Just a Theory I Have…

“Over the last few years, both parties have worked together to reduce the deficit by more than $2.5 trillion — mostly through spending cuts, but also by raising tax rates on the wealthiest 1 percent of Americans.  As a result, we are more than halfway towards the goal of $4 trillion in deficit reduction that economists say we need to stabilize our finances.

“Now we need to finish the job.  And the question is, how?

“In 2011, Congress passed a law saying that if both parties couldn’t agree on a plan to reach our deficit goal, about a trillion dollars’ worth of budget cuts would automatically go into effect this year.  These sudden, harsh, arbitrary cuts would jeopardize our military readiness.  They’d devastate priorities like education, and energy, and medical research.  They would certainly slow our recovery, and cost us hundreds of thousands of jobs.  That’s why Democrats, Republicans, business leaders, and economists have already said that these cuts, known here in Washington as the sequester, are a really bad idea.

“Now, some in Congress have proposed preventing only the defense cuts by making even bigger cuts to things like education and job training, Medicare and Social Security benefits.  That idea is even worse.

“Yes, the biggest driver of our long-term debt is the rising cost of health care for an aging population.  And those of us who care deeply about programs like Medicare must embrace the need for modest reforms — otherwise, our retirement programs will crowd out the investments we need for our children, and jeopardize the promise of a secure retirement for future generations.

(President elaborates, mostly on proposals designed to reduce cost inflation in Medicare.)

To hit the rest of our deficit reduction target, we should do what leaders in both parties have already suggested, and save hundreds of billions of dollars by getting rid of tax loopholes and deductions for the well-off and the well-connected.  After all, why would we choose to make deeper cuts to education and Medicare just to protect special interest tax breaks?  How is that fair?  Why is it that deficit reduction is a big emergency justifying making cuts in Social Security benefits but not closing some loopholes?  How does that promote growth?

“Now is our best chance for bipartisan, comprehensive tax reform that encourages job creation and helps bring down the deficit.  We can get this done.  The American people deserve a tax code that helps small businesses spend less time filling out complicated forms, and more time expanding and hiring — a tax code that ensures billionaires with high-powered accountants can’t work the system and pay a lower rate than their hardworking secretaries; a tax code that lowers incentives to move jobs overseas, and lowers tax rates for businesses and manufacturers that are creating jobs right here in the United States of America.  That’s what tax reform can deliver.  That’s what we can do together.

“I realize that tax reform and entitlement reform will not be easy.  The politics will be hard for both sides.  None of us will get 100 percent of what we want.  But the alternative will cost us jobs, hurt our economy, visit hardship on millions of hardworking Americans.  So let’s set party interests aside and work to pass a budget that replaces reckless cuts with smart savings and wise investments in our future.  And let’s do it without the brinksmanship that stresses consumers and scares off investors.  The greatest nation on Earth cannot keep conducting its business by drifting from one manufactured crisis to the next.  We can’t do it.”

–President Obama, 2013 State of the Union Address, Tuesday, February 12, 2013 (emphasis mine).

I have a theory: For weeks, both parties have decided that the harmful spending cuts of the budget sequestration are inevitable, and offers of alternative policies have essentially been designed to reflect a narrative in which the other party is responsible.  How’s that?  For one, in last week’s State of the Union Address President Obama counts the $1 trillion in sequester spending cuts he wants replaced towards the achievement of about $2.5 trillion deficit reduction he considers accomplished.  The Congressional Budget Office has projected that the recent tax increases and the sequester spending cuts combined will shave about 1.25% off of this year’s GDP growth and cost the national economy about 1.5 million jobs.  This disaster wouldn’t be fully-felt initially, and while it would reverberate through certain industries these Federal spending cuts won’t necessarily tip us back into recession.  (For one, the Dow Jones Industrial Average may have largely priced-in the susceptibility of certain sectors and companies to steep, blunt spending cuts.)  In any case, the President has made it clear that the arrival of these Federal spending cuts would be very bad–for the economy, our competitiveness, and our military standing abroad.

As an alternative, the President specifically mentioned both revenue-raising tax and entitlement reform, particularly to Medicare–in other words, tax increases that cross a red line for Republicans and cuts to entitlements that are outrageous at least to Liberal Democrats.  In short, the President proposed replacing spending cuts that are bad for the health of the country with a combination of tax increases and spending cuts that offend each parties’ ideological sensibilities.

How much confidence could he possibly have in the prospects for a proposal that offends the 2 parties’ base supporters merely because it is in the nation’s common interest?  Reflecting a more-partisan angle, Senate Democrats have offered their own interim proposal to replace the sequester spending cuts, which they also cannot really expect to happen since it both deliberately embarrasses Congressional Republicans and doubles-down on spending cuts that hurt Republican policy priorities.  The Senate Democrats’ proposal leaves the drastic military spending cuts intact while eliminating all US farm subsidies, calls for a 30% minimum effective tax rate on millionaires and closes a lot of tax loopholes that Republicans have protected, the last provision having descended from 2011 proposals leading up to the debt limit crisis.  The temporary measure would only last for a year, but why would Senate Democrats leave the controversial 2nd round of military spending cuts intact and propose abolishing all farm subsidies?  They don’t want Congressional Republicans to seriously consider supporting the proposal.

And what about Congressional Republicans?  Are they negotiating in good faith?  Well, that depends on whether you think negotiating entails ever making an offer–but their self-representation is completely different from the Democrats’.  While President Obama and (somewhat less-plausibly) Senate Democrats have modeled their appeal on an offer of compromise, the Republicans propose a litany of ideological wish-fulfillment that would be politically-damaging to their party if it could actually happen.  House Budget Committee Chairman Paul Ryan (R-WI), who while certainly a Conservative has generally avoided either partisan histrionics or dissembling about his policy goals, currently claims to be writing a multi-year budget outline that will balance the Federal Budget in about 10 years.  This is a suspicious promise for Congressman Ryan to make less than 2 years after an already-radical Federal Budget proposal that would have made a neutral balance possible after 30 years cost his party several previously-safe House seats in special elections.  Now the Republicans’ budget specialist proposes an even more-radical plan to cut Federal spending, just months after facing a decisive rejection by the electorate in a Presidential Election explicitly waged over the size and scope of government.  And would you be surprised that Congressman Ryan has been saying for weeks that he expects the sequester spending cuts to happen?

If it’s hard to imagine a plan being a political success both if it were to be seriously aired and debated in Congress and if the effects of implementation were actually felt, you should ask yourself if it could be boilerplate.  Why scale-back your dreams–Indeed, why scale-back your fantasies–if you think being pragmatic won’t avail you?

So, either President Obama and the Democrats wanted a balanced, negotiated solution and Republicans were just too fanatical to accept it, or Republicans were genuinely ready to pursue the ideological budgetary goals their Conservative party base demanded of them, and the Democrats simply blocked them on account of holding the upper reins of Federal power.  Or maybe neither of those propositions is true, and all of this is a rehearsal of the respective eulogies that Democrats and Republicans will deliver for their disparate visions when a very unpleasant round of blunt-force spending cuts take effect on schedule in a matter of weeks.  Make no mistake: The sequester will be bad for the country.  But any significant changes to those cuts will offend 1 or the other of the parties’ bases all the more.  So, the sequester is the most-likely outcome, and both parties have moved on to preemptively setting the tone for this costly failure to compromise.

If this realization causes the less-partisan among you to lose faith in the political system, you should know that the reason stunts like this (and harmful policy results like sequestration) happen is because activists are the ones who pay the closest attention to politics.

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