A New Deficit Cop

Senator Kent Conrad looks more like Clark Kent than Superman, but the North Dakota Democrat today volunteered to take on the Herculean task of drafting legislation to get the federal government’s long-term debt under control.

Conrad, who chairs the Senate Budget Committee, may be just the right person for the job. One key reason: He’s not running for reelection in 2012, so he doesn’t have to worry about the political repercussions of sponsoring a plan that—by necessity—will require spending cuts, tax increases, and new limits on government entitlements, including Social Security and Medicare.

Such a plan already exists: A commission appointed by President Barack Obama came up with a blueprint for reducing the national debt by $4 trillion over the next decade. Conrad, who served on this commission, voted for this plan, as did four of the five other senators on the panel. But this plan was only a recommendation—it’s been sitting on a shelf ever since it was released December 2.

Conrad would like to see Obama call a summit with congressional leaders to turn these recommendations into action, but that hasn’t happened. Instead, the president in his State of the Union address settled for a five-year freeze on domestic discretionary spending. The work of the deficit commission only got a passing mention: “I don’t agree with all their proposals, but they made important progress,” Obama said.

This rhetorical nod isn’t good enough for Conrad, particularly when the Congressional Budget Office predicts the federal deficit will hit a record $1.5 trillion this year and total nearly $7 trillion over the following decade. That future projection is probably understated, since the CBO’s forecast assumes that temporary tax cuts expire as scheduled and that Congress allows reductions in Medicare payments to physicians to go into effect.

Federal debt held by the public will grow to $18 trillion, 77 percent of the nation’s gross domestic product, by the end of 2021, according to CBO.

This kind of debt is unsustainable, Conrad said. The federal government will be forced to pay higher interest rates, which will push up interest rates for consumers and businesses as well. Increased borrowing by the government will crowd out private investment.

“At some point, investors are likely to become increasingly nervous about whether the government can, in fact, manage its budget,” CBO director Doug Elmendorf told Conrad’s committee at a hearing today.

If we want to avoid the fate of Greece, he said, the U.S. must convince the pension plans and foreign countries that buy our debt that we’ve got a long-term plan to get our deficit under control.

“We can’t put this off,” Conrad said. “We need to reach an agreement this year.

“It may turn out that it just falls to us, on this committee, to put forward a plan,” he said.“Who else is going to do it? That’s the frustration I have.”

Despite its name, the Senate Budget Committee faces limits on its authority over the federal budget. It can give appropriators a number to work with on spending, but it can’t control how they decide to spend it. It can tell the Finance Committee how much revenue the government needs, but it can’t write tax legislation.

Despite these limitations, other members of Conrad’s committee were eager to take him up on his suggestion.

“We should seize it and do it,” said Senator Mark Begich, a Democrat from Alaska.

“Maybe we do have the opportunity to provide a little leadership,” said Senator Jeff Sessions of Alabama, the committee’s ranking Republican.

That leadership isn’t coming from Obama, Sessions said. The president's “so-called freeze” isn’t a plan to cut deficits—it’s a plan to preserve deficits, he said.

Obama “squandered a historic opportunity to really get the American people behind true spending reform,” Sessions said.

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Kent Hoover is the Washington bureau chief for bizjournals.