An Exercise in Fiscal Evasion
Congress and the White House do nothing about the ever-expanding federal budget.
When it comes to serious, lasting budget constraints, our leaders in Washington have the escape talents of Houdini. The ominous approach of the fiscal cliff put Democrats in a position to extract a lot more revenue and Republicans to force real spending cuts. That prospect drove the two sides to agree that the only reasonable option was neither.
They fixed the budget the same way they always fix it: wrapping it up with a big red bow and shipping it to the taxpayers of the future. As Robert Bixby of the fiscal watchdog group The Concord Coalition puts it, the deal "requires no hard choices and solves no difficult problems." It neatly postpones that painful, necessary work till another day, when we can expect it to be postponed again.
President Barack Obama set out to cut total deficits by $2 trillion over the next decade, comparing to what they would have been under the tax and spending policies in effect last year. His main remedy was raising tax rates at the top end of the income spectrum. In the end, according to The Committee for a Responsible Federal Budget (CRFB), he got $650 billion, a piddling one-third of his goal.
Congressional Republicans wanted to focus on curbing outlays. They preferred no additional taxes at all, but if they were going to give on that point, they would demand big concessions from Obama on expenditures. In the end, though, Congress agreed to higher tax rates in exchange for … no spending cuts. That's right: none.
Over the next decade, says CRFB, the U.S. government debt was on track to reach a staggering 81.5 percent of GDP, up from 72.8 percent today. Thanks to this noble display of statesmanship, it may hit only 78.9 percent.
It's enough to make you wish they hadn't bothered making a deal. In that case, automatic spending cuts would have kicked in, trimming projected outlays by $1.2 trillion over nine years. The sequester would have been ugly, taking the form of indiscriminate across-the-board reductions for domestic programs and defense. But it would have actually made a dent in the ever-expanding federal budget.
What we got instead was not a grand bargain. It was an exercise in evasion. That is no accident. The reason we got into the current fiscal pit is that politicians follow the path of least resistance. They prefer not to antagonize constituents by trimming back benefits that are widely cherished. But they also know better than to compel taxpayers to cover the entire cost of those programs. So spending mushrooms, tax revenues lag behind, and the debt soars.
Even when both sides found a way to agree on how to restrain spending, they found a way to disagree. House Speaker John Boehner (R-Ohio) had proposed to save money on entitlement spending, the biggest cause of budget bloat, by slightly modifying cost-of-living adjustments for Social Security (using a formula known as the "chained Consumer Price Index").
It wasn't the sort of change that would have impoverished seniors, since it would have shaved about a quarter of a percentage point off the annual increases. And the savings were modest: about $112 billion over 10 years, while yielding an additional $72 billion in revenue. Still, it was far better than nothing.
Many congressional Democrats denounced the suggestion, but Obama surprised everyone by agreeing, and House Minority Leader Nancy Pelosi said the change would amount to "a strengthening of Social Security." The deal was on.
And then it was off: Republicans abruptly changed their minds. Sen. John McCain of Arizona excused the reversal on the ground that "we can't win an argument that has Social Security for seniors versus taxes for the rich." Said Sen. Susan Collins of Maine, "There's a realization that in spite of the president's apparent endorsement of a chained CPI, that that proposal deserves more study."
In spite of Obama's endorsement? She meant because of it. Offering this money-saving change made Republicans look fiscally responsible, in contrast to the free-spending Obama. But actually enacting it was a political risk they were not willing to take.
Instead of forcing the president to accept new entitlement cuts as the price for raising taxes, Congress let him have his tax increase for free. Obama wasn't about to say no.
So here's the payoff for weeks of fear and anguish about the looming fiscal cliff: higher taxes, higher spending and a bigger debt. Funny how that worked out.