There are many individuals and groups, in the U.S. and around the world, concerned about Washington?s serious fiscal challenges and waiting to see what the supercommittee on deficit reduction will recommend.
The first key question they need to address is how they will keep score. Once this is decided, the supercommittee should focus on three objectives.
Continue ReadingFirst, it should make recommendations that can meet or exceed the established deficit-reduction target to avoid across-the-board cuts. Second, it should make recommendations designed to help economic growth and reduce unemployment. Third, its recommendations should facilitate greater deficit-reduction progress from 2012 to 2013.
The baseline the committee chooses will be crucial for calculating the deficit-reduction impact of their proposed reforms. How it decides to do so will have real bearing on the credibility of its efforts.
The supercommittee could choose from two primary bases to keep score. The first is the Congressional Budget Office?s extended baseline, or the current-law baseline. This assumes that the Bush tax cuts will expire at the end of calendar 2012; the alternative minimum tax will not be addressed and physician reimbursements under Medicare will be cut dramatically.
The other is the CBO?s alternative baseline, or the current-policy baseline ? which assumes that most of the Bush tax cuts will be extended; the alternative minimum tax will be patched and physician payments will not be cut dramatically.
The latter method results in more than $6 trillion in additional deficits over the next 10 years.
For the credibility of the committee?s efforts, it is important that the panel uses the individual elements that comprise the current-law baseline rather than the current-policy baseline. Doing otherwise would essentially give Congress and President Barack Obama a free pass on decisions relating to the critical fiscal issues that make up the difference ? an action both imprudent and inappropriate.
In any case, the CBO will score the supercommittee?s work using the current-law baseline. Simply put, our combined fiscal reforms must result in more progress than would occur if Congress and the president took a 10-year vacation!
The supercommittee, from a scorekeeping perspective, should use the individual elements of the CBO?s current-law baseline and make recommendations that can meet the established 10-year deficit-reduction target. It should also recognize that comprehensive social insurance and tax reforms are not feasible given its reporting deadline.
Possible recommendations include: modifying existing indexing formulas to more accurately reflect the cost of living; adopting greater means-testing for Medicare and other health care premium subsidies; reducing agriculture and other taxpayer subsidies and establishing firm deadlines for troop reductions in Afghanistan.
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