The 7 Percent Solution or, Debt By 1,000 Non-Cuts

Writing in Politico, former Clinton hand and Center for American Progress (CAP) head John Podesta throws down this challenge to those crazy-eyed dreamers who think that bringing federal budgets into the black might include semi-serious spending cuts:

Even making the Herculean assumption that all the deficit reduction measures included in the president's most recent budget plan are adopted by Congress, the gap between primary spending and revenue in 2015 is projected to be $255 billion. To put that into perspective, President George W. Bush's 2005 Deficit Reduction Act included deficit reductions of $100 billion over a decade. We need to achieve two and half times as much as that bill did – but in one year, instead of 10.

And just why are persistent, gigantic deficits a problem? (And note that OMB's deficit projection for 2015 is about $400 billion).

As recently as 2000, during President Bill Clinton's last year in office, the Congressional Budget Office predicted budget surpluses as far as the eye could see. But the Bush administration's deep tax cuts, unfunded spending and mismanagement of the economy left us with long-term deficits stretching far into the future. They pose a real risk to future growth and economic stability.

Got it. But what would $255 billion in cuts look like? And remember, these are the ones the CAP folks picked. Here we go:

The suggested cuts come out to $95 billion from the Pentagon, $35 billion from mandatory programs, $50 billion from mandatory spending administered through the tax code and $75 billion from non-defense discretionary programs—all in one year. Cuts this severe – even if they are the ones we ourselves have chosen – would eviscerate the foundation for future growth and do lasting harm to the health of the American middle class….

The reality is that there simply isn't that much low-hanging fruit left. Contrary to conventional wisdom, most of what the federal government does is necessary, beneficial and, yes, popular.

Podesta's whole thing, including a link to the CAP report, here.

His main point is that it's sheer folly to suggest that we get a balanced budget in 2015 by cutting spending rather than some cuts in spending and a bunch of increases in revenue. Podesta doesn't mention what the estimated outlays are for 2015, but they appear to be about $4.4 trillion. The CAP report also doesn't give a 2015 budget number (though its estimate must be lower than $4.4 trillion), but notes that a 7 percent reduction in outlays would do the trick of balancing the budget, while stating how draconian such a reduction would be to all that is good and decent in the world.

In terms of low-hanging revenue fruit, Podesta trots out $83 billion in year that would be gained by letting the "Bush tax cuts" expire on high-income Americans. The more bounced-around number is $70 billion a year on average over the next decade. Whichever figure you use, you gotta wonder why somebody looking to squeeze more revenue out of the country would leave the vast majority of dollars sitting in the pocketbooks of citizens. CBO estimates letting all the Bush tax rates expire at year's end would generate $390 billion a year; looking at those below $200,000 for individuals and $250,000 for households nets $320 billion a year. 

But whatever. Here's a couple of other things to consider:

1. Does Podesta seriously believe that cutting $255 billion from the budget in 2015 would do "lasting harm to the health of the American middle class?" And if so, can I have some of whatever he's smoking? Podesta is right to be proud of Bill Clinton's record as a deficit hawk. Clinton balanced the budget by slowing down spending to historic lows and goosing revenue up. When Clinton left office, however, his last budget spent about $1.9 trillion in total. Is Podesta really going to go to the mat to say that all off the massive, 100+ percent increases in total outlays under eight years of George W. Bush are so necessary that to trim that at all five years from now would crush the middle class?

2. Since World War II, average federal revenue has held pretty steady around 18 percent of GDP. Doesn't really matter who was president and whether they jacked taxes or cut taxes. There are times when revenue is a bit better—Roosevelt, Truman, Johnson, even Reagan, and Clinton all topped that (Slick Willie even strayed into 20 percent range)—but that never holds up over time. So banking on raising revenue above that is the real pipe dream.

3. Here's some quick stuff that gets us almost to CAP's $255 billion figure without eviscerating much of anything. According to Pro Publica, there's $69 billion in unspent stimulus funds and $65 billion in stimulus tax cuts remaining (let's forget about the $144 billion in "process" but not yet flushed down the toilet paving gravel roads). And according to Jon Chait of The New Republic, there's $78 billion in unspent TARP funds and a 10 percent pay freeze on federal workers would net about $26 billion. Do all that and you get to $238 billion. Park that in a CD somewhere and you'll be well past the $255 billion mark come 2015.

Hat tip: Reason columnist and Mercatus Center economist Veronique de Rugy, who pointed out Podesta's implied defense of Bush's spending binge and whose take on austerity is here.