Missing a chance to make progress toward reducing deficits and the debt?

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.

As I 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:

First, from “Boehner abandons efforts to reach comprehensive debt-reduction bill”:

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.

3 comments for “Missing a chance to make progress toward reducing deficits and the debt?

  1. July 10, 2011 at 9:57 pm

    Two things:

    1. The unemployment rate has risen from 7.3% to 9.2% under Obama.
    2. Public debt has increased from $10.6 trillion to $14.3 trillion under Obama.

    Dems have not passed a budget in over 800 days. Rep. Ryan layed out one that was passed by the House April 15.

    Obama has created much of this mess that has both Dems and Repubs trying to fix.

  2. bill dawers
    July 11, 2011 at 8:20 am

    Thanks for the post.

    Regarding #1, the increase in public debt (and the current deficits) is in large part cyclical. Tax receipts plummeted during the recession and the number of people receiving various forms of public assistance (Medicaid, food stamps, unemployment insurance, etc.)jumped. See for example: http://seattletimes.nwsource.com/html/nationworld/2015571543_payments11.html. Those programs of course had pre-existing policies about qualifications for benefits, so they were going to be tapped unless Obama and Congress had acted amazingly swiftly.

    Yes, the stimulus added to the debt, but keep in mind that $300 billion-ish of that was in tax cuts. And there’s little doubt that those tax cuts and other spending were in fact stimulative. We’ve had more money going out than coming in for about a decade; that trend has been exaggerated over the last 3.5 years.

    The economy was in free fall when Obama took office, and job losses were stopped by mid-2009, but as I’ve said elsewhere there aren’t enough jobs being created to make up for population growth. Why didn’t Obama’s economic team have a better idea about how far unemployment (a lagging economic indicator) would go? Why didn’t they overestimate it even if only as a political ploy? Why didn’t they listen to Christine Romer about the extent of the recession when they took over? I don’t know. Those are obvious failings, but they had very little to do with where we are now.

    And one final point: even if one blames Obama for the increase in debt during this horrid recession, it’s clear that he has put a legitimate proposal on the line that represents as Parker says above “a sea change.” Too bad Republicans are not seizing this opportunity.

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