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Idea rebounds: Automatic cuts to curb deficits

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WASHINGTON >> Among the highest-profile laws of recent decades was a failed one: the 1985 deficit-reduction statute known as Gramm-Rudman-Hollings for its Senate sponsors. Intended to force a balanced budget, it instead spawned budget gimmicks and did little to reduce deficits, provoking one of its authors, Sen. Ernest F. Hollings, to declare, “I’m filing for divorce on grounds of infidelity and irreconcilable differences.”

Yet Democrats and Republicans are taking a second look at the idea behind the law: the threat of automatic steps to address the problem if elected officials cannot rein in deficits.

The goal of the continuing bipartisan negotiations is to combine some action-forcing budget process with specific, deep spending cuts, allowing a deal to increase the government’s $14.3 trillion debt limit and avert a potential financial crisis. But the parties are far apart on the details.

Nearly all congressional Republicans want caps only on government spending, backed by the threat of across-the-board cuts if agreed-upon targets are exceeded. President Barack Obama, most Democrats and several bipartisan budget groups want annual caps on deficits, with both spending cuts and tax increases triggered if the caps are breached.

The history of previous efforts suggests that targets and triggers can be a mechanism for bipartisan compromise, but are no substitute for sustained political will.

The most prominent example, Gramm-Rudman-Hollings, was an act of desperation at a time of mounting annual deficits, partisan paralysis over solutions and a desire for political cover to raise the debt limit — a time much like the present, except that current debt projections are much larger and political divisions arguably wider. The act set declining annual deficit targets to reach a balanced budget in five years; if these targets were missed, across-the-board cuts loomed.

“With no disrespect to those three senators, it was a strange idea,” Steve Bell, the Senate Republicans’ top budget adviser when the act was passed, recalled for a 2006 history of the Senate Budget Committee.

“Fortunately,” he said, “Gramm-Rudman-Hollings was so contrary to the culture and the Constitution and whole flow of legislative history, the first thing we did was to ignore it.

Actually, the politicians evaded it. Deficits exceeded targets every year, yet Congress and the administrations of President Ronald Reagan and the first President George Bush avoided meat-ax cuts by fudging the numbers and moving the deficit goal posts. By 1990, faced with an economic downturn and a deficit too big to finesse, Bush and congressional leaders replaced the law with less radical but ultimately more effective budget limitations — and nearly $500 billion in specific spending cuts and tax increases.

Which raises the question: Why should that 1985 law be a guide now?

The answer, say advocates of the approach in both parties, is that for all its flaws, the act created a fiscal climate that forced compromises like the 1990 agreement. Its new budget limits — caps on annual discretionary spending and pay-as-you-go rules requiring offsetting savings for new tax cuts or spending on entitlement programs like Medicare — contributed, along with a surging economy, to balancing the budget by the late 1990s.

Members of both parties also say there is no realistic chance that Obama and Republicans can agree by August — when the Treasury Department says it will run out of ways to avoid defaulting on the government’s debt obligations — on specific cuts of trillions of dollars, as Republicans are demanding. So the fallback is to combine what cuts they can agree to with budget procedures to enforce additional future savings.

“You can’t just do budget process reforms because that’s just kicking the can to the next Congress and saying, ‘Well, we promise to fix this later,”’ said Rep. Paul D. Ryan, R-Wis., and the House Budget Committee chairman. “That’s why we say you have to have real, material spending changes, which then are backed up by substantive process reforms.”

Even former opponents of Gramm-Rudman-Hollings are now open to an updated version. One is Obama’s budget director, Jacob J. Lew.

“I’ll be candid,” Lew said. “My own thinking on this area has evolved over the last 25 years.”

In 1985, as a senior adviser to Speaker Thomas P. O’Neill, Lew helped negotiate changes to make Gramm-Rudman-Hollings acceptable to Democrats — for example, by exempting antipoverty programs from automatic cuts. In the 1990s, he was deputy director and then director of President Bill Clinton’s White House budget office.

In hindsight, Lew said, “I don’t know that we ever would have been able to accomplish the deficit reduction that we did in 1990, 1993, 1997, without an environment that had been shaped by having that collection of enforcement mechanisms in place.”

Obama has called for a “debt fail-safe” trigger that would automatically cut spending and so-called tax expenditures — the roughly $1 trillion a year in popular tax breaks for individuals and corporations — if by 2014 the debt’s growth has not been stabilized and if annual deficits are projected to be greater than 2.8 percent of the economy for the remainder of the decade. (The deficit last year was 8.9 percent of the gross domestic product.) Social Security, Medicare benefits and antipoverty programs would be exempt.

The president’s bipartisan fiscal commission also proposed annual deficit targets backed by potential triggers of both spending cuts and tax increases. A bipartisan “Gang of Six” in the Senate is negotiating to write those recommendations into legislation. And several bipartisan nongovernment groups have recommended debt and deficit targets enforced by the threat of automatic spending cuts and tax increases.

Lew said that whether such proposals would work was beside the point. “The real truth is nobody ever wants to find out,” he said. “The purpose of these mechanisms is to discipline those in the policy process to make decisions.”

But, he added, both spending cuts and tax increases have to be threatened — so that both parties have an incentive to compromise and forestall automatic action.

Republicans disagree. “Spending across the board is covered — our spending, their spending,” Ryan said.

The House Republicans’ budget, written by Ryan, would cap annual discretionary spending. Also, like a separate proposal from Sens. Bob Corker, R-Tenn., and Claire McCaskill, D-Mo., it would limit all federal spending to roughly 21 percent of the gross domestic product, the historical average of the past four decades.

Obama told Senate Democrats last week that he would not accept such a cap.

The administration and most budget groups say a spending cap based on recent years ignores a demographic reality: The oldest of the roughly 77 million baby boomers turn 65 this year, beginning a wave that will drive up projected costs for Medicare, Medicaid and Social Security, while the ranks of taxpaying workers are shrinking. Because those programs are a large and growing part of the budget, they would face huge reductions to keep overall spending within the proposed cap.


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