A new fiscal commission could decide the budget crisis

Leaders from both parties for decades have kicked the can of federal deficits down the road. The Simpson-Bowles recommendations from 2010 — widely endorsed by responsible observers — were never seriously considered either by President Obama or by Republican leadership. Then huge COVID-19 subsidies came along, and the fiscal road now faces a dead end. Unless the deficits are dramatically reduced, Social Security payouts will risk cuts of around 25 percent within a decade.

But, to politicians, altering benefits and raising taxes is a form of political suicide. Democracies aren’t good at cutting back, as the philosopher Polybius observed two thousand years ago. Look at the mass protests in France over raising the retirement age from 62 to 64. That’s why President Biden’s budget ignores the looming crisis, and Republicans talk mainly in generalities instead of offering concrete ideas.

The path forward is not political brinksmanship, but to remove politics and punt the solution to a nonpartisan committee, subject only to an up-or-down vote by Congress. Just as independent “base-closing commissions” decide the politically-difficult choices of which military bases to close, so too an external “Fiscal Commission” could present broader proposals that will have benefits as well as costs for most stakeholders.

That’s the proposal of the bipartisan Problem Solvers Caucus in Congress, a 63-member group that recently called for an “external Fiscal Commission [that would]…recommend a package to stabilize long-term deficits and debt.…with an up or down vote in Congress by February 28, 2025.” Pending this vote, the debt ceiling would be temporarily raised.

But a Fiscal Commission proposal, like Simpson-Bowles, may also die on the altar of public opinion if it proposes significant entitlement cuts or new taxes. There’s one more way it could cut the deficit, however — to mandate overhauls that carve out massive waste in legacy bureaucracies.

Washington is long overdue for a spring cleaning. Wasteful programs that have survived the give and take of annual budgets could get eliminated all at once. These cuts will be resisted by interest groups, but the political calculation isn’t close: Better to offend a few interest groups than broad swaths of the population.

A Fiscal Commission could propose a plan that would save on the order of $400 billion annually by requiring restructuring in each of following areas:

1. Phase out obsolete and duplicative programs. Federal government is piled high with scores of programs for job training (with zero evidence of effectiveness), STEM education (163 programs spread over 13 agencies according to a 2018 GAO report), and teacher training (a 2011 GAO report identified 82 programs over 10 agencies). Subsidies that make little sense in the 21st century include those for fossil fuels ($15 billion a year), farm support ($20 billion), higher wages on federally funded projects (1931 Davis-Bacon law) ($11 billion), and carried interest tax breaks for real estate developers and Wall Street investors (up to $18 billion). Pruning these breaks would save over $60 billion annually.

2. Procurement. The federal government spends about $650 billion a year on outside contracts, with the largest shares going to defense contractors and IT companies. Rigid procurement procedures materially raise the cost compared to similar commercial contracts. The waste is even worse with IT contracts, which have a failure rate up to 90 percent for large projects because of the difficulty of adapting to unforeseen glitches. The key to procurement reform is liberating officials to engage in commercial back and forth, with oversight by outside expert bodies. Even a 10 percent saving from replacing procurement rules with commercially reasonable programs would save $65 billion annually.

3. Infrastructure. The federal government will spend about $150 billion a year on infrastructure over the next ten years, including through grants to state and local government. Delays in permitting more than double the effective cost. The trough is rife with contracting abuse: Work rules are designed for featherbedding — the Second Avenue subway in New York City, for example, cost $2.5 billion per mile, or five times the cost of a rail tunnel using a similar machine in Paris. Savings on the order of 25 percent could be achieved with 

i) permitting reforms proposed by Sen. Joe Manchin (D-W.Va.), such as federal preemption for interstate transmission lines and 

ii) a mandate that state and local grant recipients conform to commercially reasonable contracting practices.

4. Health care. American health care is notoriously expensive, driven in part by administrative costs of about 30 percent, and by “defensive medicine” — excessive procedures motivated by fear of lawsuits. About 25 percent of the federal budget, or $1.4 trillion, goes to health care through CMS (Medicare and Medicaid). Reducing health care costs could be achieved by 

i) simplifying regulatory mandates (i.e., privacy rules could become a general principle, not a compliance labyrinth);

ii) standardizing health plans and replacing pre-approvals for every major test and procedure with periodic audits of excessive care; and 

iii) creating reliable health courts that reduce the incentive for unnecessary interventions. These reforms could transform the cost structure of health care. A ten percent administrative reduction plus eliminating incentives for defensive medicine would free up on the order of $200 billion.

5. Federal government has over 2 million civilian employees, costing in wages and benefits about $300 billion annually. Rigid collective bargaining agreements and civil service controls make federal personnel substantially unmanageable. Restoring accountability and other managerial tools would increase civil service productivity — a 15 percent improvement would save about $50 billion annually.

Governing systems tend to take a life of their own, progressively weighed down by years of incremental additions and political deals. But overhaul is generally beyond the capacity of political deal-making. There are too many interests, and too many members of Congress. That’s why, through history, the job of cleaning the public stables has been achieved by small committees of experts who propose a comprehensive new structure instead of bargaining over each element. That’s how Justinian created new codes in the sixth century, how Napoleon devised a new civil code in the 19th century, and how the Uniform Commercial Code in the U.S. was created in the 1950s.

The only palatable path out of the budget crisis is to clean house, and the only way to do this is to give outside experts the job of proposing new frameworks. Congress can then vote it up or down, without being overwhelmed by countless interest group demands.

Philip Howard is chair of Common Good. His latest book is “Not Accountable: Rethinking the Constitutionality of Public Employee Unions.”