We can’t stress enough how important it is that Congress has agreed on a deal to increase the debt limit. Allowing our country to default would be the worst possible policy.
The cuts called for in this plan are significant and represent the first step along the path of real fiscal reform and responsibility. The problem with this plan is that it isn’t a solution, it is merely a first step and no one should regard it as more than that. The nation’s debt will continue to rise as a share of the economy. There is no requirement that the special committee recommend structural changes to entitlements or tax reform. And the trigger mechanism designed to force action exempts too much and requires too little.
On the commission, we showed that there is strong support for a comprehensive plan that puts everything on the table and sets our nation on a sound fiscal footing for the long term. That support was reaffirmed by the positive reaction to the work of the Senate Gang of Six. If the new committee builds on the work of the Gang of Six, its members can reach an agreement on a serious, comprehensive fiscal plan. If they don’t, they probably won’t.
If there is one lesson from our commission’s work that should stand as the best guide for the work of the new committee, it is this: The more we put on the table, and the bigger, more far-reaching and more comprehensive we made our plan, the more support we received from our members. The only way politicians can make painful choices is if they know the other side is making painful choices as well and if they know they are solving the whole problem at once, so they don’t have to come back and do it all again.
There is a reason we named our final report “The Moment of Truth.” It’s time to go big or go home.
GOP Can High-Five; Left Licks Wounds
From a political and policy perspective, Republicans won the debt standoff. This agreement is not a solution to our economic problems. It is a first down; the game hasn’t been won. But conservatives in Congress have changed the debate and shifted the political direction in America. And with the final votes looming, I hope the Republicans don’t snatch defeat from the jaws of victory.
House Speaker John Boehner is the biggest winner because he had the toughest job. Having the fragile, quick-tempered and uncompromising Tea Party members mostly on board required skill and patience that a Newt Gingrich or Tom DeLay probably could not have achieved.
Sen. Mitch McConnell is a big winner since he looked like the adult in the room. But he always does; McConnell is probably the only person in Washington who always has a plan. He is always thinking two or three moves ahead and anticipates what his opponents will do.
The hard left is the biggest loser. It is now on defense and on the wrong side of the big debate about government spending and the role of government. President Obama and his economic team looked terrible in the process, but the president could have lost even more. No one on the left is defending the president or this deal — in fact, the unhappiness among left-wing pundits underscores how well the Republicans did — but things could have been worse; no deal would have scarred the presidency and Obama would have received most of the blame for the economic consequences of a default. Sen. Harry Reid looked more like a president and Obama looked more like a back-bench legislator.
Opportunity Here For Real Reform
Well, at least we didn’t default. That’s probably the best thing to say about the proposed debt deal. But the question is: If this wasn’t the moment to put in place the framework for a real debt deal to fix the problem, when will we? The Bowles-Simpson commission laid out a plan to save $4 trillion and stabilize the debt. The Senate Gang of Six worked out several proposals to move such an idea forward. And the Boehner-Obama discussions were on the right track, covering further health care savings and an overhaul of the tax system.
In the end, however, we’re going with the plan that doesn’t save nearly enough, that doesn’t require the critical issues of entitlement and tax reform to be centerpieces of the deal, and that relies on a trigger (which doesn’t even kick in until after the 2012 election) with about as many teeth as a 6-month-old.
But all hope is not lost. Let’s hope the members of the super-committee are lawmakers who have sincere interest in addressing our fiscal challenges and a willingness to work across the aisle. Markets and outside institutions such as the Fed, the International Monetary Fund and the credit rating agencies are likely to maintain the pressure to do something real. It is conceivable that this committee could go for the brass ring, exceeding its mandate and expectations. If it does, we still have a chance to fix our fiscal problems with a package that can preserve the key priorities of both parties: pro-growth tax policies and protection of public investments and those who depend on government programs. If the committee doesn’t, this task will only get harder over time.
All Are Losers Now, But U.S. Can Win
There are no winners in this debt deal.
In 1996, both President Bill Clinton and the Republicans in Congress won the day and won re-election. They came off as having a sincere belief in smaller government, but the process following the government shutdown was tempered. It was guided by Democratic values that preserved Medicare, Medicaid, education and the environment, and Clinton was the big winner.
The contrast with today’s debt standoff is stark. President Obama’s numbers have been falling and so have the ratings of Republicans in Congress, both to record lows as the public took away a message of gridlock politics as usual. Both sides learned that bipartisan compromise was the only way to avoid financial calamity.
The 11th-hour deal has a Round II that gives the president another opportunity to get this right from the start — by setting out core values around the right way to trim the size of government.
If both sides have learned anything, they will approach the second step in fundamentally different ways — with less drama and more consistency — or they will fall into the same traps and wind up losers rather than winners.
Economy Getting A Death Sentence
When President Obama agreed to negotiate with Republicans on tying a deficit-cutting deal to the default deadline, rather than pushing harder to raise the debt limit last year or demanding from the beginning a clean bill to do so, something like the deal we have today was probably inevitable. Republicans were never going to agree to tax increases for the wealthy or big corporations, and so we have more deep cuts in programs that help the middle class with nothing in return from Republicans or their wealthy patrons. Now, this deal could have been quite a bit worse — Social Security is so far unharmed, the military budget faces some cuts — but going to the “middle” when the other side is starting so far on the extreme will never give you a good result.
The worst aspect of the deal is that, absent major policy changes in the near future, it probably locks in a lost economic decade. The only difference from Japan’s lost decade of the 1990s is that this is likely to be worse: We are pursuing a policy of massive cuts when the economic data cry out for pumping money into middle-class consumers’ pocketbooks and investing in the industries of the future. We need to be creating jobs by rebuilding our roads, bridges, schools and manufacturing base. And we are doing the opposite.
Left Less in Love With Obama Now
Nobody won. But nobody died. So everybody — President Obama, congressional leaders of both parties, aggrieved conservatives and angry liberals — lives to fight another day. The debt crisis will move out of the headlines to quasi-news purgatory, where it will join Rupert Murdoch, health care reform, Tiger Woods and Afghanistan until the newly appointed congressional committee begins its work this fall. And when the debt story does re-emerge, each of the participants will return to their places on the playing field and the debate will pick up where it left off.
At the end of the beginning, though, the debt agreement is a mixed bag for everyone involved. House Republicans set the ideological framework for an all-cuts, no-taxes agreement but fell short of their most ambitious goals of a balanced-budget amendment and even more aggressive spending reductions. The White House positioned its candidate squarely at the center of the political landscape, strengthening his opportunity to regain the support of wayward moderate and independent voters but further aggravating resentment from the Democratic base.
More and more, it appears that the absence of a primary challenge to Obama is shaping not only the 2012 presidential campaign but the national policy landscape. A credible opponent such as Russ Feingold or Howard Dean would have exerted enough leftward pressure on the president to prevent him from signing off on this deal, from raising the topic of Social Security and Medicare reform as part of the negotiations, or, for that matter, from extending the Bush tax cuts, sending troops to Libya, and keeping Guantanamo open for business.
Obama appears to be testing how much he can frustrate his followers and still turn them out next November.
We Can Do Better With Round Two
The process leading to the debt limit deal exposed how dysfunctional our political system has become. Thank goodness we will avoid defaulting on our debt, but, on the other hand, it’s hard to conclude that we’ve restored the reputation of U.S. Treasurys as a “risk-free” investment.
Democrats are understandably upset that the agreed-upon deficit reduction in this round is entirely through spending cuts — and that the triggered policy changes if the second round fails will be entirely on the spending side. But it’s probably good news for Democrats that they didn’t do the whole big deal this time around, or taxes would have come off the table for good. This way there’s another chance to raise revenue while giving both sides “cover” on the issue.
House Speaker John Boehner has spelled out that the next round of negotiations will allow tax policy changes that are measured relative to the “current law baseline.” That is progress. Given that current-law revenue levels assume all of the Bush tax cuts expire as scheduled at the end of 2012, a tax reform that maintains this baseline would be consistent with deficit reduction relative to current policy and revenue neutrality relative to current law. Policymakers finally would be holding the Bush tax cuts to a strict pay-as-you-go requirement. This would mean both higher revenue and more deficit reduction — a more substantial and “balanced” package — than what President Obama himself has ever proposed.