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Monday, October 4, 2010

ACT I: A GRAND BARGAIN FOR THE NATIONAL DEBT- Will It Be Applauded, Booed Off Stage, or Simply Ignored?

Your odds of being richer tomorrow, rather than poorer, just got a wee bit better.

Maya McGuineas, a fiscal hero from the New America Foundation and the Committee for a Responsible Federal Budget, and Bill Galston from the Brookings Institute, put a fresh federal budget proposal on the table, summarized here.

It has the critical elements of a Grand Bargain necessary to avoid an exceedingly grand financial wreck.

Whether Washington acts on it in time remains to be seen. So far, camps of the right and left are having buckets of fun bludgeoning their opponents. There is a profusion of passion but no palpable progress.

McGuiness and Galston's 18 page plan moves beyond the Bashing Bozos. It realistically pushes the federal budget to near balance and stabilizes the federal debt at 60% of GDP, a number that has surfaced as a rough estimate of "safe". It gets this job done in ten years.

For the left, McGuiness and Galston tilt Social Security benefits more towards the poor. They raise taxes both by cutting tax breaks and by adding a carbon tax. Their plan trims defense and adds a war surtax, too.

For the right, the proposal adds private accounts to Social Security, freezes domestic spending for three years, and institutes tort reform.

The plan is fertile seed on middle ground that is currently barren. The Obama Administration's budget doesn't even pretend to get close to balance or to stabilize the national debt, much less bring it down. And Republican Congressman Paul Ryan's proposed budget works the federal debt back down to 60% of GDP by 2066 - snail's pace in a lightning fast world.

It's not that either man lacks the intellectual capacity to plan for a credible, sustainable, and timely budget. It's that the old political formula - spend big, tax less, to heck with tomorrow - still wins with special interest groups, the press, and most voters.

With the McGuiness-Galston plan, the first steps to gain control of the federal budget are clear. Both left and right can walk away winners.

Yet even if the plan were adopted tomorrow, government finances would still pose grave threats to family prosperity.

A grossly inefficient health care sector would still pour concrete into overshoes worn by every family's budget. Public employees would still be owed retirement benefits equal to 100% of the national debt. State and local governments would still have some very weak sisters that will soon be asking for taxpayer bailouts. And our present tax system would still bear a striking resemblance to Medussa's hairstyle.

Thanks to Maya McGuiness and Bill Galton, Washington no longer needs to write a script. It can simply raise the curtain and get to work. Let's hope it does.


See Maya McGuineas in action before the President's Fiscal Commission on YouTube.
Roll forward to 14:30 where she is introduced.