October 20, 2014

A Better Way Out of the Stalemate

The partisan vortex in Washington is now so strong that it threatens to swallow all rational thought.

As the nation rushes closer to default, politicians are rushing to their respective partisan corners. At times they truly seem more interested in blaming each other for causing a crisis than they are with preventing a crisis from happening. It is little wonder that credit ratings agencies such as Moody’s and Standard & Poor’s have repeatedly questioned whether U.S. Treasury bonds can maintain their AAA status.  The scenario they fear, which becomes more likely by the day, is not so much that the U.S. can’t pay its bills but that it will refuse to do so.

For a brief time last week, President Obama and House Speaker John Boehner appeared ready to challenge their respective political bases. Hopes were raised for a “big deal” that would include essential compromises on popular entitlement programs and tax breaks to reduce the deficit by roughly $4 trillion over 10 years. It was a good idea, but it didn’t last long.

Instead of looking at what the nation might gain in fiscal sustainability, politicians on both sides looked with horror at what they might lose in terms of partisan finger-pointing. A big deal would mean that Republicans could no longer accuse Democrats of trying to kill the economy with tax increases, and Democrats could no longer accuse Republicans of trying to kill Medicare.

It was all too much for Boehner, who threw in the towel on the big deal. His troops would not support higher revenues in any way, shape or form. Many Democrats, too, were breathing a sigh of relief since any serious long-term plan would have to involve concessions on entitlement spending.

There is still time to reach accord so that the government does not default on a large portion of its bills in early August. But as the President has noted, the issues do not get any easier by simply shifting the time frame.

More importantly, a short-term fix would leave the full magnitude of our ultimate fiscal challenges as daunting as ever with no mechanism in place to deal with it.

It is true  that there is not enough time to negotiate, draft, debate and enact a comprehensive fiscal sustainability plan before August. However, the solution is not to give up on the “big deal” but to agree on a framework for implementing one. Shifting the focus to overall fiscal goals and a mechanism for enforcing them would be a far more productive use of limited time than continuing to butt heads over specific cuts that would achieve, at best, a temporary fix. 

It would also beat the proposal by Senate Minority Leader Mitch McConnell to let Republicans vote against a debt limit increase while allowing the limit to go up by $2.5 trillion at the President’s initiative. The best that can be said about this politically cynical idea is that it would defuse an immediate crisis. It would do nothing, however, to address the structural mismatch between spending and revenues.

If a procedural fix is the best that can be accomplished for now, here are a few suggestions to break the impasse without demanding a politically impossible capitulation by either party:

Raise the debt limit by $1.9 trillion. This is the amount by which the debt limit would have to be raised to implement the House Republican budget through 2012. Those who voted for this budget, which includes all but five members of the Republican caucus, explicitly endorsed policies that would produce this amount of additional debt. So there should be no dispute about having to raise the debt limit accordingly.

Attach an enforceable mechanism for achieving budgetary goals. Looking ahead, the key issue is not the nominal level of debt but whether the debt is sustainable. That depends on the underlying policies that produce the debt. Because the policies now in place will produce unsustainable debt, the most important attachment to the debt limit vote, absent a big deal, would be a framework for enacting more sustainable policies. This should include fiscal targets and automatic triggers to ensure that the goals are reached. The Bipartisan Policy Center’s Save-As-You-Go proposal (SAVEGO) is an excellent model. 

Fill in the details through “regular order.” With an overall framework in place, Congress could get back to the business of writing a budget resolution. Ultimately, the committees of jurisdiction will need to mark-up specific legislation, with instructions from the budget committees, to implement the fiscal framework. The House has adopted a Fiscal Year 2012 budget resolution, but the absence of a Senate counterpart has prevented negotiations over a joint resolution.  That could change, however, if Senate Budget Committee Chairman Kent Conrad proceeds with a committee mark-up and floor vote on the budget he has put together behind the scenes.

These three steps would allow policymakers to raise the debt limit by no more than House Republicans have already voted for, while creating an enforceable fiscal sustainability framework to be filled in by the relevant committees doing the jobs they are supposed to be doing.

Is that too irrational a thought?