Opening Remarks

'Supercommittee'? Superbad


The Nov. 21 demise of the congressional “supercommittee” on debt reduction provided analysts, legislators, talking heads, occupiers, anti-occupiers, and even the silent reasonable majority with another opportunity to decry the scourge of American politics: gridlock. “Washington is broken,” announced Representative Tim Walz (D-Minn.) in a written statement. “Americans are understandably frustrated with the bickering and gridlock that has become a staple of the way Washington operates.” Said Representative Dan Lungren (R-Calif.): “With the failure of the supercommittee, Congress once again has neglected to face head-on a long-foreseen and fast-approaching crisis.” Goldman Sachs (GS) equity analyst David J. Kostin predicted in a report that “the inability of elected officials to act in the long-term best interests of all Americans” could send the Standard & Poor’s 500-stock index down 9.5 percent, to 1,100. Sure enough, in the hours before the co-chairs of the supercommittee effectively closed up shop through e-mailed statements released to the press, the stock market plummeted.

On cue, Republicans and Democrats sought to blame each other. “The supercommittee’s failure is a direct result of President Obama’s negligence and Democrats’ intransigence,” Republican National Committee Chairman Reince Priebus said in a statement. Obama countered that Republican lawmakers “refused to listen to the voices of reason and compromise.” And so on.

The irony in all the fulminating is that the universe has finally gone so topsy-turvy—and the political forces have run so amok—that gridlock has become a stealth agent of change. Under the terms of last summer’s on-the-precipice deal to raise the federal debt ceiling, the supercommittee’s failure to agree on a deficit-reduction package means that, starting in 2013, a combination of $1.2 trillion in spending cuts and scheduled tax-break expirations will take effect. That would accomplish more in the way of fiscal restraint than anyone with open eyes expects from the current crop of posturing incumbents. “The problem is not gridlock,” says Tyler Cowen, a professor of economics at George Mason University. “If Congress would do nothing now, we would be O.K. What we need is some gridlock.”

The do-nothing approach, of course, carries big risks. Unless the economy strengthens considerably in the next year, lockstep austerity—while it would achieve the goal of deficit reduction— could plunge the U.S. into another recession. However, a third path to deficit reduction does exist. The catch is that it requires one party to abandon the only thing it seems to care about.

 

Let’s return, for a moment, to gridlock. Cowen, a free-market conservative with iconoclastic tendencies, figures that if lawmakers would simply adhere to the debt-ceiling deal struck in August, the nation might actually get deficit reduction worth trillions of dollars over the next decade, all of it done on legislative autopilot. Runaway expenditures could be reined in, while revenue would increase beginning in 2013 primarily from the “sunsetting” of the tax cuts introduced by the George W. Bush Administration. “That would be huge,” Cowen says.

Unfortunately members of Congress show no interest in taking advantage of a perfectly good opportunity to wallow in stalemate. Before the leaders of the 12-member bipartisan supercommittee announced that their negotiations had ended in frustration, lawmakers on both sides of the aisle were working various legislative levers to stop the $1.2 trillion in automatic spending cuts from taking effect. To cite the most conspicuous example, GOP lawmakers such as Senators John McCain (R-Ariz.) and Lindsey Graham (R-S.C.) have vowed to prevent Congress from reducing the Pentagon budget by $600 billion, a cut that would ostensibly be “triggered” by the supercommittee’s inaction. They draw support from Defense Secretary Leon I. Panetta, who has said the proposed cuts would be “devastating” for the Pentagon.

In effect, Congress is gearing up for an election year of budget shuffling that will expand the deficit rather than shrink it. So while in theory gridlock might appear to be exactly what the country needs to get its fiscal house in order, neither party will allow it to happen. And since Americans can’t count on Congress to sit quietly and allow automatic spending cuts and tax increases to take effect, it’s imperative that the source of the immediate mess be identified with clarity. That is the only way for the 2012 elections to provide voters with meaningful choices and award the victors a mandate for reforms they might actually get enacted.

The political and policy issues may seem complicated, but they are easily simplified: Democrats want to reduce the deficit, in part, by raising taxes on the wealthiest Americans (but maintaining current Bush-era rates for everyone else). Republicans view even that goal as blasphemy, no matter how often Warren Buffett insists that hedge fund billionaires and even some mere millionaires can afford to pay higher rates. Against the better (if muted) judgment of some of its more traditional leaders, the Republican Party is now in the thrall of a fundamentalist antitax ideology that precludes compromise. Republicans freely admit this orthodoxy is what defines them. “It’s the one thing that when Americans say, ‘What’s the difference between the two parties,’ taxes is the last thing they can still look at,” Representative Tim Huelskamp (R-Kan.) told the Wall Street Journal on Nov. 18. Huelskamp was one of more than 70 Republicans to sign a letter urging the supercommittee not to accept tax increases.

Republicans claim that during the supercommittee negotiations they offered several proposals for raising revenue by closing tax loopholes. What they actually said, however, was that they would trade $250 billion in new revenue for a prolonged extension of the Bush-era tax cuts. Extending those cuts would have an impact of $3.7 trillion through 2019, according to the nonpartisan Congressional Budget Office. So what the Republicans really offered was a bargain that reduced revenue by trillions of dollars. No thanks, Democrats said.

For now, neither side perceives a great cost to intransigence. The U.S. so far has gotten away with running up the tab on the national debt. Investors continue to be willing to lend money to Washington at low rates. But as governments across Europe discovered, the patience of bond markets will run out eventually—and when it does, a long-simmering crisis can become a sudden catastrophe. Republican extremism in rejecting anything that anyone, no matter how misleadingly, could label a tax increase, encourages mirror-image rigidity in Democratic circles—namely, the liberal tendency to look away from the worsening pressures we face in coming years as a result of an aging population and rising health-care costs.

What everyone in Washington knows, but Republicans refuse to concede, is that the U.S. can’t balance the budget with nonmilitary spending cuts alone. Politicians who insist on the absolutist antitax position, Cowen observes, are only obscuring the depth of our long-term fiscal challenge—and ensuring that the country eventually pays a staggering price for its profligacy. “We’re the next Italy,” he warns. “Maybe it takes us 10 or 12 years to get there, but that’s the real danger.” We’ll be lucky if it takes that long.

Barrett_190
Barrett is an assistant managing editor and senior writer at Bloomberg Businessweek. His new book, Law of the Jungle, tells the story of the Chevron oil pollution case in Ecuador.

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