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Uncertain Course on Debt Reduction

Author: Roya Wolverson
December 3, 2010

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A majority of the eighteen-member U.S. bipartisan debt commission voted to approve a bold plan to reduce the country's ballooning debt, but the panel fell short of the supermajority needed (Bloomberg) to trigger a vote from Congress. The commission voted eleven to seven in favor of its proposal to cut roughly $4 trillion from U.S. budget deficits over the next decade. The plan recommends making sharp cuts to military spending, increasing the retirement age, and raising taxes by nearly $1 trillion by 2020 by cutting long-standing tax credits.

Given the partisan divide, the outcome of the deficit commission's work remains uncertain. The commission's greatest accomplishment may be focusing the nation's attention on the need to take action, said CFR Distinguished Visiting Fellow Peter Orszag in a recent CFR.org interview. Some lawmakers, including chair of the Senate Finance Committee Max Baucus (D-MT), withheld support because the plan's proposals to cut farm subsidies, for instance, would disproportionately hurt rural Americans (WSJ). Former top labor leader Andy Stern opposed the plan because it failed to allow "enough investment to create jobs, economic growth, and increase America's competitiveness" (WashPost). Representatives Paul Ryan (R-OH) and Jeb Hensarling (R-TX) opposed the plan's call for tax increases and its softer stance on healthcare (Politico).

Still, the plan received backing from unlikely supporters, indicating some parts of it may yet enter into budget and policy discussions. Despite their disagreements with many of the report's ideas, fiscal conservative senators Tom Coburn (R-OK) and Mike Crapo (R-ID) said they may produce their own legislation incorporating some of the commission's ideas (Atlantic). Fourteen Democratic senators signed a letter asking Congress and the White House to produce a law on reducing the deficit (TheHill). And President Barack Obama issued a statement supporting the committee's report because it "underscores that to sustain growth in the medium and long term we need to face some difficult choices to curb runaway debt" (IBTimes). He said his economic team would "study closely" specific proposals to possibly include in a new budget due early next year (NYT).

Some economists stress the proposed cuts would not be as crippling to the economy and national security as advertised. Harvard economist Ben Friedman called the differences in any credible proposals "small potatoes" (WashPost) compared to its economic benefits. But the latest employment report, which shows little job creation and an increase in the unemployment rate to 9.8 percent, could slow the political push to tackle long-term debt concerns (CSMonitor). Regarding defense cuts, SAIS professor Michael Mandelbaum says credible deficit reduction plans will inevitably limit U.S. national security. He foresees an end to U.S. military interventions in far-flung countries such as Somalia and Iraq, and a greater threat to U.S. trade routes in East Asia. In a new Foreign Affairs essay, CFR President Richard N. Haass and Roger C. Altman, a former deputy Treasury secretary, call for more modest spending on counterterrorism, especially on the war in Afghanistan, to accommodate for needed cutbacks.

Additional Analysis:

Douglas J. Besharov and Douglas M. Call note in the Wilson Quarterly that Washington is not alone in embarking on austerity efforts but is now part of a global competition to develop more economically efficient tax and social welfare policies while maintaining an effective social safety net.

Six scholars from the Brookings Institution weigh the deficit reduction proposals.

Background

This CFR GeoGraphics blog post traces the increasing U.S. share of global military spending since 1990 and an inherent underlying weakness.

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