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Budget Compromise?

12:00 AM, Mar 16, 2013 • By IRWIN M. STELZER
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There are times when the absence of really, really bad news passes for good news. This is such a time here in America, at least for those who worry that our fiscal deficits of over about $1,000,000,000,000 per year will soon have historians referring to the glory that was Washington.

US Capitol Building at night Jan 2006

Since Obama was elected, the budget game has been played as follows. The president’s budgets fail to win a single vote in the Democratic-controlled Senate, and the House Republicans’ budget is not even brought to a vote there—derision on arrival. So the government has been operating without a budget, subject to repeated cliff-hanging deals. No consideration of how to handle the fact that the creaking baby boomers’ demands for new body parts to keep them frisky forever will soon exceed the funds available to cover that search for the fountain of youth, not to mention an ever-expanding list of other health-care costs, including a never-ending series of newly discovered “rights.”

The not-so-bad news is that this week the House and Senate each will vote on its version of the nation’s ten-year budget. The president has coolly decided to ignore the legal requirement that by early February he submit his budget to the congress for the fiscal year beginning October 1st, the White House announcing that Obama might find it convenient to submit his budget early next month. Arrest for ignoring the law is unlikely.

The House Republicans would balance the budget by 2023 by cutting spending on high-speed rail and financial regulation, and repealing Obamacare, which is viewed unfavorably by 48 percent of Americans (45 percent view it favorably). Pro-repeal Republicans are hoping (dreaming) that repeal will become a feasible goal when Obamacare’s cuts in reimbursements to health-care providers produce extensive queuing for medical care. Mitt Romney’s 2012 running mate, the estimably sincere Representative Paul Ryan, whose detailed knowledge of budgetary arcanalia is widely acknowledged, is leading the Republicans’ charge. He is sticking to his party’s pledge that the $600 billion tax increase the president won when Republicans blinked at the edge of the fiscal cliff will be the last such treasury bonanza in the Age of Obama. Revenue from plugged loopholes—a loophole is the other guy’s tax advantage—would be used to reduce marginal tax rates, not to fund new spending.

Senate Democrats see things differently. They would cut spending, but by far less than the Republicans, and raise taxes. About $1 trillion in cuts, 25 percent of these from defense, plus $1 trillion in new taxes on the wealthy over the next decade, would still leave a 2023 deficit of some 2.2 percent of GDP, but that is down from about 7 percent now and considered by many economists to be sustainable, but only if the economy grows at an annual rate of at least 2.2 percent. The Democrats’ wish list includes but is certainly not restricted to another $100 billion economic stimulus.

These competing budgets are the numerical reflections of very different views of the role of government. The Democrats are determined to provide the President with sufficient tax revenues to fund his vision of an expanded entitlement state, covering all Americans from day care, through university, into public sector and subsidized green jobs, their health care and pensions provided by the government—Winston Churchill’s phrase describing his country’s welfare state, “from the cradle to the grave,” just about covers it, except that pre-natal would be a more accurate description of the president’s starting point.

Republicans have given up any thought of shrinking the state: their budget actually allows for government spending to increase at an annual rate of 3-4 percent over the next ten years. Leviathan will not expire for lack of sustenance. But Ryan and his Republican allies are determined to shrink government’s share of GDP from its current level of more than 23 percent to a bit less than 20 percent by 2023—bigger government, but smaller relative to the size of the economy. Which is why they place considerable emphasis on policies to encourage more rapid economic growth.

Given the gap, no, chasm, that separates the parties’ notions of the role of the state, how it is to be funded, when and where means testing is appropriate, it would not be unreasonable to conclude that all of this is no different from recent blame-gaming, with a dollop of charm offensive by the president thrown in for whatever it might be worth.      

For one thing, the president is no longer as able to call the tune as he has been in the past. His overwhelming popularity relative to the Republican House of Representatives has eroded, making  another win such as he chalked up during the fiscal cliff battle, which culminated in tax increases, no sure thing. He dissipated a good part of that popular edge when he threatened that sequester-mandated across-the-board cuts in some spending would end meat inspections, create security queues at airports, and force massive layoffs of teachers, among other tragedies. Yawn, at least so far. Either out of pique or a macho attempt to show just who is boss in this town, the president closed the White House to student tours, sending disappointed kids home to far-off cities without a visit to what they had been told is “their house.” Cost saving: $18,000 per week, according to ABC, trivial compared with the $1 million taxpayers spent a few weeks earlier to fly the president to Florida for a round of golf with Tiger Woods. Such petty displays shaved the president’s edge over Republicans as an economic manager from 18 points to a mere four, forcing him to deal with rather than excoriate and ignore his opponents. Greater equality of bargaining power between the White House and the House just might enhance the prospects of some sort of fiscal deal.

Then there is the question of defense spending. Paul Ryan has retreated from his 2012 campaign insistence on major increases and is accepting caps, the sequester has the Pentagon working to propose sensible targeted cuts to replace mindless across-the-board slashing, and defense spending is one area in which the president welcomes cuts, not so much to save money as to free up funds for his welfare state and to reduce the nation’s ability to engage in what he considers senseless foreign adventures. With all parties lined up in favor of cuts, there is more room for compromise than in the past.

Entitlements are tougher. The test here will be whether the president can deliver his left for the changes in cost-of-living escalators and age eligibility that he has hinted he favors. He just might win enough members over to some such compromise that also includes eliminating growth-inhibiting and unfair tax loopholes by providing political cover and support for them in the 2014 congressional elections. Dividing the revenues gained between general tax cuts and more spending would require still another compromise, this one sufficiently elusive to require the wordsmiths to extend their art to previously unattained levels of sophistication to fudge any description of the deal.

All possible. Some sort of deal looks a tiny bit more attainable today than a few weeks ago. But sanity will prevail only in the unlikely event that the Obama-Pelosi left and what the Wall Street Journal calls the “fiery antitax lawmakers” on the right who are threatened with primary challenges should they concede one cent in new revenue, revisit their undoubtedly dog-eared copies of Max Weber’s famous essay to remind themselves that politics is the art of compromise.

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