It’s the deficit-reduction package that doesn’t reduce the deficit. It’s the debt-ceiling deal that doesn’t touch the debt ceiling (and doesn’t cut debt). It’s the long-term entitlement negotiation that—after nearly three years of wheedling—does not delay, let alone stave off, a Baby Boomer retirement bomb currently on pace to swallow half of federal outlays by 2030.
Say this for the fiscal cliff-avoidance bill that passed on New Year’s Day—it is a near-perfect expression of Washington’s grotesque devolution since Bill Clinton left office. Not only have a succession of Republican and Democratic presidents and congresses combined to jack up spending from $1.8 trillion in Clinton’s last year (a bit more than $2.3 trillion in today’s dollars) to a baseline level of $3.6 trillion and above, but the process for arriving at these hideous figures has degenerated into a series of endless, man-made, deadline negotiations in lieu of actual budgeting…
It’s hard to remember now, but one of the president’s biggest and most effective selling propositions in 2008 was that he and the world-weary Democratic majority would finally bring some adult supervision to a Republican-led budgetary process that took to heart then-Vice President Dick Cheney’s maxim that “deficits don’t matter.” “We will maintain fiscal responsibility, so that we do not mortgage our children’s future on a mountain of debt,” the 2008 Democratic Party Platform promised. The president’s first budget was actually titled A New Era of Fiscal Responsibility.
“If this is how we end the 112th Congress, it will disappoint every member of the class,” said freshman Rep. Tim Huelskamp, R-Kan., as he munched on Cheetos and walking alone after a GOP conference meeting on Tuesday. “This is exactly what we came to change, problems like this.… We came here to make big bold changes, and at the end of the day, for whatever reason, we frittered away most of the energy that sent us to here in 2010.”…
“It’s going to be awful,” Rep. Dennis Ross, R-Fla., said about coming to grips with the reality that the GOP couldn’t stop the tax increases. “There’s no easy way out of this, no pleasant way out of this, but how else are we going to learn from our mistakes? One of our mistakes was entering into sequestration. We gave a $1.2 trillion debt-ceiling increase for $1.2 trillion in cuts, and we aren’t even getting those cuts.”
The worst part of the fiscal cliff deal isn’t the specifics — though they do stink. It’s being reminded again how utterly detached Washington is from reality.
The question, now that we’ve finally hiked taxes on the rich (and doesn’t everyone feel better knowing that life is that much fairer?), is: How are we going to continue paying for the government we’ve been promised? As it turns out, raising tax rates on the “wealthy,” the most pressing issue of the Obama Age, amounts to a mere $62 billion of new revenue a year…
How can we expect any useful policy to emerge from manufactured crisis, anyway? Nearly every decision made during Obama’s presidency has been conducted under the canopy of catastrophe. The result is hastily assembled legislation that is larded up with goodies. It’s no accident.
And a newly elected Congress will be immediately submerged into another round of “negotiations,” this time centered on the debt ceiling (which we’ve already hit). Failure to surrender to the president’s demands allows the media to portray Republicans as the ones pushing the nation into default/over cliffs/etc. Low-information voters will soon be informed by Democrats that the debt ceiling, rather than debt, is the villain.
Unfortunately, Obama has been playing a waiting game on fiscal issues ever since he became president. He didn’t formulate a plan for long-term solvency partly because he didn’t want to give up the political weapon of Social Security before the 2012 election; he didn’t fully embrace the Simpson-Bowles deficit-reduction plan for the same reason. “Too early,” said his aides. He didn’t talk honestly about the deficit problem during the campaign, either. And although Obama finally offered in last month’s discussions with Boehner to revise the cost-of-living adjustment to Social Security, he retreated after the Plan B debacle.
Let’s assume it was tactically smart for Obama to play politics with the deficit issue through the campaign. Having won, Obama should quickly have taken the high ground and urged the fiscal reforms that every thoughtful member of his team knows are necessary. Instead, he chose the small-bore approach of continuing to focus almost entirely on his campaign pledge that tax rates had to go up for the wealthiest Americans. Okay, he got that. Now what?
The president did sign a bill yesterday that prevented one middle-class tax hike — the expiration of the Bush tax cuts for 98 percent of Americans — but he makes no mention of the fact that he did absolutely nothing to block the expiration of the payroll-tax holiday, a tax increase on almost 100 percent of Americans (excepting the small number of state- and local-government employees who are enrolled in a different retirement system). And while it doesn’t amount to $2,000 an American, the mean tax increase for the 77 percent of Americans whose overall taxes will be higher than they were in 2012 isn’t far off, adding up to $1,635. Eighty-one percent of the middle quintile of Americans will see their total tax bills rise.
At no point, even when his administration laid out a risible set of demands, everything they wanted from Congress, did the president try to extend the payroll-tax cut. From the very beginning, he knew he was going to sign a policy that would let a tax increase occur for almost all Americans, and today, celebrating having made “the rich pay their fair share,” he simply pretends otherwise. I (and the editors of National Review) happen to agree with the president that “the last thing middle-class families could afford now would be to pay upwards of $2,000 more in taxes this year” — it’s too bad he’s letting almost exactly that happen.
1. Does Obama and the Democrats’ extension of the Bush income tax rates for 99 percent of taxpayers represent an upper limit on federal revenue? We live in an era of trillion-dollar deficits and hollow insistence that spending isn’t the problem (indeed, barely a day can go by without Paul Krugman or someone like him bleating that the real problem is government spends too little). Now that Obama has ratified a revenue plan, is that the upper limit of income we can reasonably expect the feds to live within? If the GOP can’t make that case, they are even sadder than they look.
2. Will spending finally be a front-burner issue? There is no reason to think that stimulus – or massive government-spending more generally – works to “jump-start” an economy. Indeed, there are many reasons to acknowledge that the opposite is more likely to be true. Now is exactly the moment to be discussing serious year-over-year cuts in spending. Obama is still pushing the line that he believes in a “balanced approach” to budgeting. Late last year, he defined that as $2.50 in spending cuts for every $1 in new tax revenue. While that ratio is certainly too small (Canada reduced its debt-to-GDP ratio and goosed its economy in the 1990s by cutting $6-$7 for every $1 in revenue), it represents a starting bid in a process that could lead to a smaller government and a bigger economy. If Republicans insist that defense spending not be cut (they’ve flipped out over minor trims to a year or two of defense reductions), they have already lost not just this battle but every fight they’ll be in until they disband as a party. Nor is it any good to say that all cuts will come from poverty programs (however ineffective, inefficient, and counterproductive some of them may be) or from entitlement spending circa 2020 or later.
Deficit spending once was largely for investments — building infrastructure, winning wars — which benefited future generations, so government borrowing appropriately shared the burden with those generations. Now, however, continuous borrowing burdens future generations in order to finance current consumption. Today’s policy, says DeMuth, erases “the distinction between investing for the future and borrowing from the future.”…
This state cannot be funded by taxing “the rich.” Or even by higher income taxes on the middle class. Income taxes cannot fund the government liberals want, and they dare not seek the consumption and energy taxes their entitlement architecture requires. Hence, although Republicans are complicit, Democrats are ardent in embracing decadent democracy. This consists not just of infantilism — refusing to will the means for the ends one has willed — but also of willing an immoral means: conscripting the wealth of future generations.
American government has achieved many fine things over the last 60 years or so. It won a world war, reordered the global system, put a man on the moon, and created the Internet. But it has also continued to grow like a giant tumor, especially since World War II. A 2006 study by the Federal Reserve of St. Louis showed only small growth from 1792 until World War II (with a spike during WWI), but then a relentless steady rise since a brief fall-off in war spending in the late 1940s. By 2004, the federal government was spending $7,100 per capita, nearly 55 times more than was spent per capita in the 1910s, the Fed said.
This has had paralyzing effects. The late University of Maryland economist Mancur Olson once described how the accumulation of vested interest groups and bureaucracies in free societies causes a kind of sclerosis. Over decades the system becomes harder to reform; new ideas and a new consensus have more difficulty gaining a foothold. We saw this phenomenon unfold in both the areas of financial reform after the 2008 subprime mortgage disaster and in national security after 9/11. In both cases, the U.S. government probably responded less nimbly now than it did in previous eras because of the accumulation of vested-interest groups…
Sorry, but I think the drama is far from over. The rebellion against the size of government is a true populist movement, and it’s not going away. The debt limit is still the biggest card the tea party has. They’re going to use it.
Now, the real test is coming for Republicans. For too long they have pretended that they were the party of small government simply based on their unwillingness to raise tax rates. Unfortunately, they have failed to recognize that as a lawmaker you won’t qualify as a small-government advocate if you increase spending like a drunken sailor, vote for, sugar tariffs, farm subsidies, SBA loans, Export-Import Bank reauthorization, and refuse any reduction in defense spending at the end of two wars. Big government and low tax rates are an unsustainable combination that seems to always lead to bad policy outcomes.
In fact, as Milton Friedman reminded us, the long-term cost of government is better measured by spending rather than current tax rates. So with the tax issue out of the way, we will see if they are willing to fight for smaller government, and hence for spending restraints. The good news is that we won’t have long to wait. We will see if they fight to avoid sequestration or if they are willing to go forward with the reduction of spending growth that it would impose. We will see if they are willing to demand some true and credible entitlement reform in exchange for raising the debt ceiling, or better yet, for extending the CR to avoid a government shutdown.
So let the spending cuts begin!
President Obama cut a video, distributed by his reelection, to reiterate his belief that the wealthiest Americans still aren’t paying their “fair share” of taxes and to outline a second-term agenda ranging from environmental policy to gun control…
“Obviously, there is still more to do when it comes to reducing our debt,” Obama said in the video. “And I’m willing to do more, as long as we do it in a balanced way that doesnt put all the burden on seniors or students or middle class burdens but also asks the wealthiest Americans to contribute and pay their fair share.”