by Rick Lazio.
Sometime late this afternoon the two co-chairs of the Congressional Super Committee, charged with coming up with $1.5 trillion in federal government deficit reduction, will announce that they are hopelessly deadlocked and are unable to come to an agreement. This announcement will be anti-climatic because for days the messages being sent by members of that committee have been pessimistic. The Super Committee failure is a significant disappointment. It was created as a way to get the hyper partisan Congress – and President – to do what they couldn’t do on their own. The process was compelling: anything reported out of the Super Committee would head for the floor of the House and Senate. No amendments would be permitted; only a simple up or down vote. Therefore, the bill would be protected from unraveling on the floor of either congressional chamber by irresponsible amendments that would make for good political theatre, but would poison the potential for a good outcome. The process was further advantaged by being protected by filibuster and other procedural obstacles. Instead of needing 60 votes in the Senate, only a simple majority would need to vote for the budget bill to be approved.
No doubt a subset of the 12 member Super Committee worked very hard to find an agreement. But without the President showing flexibility and bipartisanship, there was insufficient political cover to find common ground. In a sense, this shouldn’t be a shock. After all, the Super Committee members were selected by the same congressional leaders who themselves were unable to forge a budget agreement. Many of the House and Senate members who were selected were appointed because they represented the brand of partisanship of their larger caucuses. Reid, Pelosi, Boehner and McConnell refused to take the chance that a compromise would be offered which would put them in a position of using their own political capital to persuade reluctant members of their party to support it or accept the possibility that the need for partisan orthodoxy would result in a split party on a final vote.
The Super Committee failure, without doubt, is about the pall of political polarization and distrust which hangs over our federal government. Sadly, this reflects the mood in the larger body politic. But agreement was always going to be tough. The political battle lines are drawn over this fundamental fact: revenues are less and spending is more than the post WWII averages. For a few years, when I was in Congress, revenues grew and spending was restrained to the point where the federal government had several years of budget surpluses. The idea of surplus now seems positively quaint. But we were in surplus as recently as ten years ago. Then came September 11th. Spending began to quickly climb. Some of that spending was a result of national security needs, but much was because of the Medicare prescription benefit entitlement and other new domestic spending that was not offset with additional revenue. In fact, the economy went into shock because of the fear of terrorism and later the credit crisis; federal tax revenues fell. Under the Obama years, spending has skyrocketed. Low tax revenues resulting from a weak economy, coupled with a steep increase in new federal spending, has meant that budget deficits of more than one trillion dollars a year have been the norm since President Obama took office.
The postwar average of federal spending has been about 20% of GDP. The average revenues have come in at about 18% of GDP. The difference or 2% of GDP has been made up with borrowing. Now the spending is over 24% of GDP, a massive increase even on a relative basis. Interest payments on the debt, and entitlements that are growing at twice the rate of the broader economy, will make this spending challenge much worse. Federal revenue is now about 16% of GDP. Again, this is a historical low. The difference between the 24% of GDP being spent and the 16% of GDP that is being raised is what is causing this massive debt problem.
Some argue that the so-called Bush tax cuts caused the drop in federal revenues. But this is not true. The very same tax policies resulted in revenues of about 18% of GDP during the Bush years. The revenue shortfall is a result of inadequate economic expansion. At less than 2% growth , the economy isn’t adding jobs fast enough to reduce the unemployment rate. Historically, we should be growing much more quickly than we are. The average of the ten postwar recoveries was twice what we now have. And the deeper the recession, the sharper the recovery. If we had been growing at about the average rate of the last ten recoveries we would have added almost 12 million more jobs.
Republicans therefore don’t want to increase taxes because they believe that higher taxes will create even more drag on economic growth and job creation. Democrats, looking at growing disparity in wealth and income, don’t want to change the federal government safety net.
The answer is that entitlement spending must be restrained or the problem that the economies of southern Europe are now facing will visit our shores. With entitlements growing at twice the rate of the national economy, which is a proxy for tax revenues, the inevitability of financial crisis is incontestable. It’s also true that growth will be effected by tax policy.
But the stalemate in Washington is contributing to the economic uncertainty which also effects growth. What is needed is an agreement where both sides do a little of what they would rather not do to show the nation that we can make progress on the greatest economic threat this nation has faced in 80 years. This doesn’t mean that either side forfeits its ability to revisit those parts of an agreement that they don’t like at some later point. But the composition of the federal government requires some reasonableness if we are to reassure the people that we have a functioning government, which is as important as the political goals of both political parties. In the end, however, it’s more likely that the voters will solve this problem at the ballot box next November. We need a healthy and civil public debate and the people will need to decide what kind of America we will leave our children.