The Liberty Papers

So I’ve had a tiny bit of time to reflect on the budget deal. Here are the key points:

• $900B in immediate cuts [1/3 to defense], coupled to a $900B immediate debt ceiling increase.
• Additional $1.2T-1.5T debt ceiling increase IF Congress either passes a balanced budget amendment or a bipartisan commission creates a debt reduction [tax revenue OR spending cuts] that can pass Congress by the end of the year.
• If the above doesn’t occur, triggered spending cuts to defense and medicare [and possibly elsewhere] in the amount of $1.2T will occur along with a $1.2T debt ceiling increase. No revenue increases.

It could be better, it could be worse. I can see a few things here… First, we can throw out the BBA. That’s a non-starter. The whole reason that was added was for Tea Party buy-in, but it’s simply not going to pass. So we’re left with anywhere from $1.2T minimum in debt reduction, which is ALL cuts, to probably about $1.5T maximum (as there’s no political will for more) that can come from taxes or cuts.

With multiple paths going forward, I think we have to figure out what we’d like to see. And in my opinion, the BEST outcome is for the commission to fail and for the triggered cuts to occur. The commission has the capability to push for tax hikes, and I think in any scenario they’ll find a way for more than $300B of their package [assumed to be exactly $1.5T] to be increased tax revenues, meaning they’ll cut spending LESS than $1.2T.

Of the proposed cuts in the trigger, it’s about $600B over 10 years to defense, and a sizable chunk is expected to go into Medicare. While libertarians and Republicans may not find common ground on the defense spending, we’re talking about a total of $1T over 10 years, which should be feasible if we’re going to assume that we actually draw down in Iraq and Afghanistan. For the most part, that $1T will encompass keeping military spending roughly equal to what it is now, as those cuts are from a projected baseline which add at least $500B from what we’d spend by multiplying this year’s war-inflated spending out over 10 years.

The Medicare spending will put further pressure on reforming the program, and may give more political cover to performing drastic reforms such as the Ryan plan — voucherizing Medicare and pushing it to the Obamacare exchanges. Either way, we MUST restructure entitlements, and this is a start.

So I see a lot of danger in whatever the commission comes up with. Let’s start hoping the commission fails, and these already-planned $1.2T in cuts go into effect. Seems like the best option on the table at the moment.

This is an off-the-cuff reaction, of course. I encourage you guys to give your own thoughts on the plan in the comments.