A little over a decade ago, under a Democratic president, the United States was paying off the national debt in significant strides. Surpluses were running over $200 billion a year.
Than came dramatic tax cuts, an expansion of Medicare benefits, two wars, a shallow recession beginning in 2001, and then a horrible recession and financial crisis, during and after which tax receipts plummeted because of a steep drop in economic activity.
right write! this, the current Democratic president is trying to get the U.S. back on the road to financial stability by proposing some sort of grand $4 trillion deal that would be probably 70% or more in cuts in spending, including politically risky changes to Social Security and Medicare, plus 30% or so in increased tax revenues through closing various loopholes and deductions and almost certainly letting some of the Bush-era tax cuts expire.
It’s a bold move by Obama, and it’s quite middle-of-the-road politically. I’ve been telling skeptics for over a year that Obama will take on entitlements and the debt/deficit as soon as the economy is on firmer footing. Now he’s actually moving faster on those issues than I expected.
It’s not surprising that Republicans, who have been emphasizing the need for a grand plan, seem to be rejecting Obama’s offer. They have spent so much time assuring their base that the budget can be balanced without any increased tax revenues that they have nowhere to go politically. And the kind of cuts they’re envisioning — the kind that would be necessary to balance the budget without any increased revenues — aren’t going anywhere with the American people. The House Republicans voted almost unanimously for a plan to dismantle Medicare as we know it, but after public outcry Republican leaders have backed off from that. Any attempt to slash Social Security without at the same time raising taxes on the wealthiest Americans will meet the same fate.
Republican leaders have President Obama right where they want him — ready to make massive reductions in government spending — and now they seem to be retreating from their own goal for fear of angering their base.
A few key pieces in the news about this:
Obama, at least, was willing to make that leap and had put significant reductions to entitlement programs on the table. But on Saturday, Boehner blinked: Republican aides said he could not, in the end, reach agreement with the White House on a strategy to permit the Bush-era tax cuts for the nation’s wealthiest households to expire next year, as lawmakers undertook a thorough rewrite of the tax code.
Democrats quickly accused Boehner of placing tax breaks for the rich above the nation’s financial salvation.
“We cannot ask the middle-class and seniors to bear all the burden of higher costs and budget cuts. We need a balanced approach that asks the very wealthiest and special interests to pay their fair share as well, and we believe the American people agree,” White House communications director Dan Pfeiffer said in a statement.
“Both parties have made real progress thus far, and to back off now will not only fail to solve our fiscal challenge, it will confirm the cynicism people have about politics in Washington.”
From right-of-center columnist Kathleen Parker, in “The just-vote-no crowd”:
The president’s proposal for a deal that would save $4 trillion over the next 10 years through cuts to all major spending areas, including entitlements and the Pentagon, is otherwise known as a “sea change.”
Of course, a quarter of that $4 trillion in savings would come from $1 trillion in new tax revenues, so the deal is far from perfect at this stage. Even so, in any other season Republicans would be staging parades.
Meanwhile, not raising the debt ceiling is fraught with risks, not the least of which is creating greater uncertainty in financial markets in an already fragile recovery.
Republicans have made enormous advances toward government reforms that were viewed as unachievable a year ago. Voting no may have become the aphrodisiac of small-government conservatives, but it is not necessarily an act of bravery or wisdom.
Sometimes it’s just stubborn.
From right-of-center David Brooks in the NYT, “The Mother of All No-Brainers”:
A normal Republican Party would seize the opportunity to put a long-term limit on the growth of government. It would seize the opportunity to put the country on a sound fiscal footing. It would seize the opportunity to do these things without putting any real crimp in economic growth.
The party is not being asked to raise marginal tax rates in a way that might pervert incentives. On the contrary, Republicans are merely being asked to close loopholes and eliminate tax expenditures that are themselves distortionary. [. . .]
Over the past week, Democrats have stopped making concessions. They are coming to the conclusion that if the Republicans are fanatics then they better be fanatics, too.
The struggles of the next few weeks are about what sort of party the G.O.P. is — a normal conservative party or an odd protest movement that has separated itself from normal governance, the normal rules of evidence and the ancient habits of our nation.
If the debt ceiling talks fail, independent voters will see that Democrats were willing to compromise but Republicans were not. If responsible Republicans don’t take control, independents will conclude that Republican fanaticism caused this default. They will conclude that Republicans are not fit to govern.
And they will be right.
Now, just because there’s no deal tonight, or in the next few weeks before the important deadline for raising the debt ceiling, that doesn’t mean that we can’t get on the road to fiscal sustainability at some point in the next few years. By the same token, however, Republicans could embrace the deal in front of them right now and then continue to work later for more spending and tax cuts.