Why Obama's Debt Panel Proposal Failed: Jobs More Important

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The Message From Washington: Recovery Fix Is More Urgent Than Deficit Fix


Friday, the 18 members of the National Commission on Fiscal Responsibility and Reform failed to pass an austerity plan to slash the U.S. budget deficit by 2015. Although eleven members voted in favor, the final tally was three short of the necessary number to send the plan to Congress for a vote.

Meanwhile, the Labor Department reported that unemployment in November had jumped to 9.8%, causing members of Congress and the Obama administration to suggest what needs to be done quickly to fix the jobs situation.

From Democrats: Extend unemployment insurance for those who have lost their jobs and continue tax cuts for 98% of Americans.



From Republicans: Extend tax cuts for everybody.

The takeaway? Fixing the sluggish recovery is more important right now than fixing the country’s deficit problem.

The cumulative U.S. budget deficit over the next 10 years is projected to be about $6 billion, and the total of U.S. debt is expected to equal more than two-thirds of total U.S. economic output in 2020.

That’s assuming that policymakers allow the Bush-era tax cuts and other expiring tax measures to end as scheduled (which almost certainly won’t happen). Despite the immediate focus on the recovery, don’t be surprised if some of the ideas for austerity find their way back into the president’s FY2012 budget request in February.

As Sen. Kent Conrad, D-N.D., said during the Fiscal Commission’s final meeting Friday: “This is not the end of the story.”

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Debt Plan Failed To Pass Despite Majority Support: Jobs More Important


A majority of the White House debt-reduction panel, representing a cross-section of the political spectrum, backed a sweeping yet controversial overhaul of U.S. tax and spending policies Friday, a sign that both parties are ready to put sacrosanct programs on the table to address the budget deficit.

Eleven members, ranging from liberal Democratic Sen. Richard Durbin of Illinois to conservative Republican Sen. Mike Crapo of Idaho, supported a proposal advanced by Democrat Erskine Bowles and Republican Alan Simpson, co-chairmen of the National Commission on Fiscal Responsibility and Reform.

The support surprised many but still fell short of the 14 votes needed to bring the package to the House and Senate floor for a vote. White House and Republican leaders suggested key parts of the package could be folded into the budget next year.

The proposals include eliminating popular tax breaks, cutting defense spending and raising the retirement age for Social Security. Multiple members of the panel said such steps were necessary to prevent the U.S. from entering a Europe-style fiscal crisis in the next decade.

President Barack Obama welcomed the report, without endorsing any of its specifics. "To sustain growth in the medium and long term we need to face some difficult choices to curb runaway debt," Mr. Obama said in a statement. "It will require cutting the spending we don't need in order to invest in what's necessary to grow our economy and our middle class. It will require all of us, Democrats and Republicans, to find common ground."

Government officials are trying to establish credibility on long-term deficit reduction while at the same time giving the struggling economy a shot in the arm, which would likely increase the deficit in the short term.

To White House policy makers and their allies, there is no contradiction between demands for immediate stimulus and efforts to cut the deficit over the coming decade.

In fact, the Labor Department's report Friday of far lower job creation than expected in November could help the process. Lawmakers and officials believe it will hasten a deal on a short-term extension of tax cuts, based on the idea that taxes shouldn't rise during an economic downturn, and moving the deficit conversation to the long term.

The White House and congressional negotiators were in talks on a costly package that is expected to temporarily extend all of President George W. Bush's tax cuts, as well as unemployment benefits and a raft of tax breaks for lower-income Americans that were part of last year's economic-stimulus law.

"There is no reason why policy makers can't do the sensible thing of stimulating the economy today through policies such as [emergency unemployment compensation] extension and some type of payroll-tax holiday and simultaneously improve our long-term fiscal sustainability," said Alan Krueger, a Princeton University economist who recently resigned as assistant Treasury secretary for economic policy.

Mr. Obama said the commission's report "includes a number of specific proposals that I—along with my economic team—will study closely in the coming weeks as we develop our budget and our priorities for the coming year."

White House budget director Jacob Lew invited the commission to meet with him and Treasury Secretary Timothy Geithner.

Administration officials have pointed to the commission's proposed cuts to defense spending, its attack on "tax expenditures"—cherished tax breaks such as mortgage-interest deductions—and its call for an overhaul of Social Security as potential areas to pursue.

The jobs report—just 39,000 new payroll jobs and a 9.8% unemployment rate for November—was "shockingly bad," said Douglas Holtz-Eakin, a former Republican director of the Congressional Budget Office. But the 11 votes for the commission report, including five senators from across the political spectrum, was "shockingly good," he said.

A resolution of the tax issue and the surge in support for drastic steps to reduce the deficit could bring economic benefits, Mr. Holtz-Eakin said. "We've got a business sector staring at Washington, totally paralyzed by what they see coming out," he said.

After the commission's final meeting, an additional 13 senators—12 Democrats, and independent Joseph Lieberman of Connecticut—wrote to the president urging action on the commission's plan "now."

"I would simply say to the president, to the Senate, to the House, and to the people of our nation, that we should not let this proposal fall idly by the wayside," Republican Sen. Mike Crapo, a conservative closely aligned with the GOP leadership, said as he cast his vote for the plan.


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