Recession may be averted

First impression: Whew. The compromise between President Obama and the Republican leadership removes the threat of a huge tax increase Jan. 1. Second impression: Holy cow! Look at the cost: More than $900 billion.

Economist Chris Kuehl of Armada Corporate Intelligence in Kansas City, Kan., says that unless the deal is passed, the economy will probably slide back into recession.

On that score alone, the compromise is probably worth at least one cheer, despite the whopping increase in the deficit. In any case, the deficit picture could well brighten in the coming months.

With a Republican majority slated to take control of the House soon, prospects for meaningful spending discipline will improve dramatically. Deficit politics have been moving rapidly to the right since the November election.

The clearest sign that the debate is opening up came with the Simpson-Bowles debt commission report, in which key lawmakers from both parties endorsed proposals that would have been anathema a couple of years ago.

Retirement age rise

A bipartisan majority on the panel supported a Social Security reform that would gradually raise the retirement age, slow the rate of benefit increases and boost payroll taxes for wealthier taxpayers.

Meanwhile, incoming House Budget Committee chairman Paul Ryan teamed up with former Clinton budget director Alice Rivlin to publish an innovative proposal to restrain the growth of Medicare. The strategy: shift from open-ended government support to fixed contributions for individuals.

Under their plan, Medicare would be maintained as is until 2020, after which new recipients would receive a sum — to be used to buy health insurance — that would grow according to a formula.

As for Medicaid, the federal-state health program for low-income individuals, Ryan-Rivlin would change it to a system of bloc grants to the states, in which federal outlays would grow according to a formula based in part on the size of the recipient population.

The specifics of these proposals are less important than the mere fact that such ideas are drawing adherents from both parties. That makes it tougher for supporters of the status-quo to impugn the motives of reformers.

Driving the debate will be the ongoing agonies of Europe, where many countries also built welfare states they can no longer afford. The prospect of Treasury paper getting the same treatment as Greek bonds should wonderfully concentrate Congress’ collective mind.

Political consultant Jeff Roe of Axiom Strategies, who recently spent a couple of weeks in Washington, said the incoming members are highly motivated.

The new climate in Washington is apparent immediately on arrival, Roe said.

Blunt messages

At Ronald Reagan Washington National Airport, various anti-spending groups have purchased ads bearing blunt messages, such as: “Welcome new members of Congress. Here’s your to-do list: 1. Find your new office. 2. Cut spending.” Or: “Freshmen, congratulations! Now cut spending.”

The new members, Roe says, are “fired up, hellbent on making change.”

Here’s hoping they exceed expectations because interest costs on the national debt are primed to explode.

Former Fed governor Lawrence Lindsey put this in perspective in a recent Weekly Standard article. Even assuming some moderate cuts in spending over the next few years, if interest rates return to “normal” _ they’re unusually low now _ the annual cost of servicing the U.S. debt would skyrocket from about $200 billion this year to more than $800 billion in 2015 and $1.15 trillion in 2019.

If the new Congress fails to follow the advice of the signs in the airport, this country is in deep trouble.

E. Thomas McClanahan is a member of the Kansas City Star editorial board. Distributed by McClatchy-Tribune Information Services.