I just concluded a panel at the Conference of World Affairs in Boulder, Colorado, with Gordon Adams, who worked at the Clinton Office of Management and Budget, and Alice Rivlin, who ran the Clinton OMB.
Both were optimistic about resolving the fiscal and debt crisis that was brought into high relief in August, when congressional Republicans pushed the country close to default by playing chicken with the debt ceiling.
Adams is betting that the crisis will be resolved by the lame duck Congress — after the election. He cites a number of reasons. Notably, no one wants “the sequester,” which happens automatically in January if a compromise on the budget isn’t reached.
The sequester cuts more than $50 billion in defense spending, along with discretionary spending cuts to programs Democrats will fight to defend: health insurance exchanges created by the Affordable Care Act and Medicare funding, for example.
Nobody wants automatic cuts. Beyond cuts in spending, the big factor driving the parties toward compromise is the automatic expiration of the Bush tax cuts, which end in 2013.
I argued that compromise is impossible for 276 reasons: the 235 members of the House and 41 members of the Senate who have signed Grover Norquist’s No-New-Tax pledge. Norquist is president of Americans for Tax Reform, which has so much influence over Republicans that only seven members of the Republican House majority have refused to sign his pledge. And I should have said 277 reasons, because Mitt Romney also signed on with Norquist.
With a comfortable no-tax majority in the House, and enough no-tax senators to keep a bill off the floor of the Senate, a budget compromise is dead on arrival.
How might the movie end?
Rivlin was part of the Simpson-Bowles commission, which produced a bipartisan plan to address the ballooning federal debt.
Simpson-Bowles includes measures that would increase revenue by 19.3 percent of gross domestic product through 2020, while making substantial cuts in social services.
The Obama budget projects revenues at 19.2 percent over the next 10 years.
The Republican “Roadmap to Prosperity,” drafted by House Budget Committee Chair Paul Ryan (and embraced by Romney), would produce government revenue that equals 15.5 percent of GDP — while slashing social services and eliminating Medicare as it now exists.
Neither the Obama budget nor Simpson-Bowles provides adequate revenue to repair and maintain a broken country. Ryan’s Roadmap to Prosperity leads to a dead-end to all but the wealthiest Americans (an argument best made this month in The American Prospect).
And any debate over which plan can pass is mute because none of the three can muster enough votes in the House and Senate to become law.
The Bush tax cuts are another story.
They expire automatically, if nothing happens.
Allow them all to expire, as they will automatically in 2013, and you generate $3.7 trillion over the next 10 years — considerably more that Simpson-Bowles or Obama.
In other words, if nothing happens we return to the Clinton-era levels of taxation, which produced remarkable economic prosperity.
It’s pie-in-the-sky thinking. But President Obama, either as a lame duck or a preident elected to a second term, holds a lot of cards.
It is unlikely that there will be a veto-proof majority in the new Congress (there is not one in the current Congress) to extend the Bush tax cuts. So let them end.
Or to avoid a shock that would threaten the recovery, President Obama can offer a one-year extension.
He draws the roadmap, then puts Congress in the driver’s seat.
Ending the Bush tax cuts is the only prospect that comes close to generating the revenue needed to bring the debt under control (to a manageable 60 percent of GDP, according to the Congressional Budget Office) while providing funding to repair our crumbling infrastructure and invest in the social capital required stop a gradual slide in the direction of a developing country.