Mission Impossible: Getting to yes on the budget

Steven Pearlstein
Columnist May 3, 2011

Yes, Mr. and Mrs. America, with the budget battle raging and the government about to max out its credit card, the members of Congress have returned to the Capitol, and anticipation is in the air.

Will Vice President Biden hammer out a budget deal with bipartisan representatives before the debt ceiling is reached?

Steven Pearlstein is a business and economics columnist who writes about local, national and international topics. View Archive

Will Treasury Secretary Tim Geithner give the negotiators more time by juggling the cash flow until after the Labor Day recess (which follows the Memorial Day recess and the all-important July 4 recess)?

Will the Senate’s bipartisan “Gang of Six” produce its long-awaited long-term budget blueprint to bring the deficit under control?

I don’t know about you, but the prospect of an endless summer of budget posturing and brinksmanship is probably more than I can take. Can’t we just hand this whole thing over to the Navy SEALs?

Imagine it: The unmarked choppers flying in low over the Mall. The guys in black rapelling down the Capitol dome. Members of the budget committees rounded up from their chambers, and from their hideaways, dragged into Statuary Hall and subjected to “intense interrogation techniques.” President Obama and the National Economic Council watching it all in real time from the White House Situation Room. And then, in less time than it takes the Senate clerk to complete a quorum call, the politicians crack and agree to a budget compromise. Geronimo, baby.

The “intelligence” work for this operation has already been done, most recently by the bipartisan deficit commission. Given the political and economic realities, it’s pretty clear how it’s going to play out:

Federal spending will decline to 22 percent of GDP at full employment. That reflects the historical average of 20.6 percent, plus an increase to reflect the
demographic reality of an aging population.

To get there, the burden will be evenly split between revenue increases and tax cuts in the early years, shifting gradually to three dollars of spending cuts (including reduced interest payments) for every dollar of revenue increases as long-term entitlement spending is contained.

On expenditures, investment spending will be budgeted separately and rise even as consumption spending falls. Discretionary spending cuts will be split evenly between domestic and national security. Social Security will be returned to long-term actuarial balance through a combination of progressive reductions to the cost-of-living formula, increases in the cap on income subject to the payroll tax and very gradual increases in the retirement age. Medicare and Medicaid spending will be capped at a growth rate of GDP plus 1 percent per year per average beneficiary. Cuts would take effect automatically if Congress fails to act.

On taxes, the top marginal earned rate of 35 percent will be left in place, but limits on deductions will increase revenue from taxpayers who itemize. The corporate rate will be reduced to 25­ percent, and then only for profit earned in the United States, but elimination of deductions and loopholes will raise more money for the government, not less. Revenue from a modest new carbon tax, along with existing fuel taxes, will finance public infrastructure spending through an independent infrastructure bank.

If you locked 100 Americans in a room with a team of technical budget experts and told them they couldn’t leave until 60 of them could agree on a budget plan, this is what would emerge. Not because it is necessarily anyone’s ideal plan but because it is least objectionable to the largest number of people. It represents the political center of gravity.

Here’s the important thing to understand about the politicians who refuse to accept such a compromise: No matter what they say, they really care more about cutting taxes (in the case of Republicans) or protecting spending (in the case of Democrats) than they do about fixing the deficit.

Their fantasy is that if they hold out just a little bit longer, if they recite their poll-tested talking points just a few more times, if they can raise just a bit more money to buy an even bigger legislative majority in the next election, they can finally win. And because both sides cling to this unachievable fantasy and have their entire political reason for being tied up with it, there is no instinct for compromise.

You can forget about the Biden talks — certainly almost everyone else has. From the people appointed to participate, you can tell the process is meant to fail. The Republicans, House Majority Leader Eric Cantor and Senate Whip Jon Kyl, are some of the party’s most partisan and ideological attack dogs. Jim Clyburn, the assistant House Democratic whip, is a cutout for Nancy Pelosi, who has made it plain that Social Security is not a problem and should not even be part of the discussion. Senate Democratic leader Harry Reid’s choices are Finance Committee Chairman Max Baucus and Appropriations Committee Chairman Daniel Inouye, who have demonstrated on more than one occasion that they care more about protecting their own legislative prerogatives than about taming the budget deficit.

At this point, the only real hope for a comprehensive deal is with the Gang of Six — Democrats Mark Warner, Richard Durbin and Kent Conrad, and Republicans Saxby Chambliss, Tom Coburn and Mike Crapo. These six understand that neither side is going to “win” this battle and that having a good budget plan is more important than holding out for a perfect one that never materializes.

Now, however, this courageous gang is under tremendous pressure from party leaders, colleagues and special interests to abandon its heretical collaboration and compromise. There are last-minute snags, the timetable has been pushed back, and there are whispers of possible defections. Time to send in the SEALs.

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