Using ideology to cut the deficit

With dismal frequency, popular panics sweep across our social or political landscapes, filling the airwaves and the halls of Congress with irrational fears. Healthcare “death panels,� a president’s supposed foreign birth … and now, the federal deficit.

Last week, deficit panic gave birth to a set of harsh proposals for federal budget cuts and tax changes from the co-chairs of the National Commission on Fiscal Responsibility and Reform, a bipartisan 18-member panel created this year by President Obama and congressional leaders.

The chairs, former GOP Sen. Alan Simpson of Wyoming and former Clinton Chief of Staff Erskine Bowles, are expert practitioners of deficit panic. They made their proposals public Wednesday as a trial balloon, evidently because it was already plain that the package could never garner the 14 votes needed to make it part of the commission’s formal recommendations, due Dec. 1.

They dressed their plan in the full red-white-and-blue. “We have a patriotic duty to come together,� they said. Americans must “sacrifice to make our nation stronger.�

Those would be inspiring words, had they not come from a couple of chaps who evidently define “patriotism� as something to be paid for by you and me.

Simpson was last heard from displaying a profound ignorance of the basics of Social Security and showing a barnyard crassness by describing the program, which provides more than half the income for two-thirds of all American retirees, as “a milk cow with 310 million tits.� (The original, less crude, line is from H.L. Mencken.) Bowles collects $335,000 a year as a director of Morgan Stanley. So you won’t be surprised to learn that their patriotism runs to slashing Social Security benefits, but not to imposing sacrifices on Wall Street.

It’s hard not to think of the Simpson-Bowles plan in terms laid out by Franklin Roosevelt in a 1937 Fireside Chat: “Sometimes I get bored sitting in Washington hearing certain people talk and talk about all that Government ought not to do — people who got all they wanted from Government back in the days when the financial institutions and the railroads were being bailed out in 1933.�

Is the federal deficit large? Yes. But there’s no sense in attacking it in haste today, when more spending may be necessary to secure a lasting economic recovery. A large chunk of the red ink comes from fighting two wars while cutting the taxes, mostly for the wealthy, that should have paid for them. Some $1.5 trillion comes from bailing out the banks that crippled themselves by imprudent behavior and from reviving the economy that stalled, largely because of that same banking crisis.

The most insidious stratagem for stoking deficit panic is to suggest that we get nothing for our money — it’s just incinerated in the “government� rathole, impoverishing our children and our children’s children.

Is this the case? Will our children have been impoverished by our saving the banking system from collapse? By hauling the economy back from the brink of extinction? Will they be impoverished by the roads paved, bridges repaired, airports upgraded, high-speed rail links built by the stimulus program?

To ask it another way: Do you feel impoverished by the interstate highway system, Hoover Dam, the Internet — all built or launched in past decades with federal funding, some of it deficit-financed?

According to the Congressional Budget Office, the cause of deficit growth in the future won’t be spending on conventional government services, which will consume a steady 8.4% to 8.6% of gross domestic product from 2020 through 2080 (down from today’s stimulus-driven 16%). It’s not Social Security, which has its own revenue source and will stick at 5.3% to 6.1% of GDP over that period. It’s Medicare and Medicaid, which are projected to grow from 5.3% of GDP this year to 17.2% in 2080.

Yet Simpson and Bowles slash away chiefly at the first two categories. They want to charge admission fees to the Smithsonian, cut funding for the Corporation for Public Broadcasting, cut foreign aid, eliminate federal funds for safety, security and runway improvements at major airports, and eliminate anti-violence and drug-abuse programs at public schools.

How about billing hedge funds and commodity dealers for the cost of their federal regulation? Not mentioned.

As for Social Security, they propose to change the formula for retirees’ cost-of-living increases to what’s known as the “chained� consumer price index. This is supposedly a more accurate inflation measure than the old CPI because it incorporates the “substitution� effect — when Kellogg’s jacks up the price of its cornflakes, you shift to the off-price brand and, presto! No more inflation.

It’s debatable whether the chained CPI really is more accurate, or is at all applicable to the elderly. For seniors the chief carrier of inflation is medical care, which isn’t amenable to substitution. But the chained CPI does run about 0.3 percentage points a year lower than the regular CPI. Absent a showing that it accurately measures seniors’ cost of living, it looks like nothing but a back-door benefit cut.

The same goes for another Big Idea from Simpson and Bowles — raising the full retirement age to 69. (It’s 67 for those aged 50 or younger today.) There are huge problems with this change — for one thing, it hurts lower-wage workers more than the better-paid, whose working lives are typically longer. Already, most retirees start claiming Social Security before their full retirement age — often because of health problems or because they can’t find work.

As Henry Aaron of the Brookings Institution has calculated, raising the retirement age translates into an across-the-board benefit cut of 6.66% for every year increased, making the new proposal a 13.32% total cut.

Throw in a further benefit cut over time of up to 41% for all but the lowest-paid workers — affecting anyone with lifetime average earnings of more than about $19,000 a year as Social Security counts wages — and you’re talking about “saving� Social Security from making benefit cuts by imposing even bigger cuts.

The co-chairs have very little concrete to say about Medicare and Medicaid, and some of what they do say comes straight from the Republican playbook. One of their bullet points on reducing healthcare costs is to impose tort reform to “pay lawyers less and reduce the cost of defensive medicine.� This hardy perennial is code for shutting the courthouse door to individuals or families seeking appropriate redress for medically induced injuries or deaths. Not coincidentally, it would cut revenue for trial lawyers, who Republicans think are all Democrats.

How much have lawsuits and “defensive medicine� actually contributed to the rising cost of healthcare? According to CBO testimony in 2008, zero percent. That’s right, zero.

No one’s going to take deficit-reduction proposals seriously as long as they’re composed of ideological chestnuts and ill-disguised hits to the middle class and working class. It’s time to end such charades. And it’s really time to stop dressing them up as “patriotism.�

Michael Hiltzik’s column appears Sundays and Wednesdays. Reach him at [email protected], read past columns at latimes.com/hiltzik, check out facebook.com/hiltzik and follow @latimeshiltzik on Twitter.