test
06-15-2012
Over the next few months, Congress faces a vitally important test. The question is whether we can balance the need to reduce the deficit with the need to protect important priorities at home and abroad. There is a narrow path to passing that test, but we must try.
Last summer, during the crisis over raising the debt limit, Congress passed the Budget Control Act. That legislation established a special committee – the so-called “supercommittee” – to try to agree on $1.2 trillion in deficit reduction over 10 years. Because the supercommittee could not reach agreement, at the beginning of next year, automatic spending cuts to reduce the deficit will kick in, divided equally between defense and domestic spending, cutting programs and activities across the board through a process called sequestration.
These automatic cuts are large, across-the-board cuts that set no priorities. They will do tremendous harm if we don’t avoid them.
As chairman of the Senate Armed Services Committee, I’m concerned about the impact sequestration could have on our national security, on our troops and their families. The armed services would have to reduce personnel strength – that means men and women in uniform lose their jobs. Training would be curtailed. Acquisition programs would be disrupted.
Many are concerned that sequestration threatens to leave us with a hollowed-out military. I share those concerns. We included in our defense bill a requirement that DoD explain to us what the impact of sequestration would be.
But when I look beyond defense, I’m also concerned. These cuts could leave us not just with a hollowed-out military, but a hollowed-out economy.
Sequestration threatens our ability to continue the economic recovery, to educate our children, to care for the sick, to rebuild crumbling roads and bridges, to protect the environment, to invest in new technologies. We should ask not just the Pentagon, but every department, what the impact of sequestration would be. The answers will surely give us a great incentive to avoid sequestration.
Our only option to avoid the economic train wreck triggered by sequestration is to produce a balanced bipartisan deficit reduction package. There are not 60 votes in the Senate to change the sequestration formula and avoid sequestration unless those changes meet that test.
Balance requires three things. First, we need additional spending cuts – but prudent, prioritized cuts. Second, we have to consider reforms of our entitlement programs. And third, we must include additional revenue.
Historically, federal tax revenue has been about 19-20 percent of our economic output. Today it’s closer to 15 percent. Presidents Reagan, Bush and Clinton all reached deficit deals that got at least one-third of their deficit reduction from revenue.
Our tax code is full of loopholes, including allowing offshore tax havens to help wealthy Americans avoid paying their taxes. Closing them down would restore billions of dollars in revenue. One example: Facebook will get an estimated $16 billion tax break from the recent sale of their stock, including a half-billion dollar refund check and no federal taxes for up to 20 years because of a loophole that subsidizes stock options for executives.
We also must consider reversing Bush-era tax cuts for the wealthiest Americans, who have prospered in recent years even as middle-class incomes have stagnated.
Most Republicans have signed a pledge they will oppose any attempt to add new revenue to reduce the deficit and protect vital programs. So far, that opposition has blocked attempts at comprehensive deficit reduction.
Those opponents have to choose: Will they continue to defend tax breaks and loopholes that benefit the wealthiest among us, who are the only group that has done well in the recession? Or will they choose to protect national security, students, seniors and workers?
Ultimately, I think we will reach a balanced deficit reduction agreement. The question is, will it come in time?
The Pentagon and military services have to be able to make plans at least a few months in advance. Already, businesses are warning employees of potential layoffs if sequestration takes effect. Families need to know if they can send their kids to college. Local governments need to know whether they can hire the contractor to rebuild that aging bridge.
We can find agreement. But if it comes too late – during the lame duck session in December, for example – much of the economic damage will already be done.
We know the way out. The way out is compromise. And if we know the path, we shouldn’t wait to take it.