Let's Add on Instead of Claw-Back

You might think we're about to talk about Social Security reform or how to reform the Sustainable Growth Rate. But what we're actually talking about here is the need for Super Committee members to not be thinking of ways to reduce the overall savings to get a deal, but ways to increase the savings to make the chances of a deal more likely.

With two rounds of deficit reduction offers coming from both sides on the Super Committee, one disappointing trend has emerged: claw-back.

Democrats started with a "Go Big" plan of over $2.5 trillion in net new savings, more than two times the minimum mandated amount of $1.2 trillion over ten years. The cumulative total savings would be closer to $3.9 trillion including the Budget Control Act and final CR savings of $1.3 trillion. A newer offer, however, reduced both the proposed revenue increases and spending cuts by a total of about $675 billion (excluding the costs of any new job creation proposals). Similarly, Republicans started off with an offer for over $1.9 trillion in new savings, but instead of proposing more spending reductions in their second offer in exchange for increased revenues, they pushed down the overall savings.

It's particularly noteworthy that the second offer from Democrats nixed the chained CPI and brought down the level of health savings. CRFB has been arguing that the chained CPI - a technical fix - is the lowest of low hanging fruit for some time now, and we will not be able to control rising debt if we don't control health care spending! The most troubling change is how all offers seem to be negotiating smaller instead of larger towards a more sustainable fix.

Comparison of Super Committee Offers (Billions)
Budget Area Initial Democratic Offer
Initial Republican Offer
Second Democratic Offer Second Republican Offer
Jobs Bill -$450 $0 Unspecified $0
Discretionary Spending $400 $250 $400 $200
Health Care $475 $685 $400 $375
Other Mandatory $200 $500 $200 $100
Chained CPI~ $225 $225 $0 $225
Tax Reform $1,300 $0* $1,000 $250^
Social Security $0 $0 $0 $0
Interest $400 $300 $300 $200
Subtotal, Savings $2,550 $1,950 $2,300 $1,350
BCA and CR Savings $1,300 $1,300 $1,300 $1,300
Total $3,850 $3,250 $3,600 $2,650

Note: Numbers may not add due to significant rounding, and are based off press accounts. Estimates off of a current policy baseline.
~Includes savings from both revenues and spending.
*Excludes about $200 billion from macroeconomic dynamic effects of future tax reform.
^Excludes about $110 billion from macroeconomic dynamic effects of future tax reform.

The trend from both sides is understandable but disappointing. It's not surprising that Democrats dropped their proposal to adopt the chained CPI for Social Security COLAs and reduced their Medicare savings when they can under criticism from their own base while also having their offer rejected by Republicans. We fear that Republicans may react in a similar manner to the rejection of their offer for new revenues. While asking for fewer concessions from the other sides may seem like the easiest way to reach a deal, it could actually make success harder to achieve and could leave in place fiscal pressures that threaten each parties long-term priorities.

Other bipartisan commissions have shown us that to get a real deal more must be added to the table. Fiscal Commission co-chairs Erskine Bowles and Alan Simpson frequently mention that by being bold and aggressively exceeding their mandate, they actually found it more likely to get other members of board. That was the reasoning behind Republicans and Democrats on the Fiscal Commission last year who voted for the plan. The Republicans, especially Tom Coburn, understood that the best way to reach an agreement on controlling spending growth (just look at Coburn's plan to cut $9 trillion in spending over ten years!) was to agree on new revenues, just as the Democrats who voted for the plan understood that some of the spending cuts were necessary to reach an agreement on elements of the plan that were important to them.

We fleshed this logic out in more detail in a recent policy paper, noting the importance of a sense of shared sacrifice and the need to actually fix our debt problem. It's no surprise then that Erskine Bowles's proposed compromise plan would increase the savings above these levels, adding larger spending cuts than in the Democratic proposal and higher revenues than in the Republican offer.

We need to achieve savings of two to three times the $1.2 trillion minimum savings mandate, a level to which the Republican offer is already dangerously close. We've got to think bigger if we are to reassure the American public, businesses, and credit markets that we will avoid crushing future debt burdens.

The experience of the Fiscal Commission shows us that scaling up the savings on both sides of the ledger is one of the most promising approaches we can take to reach an agreement and put debt on a downward path.

 

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