“Pressure’s on for deficit panel,” read a headline in The Post. President Obama urges legislators to put country over party. An establishment chorus calls for courage to take on Social Security and Medicare and to find more revenue. The downgrading of U.S. debt by Standard & Poor’s; the stock market’s spasms; polls showing growing disgust of Americans with politicians of all stripes — all are invoked to push the 12 legislators on the “supercommittee” to reach agreement on another $1.2 trillion in deficit reduction by Nov. 23, when they are due to report.
Amid the din, House Minority Leader Nancy Pelosi actually spoke some common sense in public, something that, if not quite extinct in today’s Washington, is certainly endangered. Naming her three picks to the committee last week, Pelosi urged the group to focus on “economic growth and job creation,” suggesting that its members should “make decisions regarding investments, cuts and revenues and their timing to stimulate growth, while reducing the deficit.”
Katrina vanden Heuvel
Editor and publisher of the Nation magazine, vanden Heuvel writes a weekly column for The Post.
Pelosi is a lonely voice among politicians but not among economists or investors sobered by a weak economy and, as the fiscally conservative Economist editorialized, “rising fears of a recession.” The politicians are fretting about deficits and debt; the markets are shaken by stagnation and continuing mass unemployment.
After S&P pulled its downgrading stunt on the U.S. debt, the markets scorned the company’s judgment. Bond prices rose and interest rates fell as investors worried about a double-dip recession fled to the safe harbor of American bonds. The stock market lost ground amid the wild churning of speculators. With growth slowed to about 0.8 percent over the past six months, cutbacks at the federal level — the expiration of extended unemployment benefits and the short-term payroll tax cuts — are slated to subtract another 2 percent from growth next year, before the added pain the supercommittee is expected to inflict.
Despite Pelosi’s sound advice, the chatter around the supercommittee is about the potential for a “grand bargain,” like the one Obama and House Speaker John Boehner (R-Ohio) reportedly came close to cutting in the recent debt-ceiling negotiations. That aborted deal reportedly would have cut about $4 trillion from projected deficits over 10 years, trading cuts in Medicare, Medicaid and Social Security (raising the eligibility age of Medicare by two years and cutting Social Security through slower inflation adjustment) in exchange for more revenue. The latter would be achieved by lowering tax rates on individuals and corporations while closing loopholes and deductions. Although the rhetoric features excesses like the private-plane deduction, the only way to raise enough revenue while lowering rates is to go after the mortgage deduction, the employer deduction for providing health care and the retirement deduction.
This “grand bargain” looks unconscionable. In a time of Gilded Age inequality, with the wealthiest 10 percent capturing all of the rewards of growth over the past decade, this would trade cuts in basic security for working families (Social Security, Medicare and Medicaid) in exchange for tax hikes hitting middle- and upper-middle-class families and workers with health-care benefits.