Call this The Debate Question That Would Not Die. Eight days ago in Ames, Iowa, Fox News’ Bret Baier asked the Republican candidates whether they would walk away from a debt deal that provided a 10-1 ratio in real cuts to revenue increases. Every one of the GOP hopefuls raised their hands to a burst of applause, and to enduring criticism over the unreasonableness of conservatives in the Tea Party era:
None of the candidates got much of a chance to explain their non-verbal responses, but the answer is that this question is a political non-sequitur. We could pass a deal that had a 100:1 ratio of cuts and increases and it would still not address the reason why the US is rapidly expanding its debt, and why we are headed for a fiscal trainwreck within a generation.
Budget cuts in the context of the debt debate and the upcoming joint select committee deliberations have focused entirely on discretionary spending. In fact, there is technically no such thing as a “budget cut” anywhere outside of discretionary spending. Entitlement spending is set by law; the numbers that appear in the federal budget plans for debt service, Medicare, Social Security, Medicaid, the Indian Health Service, and other statutory programs are not budgeted funds but estimates. Checks get cut for these programs by statute, not by Congressional appropriation. In order to “cut” funding in these areas, Congress would have to change the laws, not cut the budget appropriations.
Currently, we’re running a deficit of around $1.6 trillion annually. Our entire discretionary-spending budget comes to around $1.3 trillion — and that includes services like our military, homeland security, and so on. Even if we cut every last dollar out of discretionary spending by essentially firing everyone that works for the federal government and disbanding our military around the world, we would still have to borrow $300 billion or more each year.
And that’s just at the present. Let’s look again at the coming liabilities we face from our entitlement program promises, as set by current law:
The problem will shortly become more severe, and rapidly worsen over the next 40 years. If we were to attempt to solve this through revenue increases, we would have to impose a far more confiscatory tax policy, perhaps seizing up to 40% of production by 2040. The only problem with that idea is that the more confiscatory the policy becomes, the more production decreases as capital for investments disappears from the private sector, either through the seizure itself or from flight. That would force the government to increase the confiscatory nature of its tax policies, which would drag production down even further, and so on. It becomes a vicious circle of economic collapse.
There is only one solution to the long- and short-term crises facing the US on debt: entitlement reform. We have to change these programs in significant ways in order to drastically reduce our future liabilities and provide a rational basis for keeping some safety-net programs in place — or eliminate them altogether, which is what will happen in the end if we do nothing and have no money to fund them. That’s why the question of accepting 10:1 cuts to revenues is the political equivalent of “Have you stopped beating your wife?” Accepting the context of the question itself is the real error.
Update: Let me make clear that I am addressing this in the context of the debate, which was in term of the debt deal. Kevin Glass rightly says on Twitter that entitlement reform can be considered “budget cuts.” However, nothing I’ve seem about the joint select committee gives any indication that they’re looking at anything other than the discretionary side of the ledger. If we got a 10:1 deal on actual reductions in entitlement liabilities to revenue increases, I would take that deal — as long as we’re talking actual reductions in those liabilities, and not just a reduction in the rate of increase.