Deficit Reduction Update

Three interesting bits of news emerged from the testimony that Doug Elmendorf, the head of the Congressional Budget Office (CBO), gave yesterday before the new congressional super committee created by the August debt ceiling deal:

First, we now know how much more defense spending will be cut over ten years if Congress fails to reach a debt-reduction deal and sequestration (i.e., automatic, across-the-board cuts) kicks in: $454 billion. The Defense Department can’t like that number. Remember, that would come on top of the $350 billion in cuts that the August deal has already imposed.

Second, cutting waste, fraud, and abuse from entitlement programs will not save the day. Senators Jon Kyl (R-Ariz.) and Max Baucus (D-Mont.), as well as Congressman Fred Upton (R-Mich.), said at the hearing that stepped up antifraud efforts could take the super committee a long way toward its $1.2 trillion deficit reduction target. That would be great, if it were true. Only people and groups that have no legitimate claim to government spending would be hurt. Elmendorf said, however, that “there is no evidence” to believe it is. So forget the painless miracle deficit reduction fix. The super committee will need to make politically tough decisions.

Third, the super committee formally has until November 23^rd to complete its work. As a practical matter, however, it needs to reach agreement “by the beginning of November.” Otherwise, CBO will not have enough time to “score” the deal and determine whether it satisfies the targets specified in the debt ceiling deal. The clock is ticking.