For fiscal hawks of all political stripes, the last two years have been awfully frustrating. Budget politics has been front and center almost constantly, yet we have made almost no progress toward reducing our deficits and debt.
Ever since Republicans won control of the House of Representatives in the 2010 elections, they have sought to resist and reverse the flood of spending that had characterized President Obama’s first two years in office and to lay out an ambitious long-term path toward solvency. And because entitlement spending is at the heart of the trouble, they have even defied decades of conventional political wisdom by embracing structural reforms of Medicare and Medicaid. Democrats, meanwhile, have been arguing for higher taxes, at least for the wealthy, to help narrow the budget gap.
The divided Congress, and especially the willfully negligent Senate (which has not passed a budget since 2009), has meant that the resulting fiscal debate has not occurred through the normal legislative process but rather through a series of dramatic showdowns forced by a variety of predetermined deadlines. The failure to enact regular budgets has created the need for temporary continuing resolutions, forcing some spending conversations under the threat of a government shutdown. The near-breaching of the statutory debt ceiling in 2011 required congressional action to enable further borrowing, which Republicans turned into an occasion for budget negotiations. The congressional “supercommittee” created in those negotiations to reduce the deficit kept the fiscal debate alive through 2011 but then failed to reach agreement and raised the specter of automatic cuts in domestic and defense spending. And that specter, combined with the simultaneous expiration of the Bush tax rates, then made for the most dramatic showdown yet—the “fiscal cliff” that threatened to raise everyone’s taxes, and which Congress averted with a New Year’s deal to raise income tax rates only on the wealthy (and payroll tax rates on all workers) and to put off the automatic spending cuts until March, when they would coincide with yet another debt-ceiling debate.
Each of these showdowns has involved frenzied last-minute negotiations to avert some supposed catastrophe, each has seemed to be on the verge of failure until just before the deadline, and each has then concluded with an agreement to somehow reduce the deficit. But each of those agreements has been disappointing in roughly the same way: After beginning with talk of a “grand bargain” to simultaneously and substantially reduce spending and increase revenue in ways that would significantly improve the long-term budget picture, it has ended with some very small agreement to move the needle very slightly in the short term.
According to the Congressional Budget Office, the debt-ceiling agreement in 2011 reduced total projected federal spending over the subsequent decade from $43.6 trillion to $42.6 trillion (or 2.3 percent) and the fiscal cliff agreement this month increased total projected federal revenue over the decade from $36.5 trillion to $37.1 trillion (or 1.6 percent). Every little bit counts, to be sure, but this is a very little bit. CBO’s longer-term projections, which see deficits and debt exploding over the coming few decades, have basically not been changed by these agreements, above all because our entitlement system has been left nearly untouched by two years of budget politics.
This dearth of meaningful progress frustrates the champions of a grand bargain because the outlines of such a bargain seem so obvious. The Democrats want to raise revenue and the Republicans want to reform entitlements. Those goals would seem to be easily reconciled—so why not strike a deal that does a lot of both at once? There is nothing about higher taxes that should stand in the way of entitlement reforms, and vice versa. Why can’t each party get what it wants in return for the other getting the same? Isn’t that what deal-making is all about?
The failure to strike this perfectly evident bargain has left many commentators and budget wonks despairing of our political system. Surely nothing but sheer irrationality—whether it is to be found in the design of our constitutional mechanisms or in the individuals elected to populate them—could explain the self-destructive unwillingness to meet in the middle and avert a disastrous debt crisis.