Originally published in The A-List on Ft.com
Like a video game in which the combatants periodically ascend to a higher, more intense level, the budget talks in Washington have ratcheted up, with Barack Obama now engaged in direct talks with Republican leaders. And while the initial goal of an agreement by July 2nd has been missed, the president has successfully bullied the Senate into cancelling its Independence Day recess and returning to Washington today, allowing negotiations to resume early this week.
As the equanimity in financial markets is signalling, some deal to avoid default will probably be cobbled together; the consequences for America and for the world of failing are just too great.
But even if the talks succeed, the outcome will do far less to address America’s fiscal problem than was hoped when the formal discussions were launched under vice-president Joe Biden’s leadership in April.
Back then, the goal was to achieve at least $4,000bn of deficit reduction over the coming decade, consistent with the proposals of the National Commission on Fiscal Responsibility and Reform, better known as the Bowles-Simpson Commission.
The recommendations of that bipartisan, blue ribbon panel – an unprecedented package of spending reductions and new tax revenue – garnered considerable press attention and little support from the Obama administration or the Republican leadership. An even more ambitious budget proposal, from the Republican chair of the House budget committee, Paul Ryan, received similar treatment.
Now, with each passing week, expectations of the outcome of the Biden talks have steadily reduced and the $4,000bn goal seems ludicrously out of reach. Smoke signals emerging from the surprising silence surrounding the talks suggest that the two sides have “soft circled” about $1,000bn of spending reductions, while remaining deadlocked over the inclusion of new revenues.
Absurdly, Mr Obama’s modest suggestion of eliminating a bunch of tax subsidies for corporations and wealthy individuals has been met by howls of opposition from Tea Party Republicans, insisting that nothing that looks or smells like a tax increase would be acceptable.
This is all both dispiriting and ridiculous. Even under Bowles-Simpson, Washington’s debt would still rise from $9,000bn in 2010 to $15,100bn in 2020. The Republican opposition to new revenues is not only wrong on policy grounds, it is also irresponsible.
The numbers simply don’t work without tax increases. Similarly, while Democrats have shown modestly more flexibility toward cuts in Medicare, their accommodation stops well short of the surgery that is needed in both health care entitlements and Social Security.
A disproportionate amount of the coverage of the budget talks has focused on the messiness of the American process. The problem is not the process, the problem is the outcome. All the sound and fury would be more amusing if it signified something.
Alas, it appears to signal only that America’s fiscal challenges remain just as daunting as they were before the last months of political theatre. The coming presidential election augurs poorly for major reform before 2013. The first job of the new president will be to lead the country to a more responsible place.