Q+A: How would a commission fix the U.S. budget crunch?

 @ibtimes
on February 19 2010 7:43 AM

President Barack Obama on Thursday set up a bipartisan commission to tackle stubborn U.S. budget deficits, though many are skeptical Washington has the stomach right now for the tough remedies needed to address spiraling deficits and debt.

WHAT IS THE PROBLEM?

U.S. debt has more than doubled over the past decade to nearly $12.4 trillion, thanks to a combination of tax cuts, wars in Iraq and Afghanistan, an expensive prescription-drug benefit and the deepest recession since the Great Depression of the 1930s.

The government posted a record $1.4 trillion deficit for the fiscal year that ended September 30, 2009, and deficits are projected to remain stubbornly high over the coming decade as costs for retirement and healthcare programs rise.

This could spur investors including China, the biggest U.S. foreign creditor, to demand higher rates for Treasury bonds, pushing the government's borrowing costs dramatically higher and crowding out spending in other areas.

WHY A COMMISSION?

Commissions are a time-honored Washington method of outsourcing difficult decisions. Budget hawks, including many lawmakers, say Congress has shown that it lacks the political will to get the budget under control.

Commissions have allowed Congress to close outdated military bases over the past two decades and shore up Social Security in the early 1980s.

But most find their proposals simply gather dust.

Typically what happens with commissions is nothing, said Stan Collender, a budget expert at Qorvis Communications who served on a commission during the 1990s to study whether the United States should create a special budget for capital expenditures.

HOW WOULD IT WORK?

The White House's preliminary proposal calls for 18 commissioners: six congressional Democrats, six congressional Republicans, and six appointed by the administration.

Congressional leaders would name the lawmakers on the panel. Likely members include the top lawmakers on the House and Senate Budget committees.

The commission would have most of the year to come up with recommendations to get the budget under control, and could present them to Congress after the November 2010 elections, when lawmakers presumably are feeling less pressure to pander to voters.

Democratic leaders in Congress have promised the White House that they will bring the commission's findings up for a vote, though they are not legally required to do so.

WILL IT SUCCEED?

The commission faces several hurdles. First, the White House and congressional leaders must appoint members who are viewed as credible by Washington policymakers and willing to sign off on what is likely to be an unappetizing set of recommendations. The panel's co-chairs, Democrat Erskine Bowles and Republican Alan Simpson, helped craft a deal in the 1990s that led to budget surpluses for several years.

Second, the panel must withstand fierce lobbying by interest groups on the left or the right, which fear that it could recommend tax increases or cuts to favored programs.

Finally, it will have to win approval in Congress.

The Senate defeated a proposal to set up a commission on its own last month after seven Republicans who had backed the plan voted against it, and lawmakers are not likely to be more receptive to a White House-backed commission in which they have no personal stake.

The president would have stood a greater chance of success, but would have faced more personal political risk, by announcing an informal process -- inviting the Republican leaders into the Cabinet Room to negotiate, and in effect daring them not to show up and to bargain in good faith, said Joe Minarik, a former budget official under Democratic President Bill Clinton.

(Editing by Eric Beech)

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