News / USA

'Do Nothing' Option for US Deficit Reduction Explored

If Congress went on vacation for the next two years, automatic federal revenues would rise, trimming spending
If Congress went on vacation for the next two years, automatic federal revenues would rise, trimming spending

Hopes were dashed this week for bold congressional action to slow the growth of America’s $15 trillion national debt. A special bipartisan committee failed to agree on ways to trim the deficit by $1.2 trillion. But if Congress has shown itself incapable of boldly addressing the U.S. fiscal woes, consider this: current law, if unchanged, would slash deficits by as much as $7 trillion over 10 years.

For those yearning to see a dramatic reduction in the federal deficit, there is something astonishingly easy Congress could do.

Absolutely nothing. If Congress went on vacation for the next two years, much would happen automatically to significantly raise federal revenues and trim spending. An array of temporary tax cuts would expire, new taxes would be collected, and automatic cuts to domestic and national defense spending would go into effect. There would be additional savings in U.S. debt-servicing costs.

All of these measures are written into current U.S. law. If those laws hold, the Congressional Budget Office estimates the annual budget deficit would fall from $1.3 trillion this year to the $500 billion range for most of the next decade - a 60 percent improvement.

Some in Congress have already seized on this data. Democratic Representative Peter DeFazio of Oregon highlights one component: tax cuts enacted under President George W. Bush slated to expire next year. “If Congress continued to do nothing, then all the Bush tax cuts go away, $4 trillion of additional revenues. That would take care of 40 percent of the deficit problem over the next 10 years. If they [lawmakers] are really concerned about debt reduction, the ‘do-nothing’ option is the best,” he said.

Independent budget-watchers say the math is correct: doing nothing would significantly improve U.S. finances.  Jason Peuquet of the non-partisan Committee for a Responsible Federal Budget. “If Congress just went home over the next several years, then our debt path is not nearly as bad,” he stated.

But there is a catch.

“It is really not realistic that Congress just goes home and does not extend the tax cuts, at least part of them,” Peuquet noted.

Republicans say higher taxes would deal a damaging blow to a shaky U.S. economy, resulting in slower growth that could reduce government revenue. Senator Jon Kyl of Arizona. “Especially in an economic downturn, like we are in now, it is not a good idea to raise people’s taxes,” he stated.

Even President Barack Obama has said only the wealthiest Americans should see their taxes go up, and only after the U.S. economy fully recovers. Days ago, Mr. Obama urged Congress to extend and expand a temporary cut in workers’ contribution to the federal retirement income program, Social Security.

Because so much of what would transpire under current law involves added taxation, the "do-nothing" option appeals most to progressive Democrats eager to avoid the major spending cuts that Republicans advocate. Indeed, all Democrats would have to do to enforce a "hands-off" approach to deficit reduction would be to block all budget-related legislation in the Senate, where they retain a majority. But many Democrats are also wary of massive tax hikes.

“I think that is not a balanced approach,” Democratic Senator Ben Cardin of Maryland said.

“That is obviously leverage to get to where we need to get to. I am for a full balanced approach that brings down spending and allows the revenues to be adequate to pay for our bills,” Cardin explained.

Note Senator Cardin’s use of the word “leverage” - meaning Democrats could threaten to block tax cut extensions to pressure Republicans to compromise on a so-called grand bargain of spending cuts and tax hikes. His message foreshadows what could be a furious budget battle next year, when the United States holds general elections.

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