October 22, 2014

Once Again, Washington Punts on Fiscal Reform

Once again we have a political punt.

With no time left on the clock, Senate Democrats and Republicans have approved a deal to avoid the most immediate consequences of the so-called “fiscal cliff.” The defining feature of the deal, however, is that it leaves much more to be done.

The deal -- which the House must still vote on -- requires no hard choices and solves no difficult problems.  

There is no entitlement reform, no tax reform and no framework or process for addressing these critical needs in 2013. Meanwhile, the indiscriminate and disproportionate discretionary spending cuts mandated by last year’s Budget Control Act are postponed, creating a new cliff.

And with no increase in the statutory debt limit, it still looms as the next self-imposed crisis to remind everyone of how dysfunctional the legislative process has become on Capitol Hill.

So we have a deal, but not a grand bargain. The best that can be said for it is that it smoothes out a portion of the cliff. That will benefit the economy in the very near term, but aside from some relatively minor tax increases on the highest of income earners, the net result of the fiscal cliff deal is to preserve an unsustainable status quo. 

The unfinished business has not gone away. It has simply been handed off to the new Congress, which looks a lot like the old Congress. And with the President having been re-elected, it is fair to ask how the gridlock will ever be broken.

Will the President submit essentially the same budget in February that he has in the past? Will the re-elected Republican majority in the House counter with essentially the same budget it has approved in the past? Will the Senate again fail to pass a budget resolution?

Let’s hope for something better.

Instead of going down that well-traveled and fruitless road again, everyone needs to remain at the bargaining table. The first order of business for the new Congress and President Obama should be to negotiate a sustainable framework for spending, taxes, deficits and debt, and then charge the relevant committees of jurisdiction to fill in the details through “regular order,” including reconciliation instructions or some other fast-track process to enhance the chances for success.

Agreement should also be reached on a reasonable debt limit increase to give the process time to work without a crisis of confidence over the government’s willingness to pay its bills.

Until an overall framework is agreed upon, it is likely that policy decisions will continue to be driven by short-term crisis management rather than responsible strategic planning. And until that transition is made, uncertainty will continue to be a drag on the economy, public frustration with the political process will grow and the debt burden hanging over future generations will remain as our legacy.