- The only real issue in Congress worthy of continued discussion remains the super committee
- The need for a bold super committee deal has become more urgent with the financial situation in Europe
- European countries need major efforts to cut their spending and raise more revenues
This week is another highly substantive one in the House—Monday, naming a bunch of post offices, and Tuesday, taking up the national conceal-and-carry bill, which could be called the “Shoot a Bunch of Bullet Holes in the 10th Amendment” bill, another unbelievably hypocritical measure emerging from pseudo-conservatives who want to give power to the states except when they don’t like what the states do.
The idea of overriding states’ own gun laws should be abhorrent to anyone who actually believes in federalism. But when it comes to guns, all consistency and reason appears to fly out the window. Shame on the House majority.
Next will come a vote on the constitutional amendment to balance the budget, which would guarantee many more depressions to come if it were somehow adopted.
"The need for a bold deal has become more urgent with the dynamic in Europe."
In the meantime, the only real issue in Congress worthy of continued discussion remains the super committee. It is a true measure of the dysfunction in Congress and the political process that this panel, with an unprecedented opportunity to shape a positive fiscal future and avoid a potential global depression in the coming year, is floundering as the endgame approaches.
All endgames tend to play out this way — it usually looks most dire right before the deal. But that does not always work; ask the NBA. Sometimes, we have to revert to Sen. John McCain’s favorite aphorism: “It is always darkest just before it turns completely black.”
The need for a bold deal has become more urgent with the dynamic in Europe. It is good news that the Greeks and the Italians have moved to new governance as a way of legitimizing the tough moves necessary to get more backing from the European Central Bank and other entities necessary to provide the backstop against default.
But as many economists have pointed out, the European response to the crisis in the Eurozone, dominated by Germany, has been to demand more and more draconian cutbacks in Greece and Italy, which is doing more than just enraging their publics — it is making it harder and harder for the countries to show any economic growth that can help them ameliorate their deteriorating debt problems.
I have referred in the past to the balanced budget amendment as akin to the medieval practice of “bleeding,” draining more and more of the life’s blood from an ailing patient. That is just what Germany and other entities are demanding from Greece and Italy, along with Portugal and Spain and, soon, France.
All these countries need major efforts to cut their spending and raise more revenues. But they also need more stimulus in the short run. With monetary easing unavailable, a move toward a bit more inflation in the short run would make sense, but there is no chance the Germans will allow it. And so far, the dramatic steps needed by Europe to stop the bleeding instead of the series of halfway measures taken, seem unlikely to be taken.
Their steps may work — and I have some sympathy for German taxpayers, who have adopted some of the tough work and pension rules now being demanded of the Greeks, and who have paid their taxes, unlike the Greeks. But there is a real chance that Europe’s troubles will drag the U.S. economy further down, and lots of official and unofficial forecasts are turning more pessimistic about the outlook for 2012.
What to do? In the short run, we in the United States clearly need more of a jump-start — or at least not more bleeding. JPMorgan says that if Congress does not extend the payroll tax cuts and unemployment benefits that expire at the end of the year, we could lose 1.5 points to 2 points in growth next year, which would be terrible. Continuing current policy and adding in an infrastructure bank are obvious steps, ones that should be part of a super committee package.
The rest of the package has been outlined repeatedly over the past two years by every bipartisan group that has tackled our debt problem: a total of $4 trillion in debt reduction over 10 years, with somewhere from $1.3 trillion to $2 trillion of it coming from revenues; tax reform that reduces marginal rates and broadens the base without losing progressivity; and serious efforts to bend the cost curve in Medicare and Social Security, along with reform in Medicaid. There are different ways to achieve the goals, but the template is repeated consistently, whether it is through the Simpson-Bowles commission, the Rivlin-Domenici commission or the Senate’s “gang of six.”
Of course, the super committee should have cut to the chase as soon as it was created, embracing the template and debating the specifics of how to achieve the goal. But the Republican refusal for crucial months to entertain any revenue increases made the task much harder. It meant that Democrats who made clear that they would accept tough changes in Medicare were not going to negotiate specifics on entitlements without a commitment on tax increases.
Now, at least some revenues are on the table (although the proposal by Pennsylvania Republican Sen. Pat Toomey including a few hundred billion dollars in revenues in return for a commitment to add $4 trillion to the debt by making the Bush tax cuts all permanent was, to put it charitably, not serious).
But to pull a plan together in eight days is much harder — although far from impossible. Even a major deal that includes $1 trillion or so in tax hikes without the specifics of how to get there, but with a date certain for the tax committees to reach a plan, would be OK. So would including costs from winding down the war, as a bit of grease on the skids to reach the larger deal.
The other options — a weak plan to cut $1.2 trillion, much of it not real, or a weaker plan to cut something, but less than $1.2 trillion, or super committee failure paired with a limited likelihood that the resulting sequester would be implemented — will be disastrous.
It would probably trigger another downgrade of U.S. debt and be so deflating to Americans and non-Americans that it would hasten the prospect of a truly serious downturn. Those options ought to be unthinkable. They are real.
Norman Ornstein is a resident scholar at AEI