Democrats and Republicans are loathe to admit that their budget priorities are at odds with the real world. Each side conceived their positions a number of years ago and by gosh they are not going to allow reality to interfere with their convictions.
Democrats want to continue slashing defense in spite of the looming threats from North Korea, Iran, al-Qaeda in North Africa and the consequences flowing from the Syrian civil war (humanitarian and geopolitical). Domestically they are committed to higher taxes despite an obviously weak economy and a strong hint that tax hikes (i.e. the payroll-tax increase) are drags on job creation.
Republicans talk a good game on growth, but they are more concerned with an artificial ten-year deadline on balancing the budget than getting a growth-producing tax reform plan that might also generate some additional revenue.
If both sides acknowledge the challenges and threats we currently face, then they might strike a deal that is attentive to our immediate economic weakness, our long-term debt problem and our international predicament.
First, restore some defense spending. For Republicans this is a national security necessity; for liberals they can tell themselves it is good old Keynesian stimulus.
Next, get tax reform done. Our economy is in the doldrums and badly in need of a boost for investment and hiring. Our high corporate-tax rate keeps us uncompetitive with other countries. It is inexcusable that since the GOP took over the House in 2010 they have not come up with or passed a detailed tax-reform bill. The Ways and Means Committee is stuck in quicksand, forgetting that perfect consensus is illusory and a bold individual- and corporate-tax reform plan requires leadership, not endless schmoozing with special interests. If the top marginal rates are low enough Republicans should not care that some revenue from loophole elimination goes for debt reduction. And if Democrats get a tax system with equal or greater progressivity and more domestic business activity (hence more employment) they shouldn’t be obsessed with keeping a high marginal tax rate for individuals.
On spending, neither a balanced budget amendment nor significant cuts in domestic, discretionary spending are essential (or attainable) right now. Rather than trade entitlement reform for tax hikes, the two sides should trade entitlement reform for some wise domestic spending. For example, block grant both Medicaid and education to the states while increasing federal science research and border security spending. Pursue Medicare reform (Warren Buffett didn’t pay for all the free health care he’s getting and shouldn’t get it) while equalizing tax treatment for those who buy individual health care and raising the child deduction for middle- and low-income families. If Republicans really believe in the benefits of tax reform, they should be confident that the economic growth allows them to loosen the purse strings on the spending side a bit. And if Democrats think we have an economic inequality problem they should be willing to give less in entitlements to rich people, reform the worst aspects of our health-care system (Medicaid) and in return shift spending to middle and lower income families.
In sum, Republicans are right about national security and the anemic economy. Democrats are right that our spending priorities should emphasize the poor and education, research and training. If Republicans give up on the demand for super-speedy deficit reduction they might get long-term entitlement reform. If Democrats buy into a flatter tax code they’ll get more revenue and more domestic spending.
The North Korean saber-rattling and the awful March jobs numbers should be a wake up call to both sides. We need to grow the economy and tend to our national defense; the rest is horse-trading.