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Debt looms over conference committee and over future taxpayers

The opening session of the House-Senate budget conference Wednesday had none of the theatrics of the Obamacare hearing going on across the street where House members grilled Health and Human Services Secretary Kathleen Sebelius.

The budget conference was 29 men and women sitting around a rectangular array of tables, calmly reading their opening statements. A taxpayer might say, “Remind me again what this ritual is all about.”

The committee is trying to design a budget for the current fiscal year (which began Oct. 1) as well as on some relatively small policy changes that would reduce the national debt in the decades ahead.

Sen. Pat Toomey, R-Pa, is a member of the bipartisan Budget Conference Committee, which holds its first meeting Wednesday to discuss negotiating a budget deal.

Part of a FY 2014 plan will be replacing the cuts in non-entitlement spending, the so-called sequester enacted in 2011.

“I’m hopeful that this committee can come to an agreement on eliminating the damaging and senseless cuts associated with sequester by replacing them with changes in mandatory spending like those suggested by President Obama,” said committee member Rep. Tom Cole, R- Okla., a closely watched Republican centrist.

There was some bipartisan harmony on that point, with Senate Budget Committee Chairman Sen. Patty Murray, D-Wash. saying, “Sequestration is bad policy -- and Democrats and Republicans have said it’s not sustainable -- but it is going to continue to cost us jobs and cut vital services until we get a bipartisan deal to replace it….”

Replacing it will be an ordeal because Congress has already restored some military funding, and pro-defense members want to put even more military spending back in the budget -- partly undoing the sequester.

But Democrats such as conference member Sen. Ron Wyden, D-Ore., say that Congress intended the sequester to cut non-military and military spending equally.

“There has to be parity between defense and non-defense,” Wyden told his colleagues. “Walk into a Dairy Queen and nobody knows whatever sequestration is, but they do know what fairness is. And the rules (of the 2011 law) were that you were going to cut defense and non-defense equally.”

If the Defense Department is going to get some funds restored, then public education, infrastructure and scientific research ought to as well, Wyden said.

Meanwhile something bigger than replacing the sequester is hanging over the committee – the future debt burden.

That’s the real reason why Wyden and the other members were sitting at the conference table.

Most fiscal experts, including those at the Congressional Budget Office, forecast that an aging population and the current design of entitlement programs will drive debt to the highest levels in American history, higher than the level reached in 1946 after the government borrowed hundreds of billions to defeat Germany and Japan.

Fiscal gurus are convinced that at some point in the next few decades, the federal debt will push interest rates higher and interest payments will slowly squeeze spending for the things government usually spends money on: Medicare benefits, highways, FBI agents, etc.

But for some taxpayers that point of debt danger is so inconceivably far in the future that it may not seem real.

To control the future debt, they might not be willing to accept reductions in the future Medicare and Social Security benefits that have been promised to them. Many think they are “only getting back what I paid in” to the tax system in the form of Social Security and Medicare payroll taxes.

But in the case of Medicare, this isn’t true for most taxpayers. CBO analysts say that people born in the 1960s will pay about $65,000 in Medicare payroll taxes during their working lives, but will receive, on average, about $270,000 in Medicare benefits once they reach age 65.

The demographics (the huge Baby Boom generations) mean that higher spending is structurally built in to the system. But the current fiscal policy – the sequester -- is facing exactly the opposite direction: mostly cutting non-entitlement spending (highways, medical research, military training, etc.), not entitlement spending (Medicare, Medicaid and Social Security).

“We’ve done a pretty good job on the discretionary side,” said conference committee member Sen. Rob Portman, R- Ohio. “The Budget Control Act was only signed into law two years ago. Let’s not break those caps (on spending). Let’s acknowledge that we’ve done a pretty good job (in controlling spending) on the one-third of the government spending that is subject to (annual) appropriations. The two-thirds that’s on auto-pilot is the part we’re not doing a good job on.”

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