Going All In: Taking the Crisis-Afforded Opportunity

The nation faces a true crisis. Sometime next month, unless Congress authorizes an increase in the debt ceiling, the United States will no longer be able to meet its financial obligations. However, if you know where to look and if you are willing to take the necessary risks, every crisis provides the opportunity for real change. The rebirth of the US Automobile industry, following their need for a government bail-out, would seem to be such an example.
Democratic governments, in fact, seem to require a crisis before making hard choices. This does not imply, however, that hard choices will be always be made in crisis situations.
Trying to stay abreast of the ongoing deficit reduction negotiations between the Democrats, Republicans, and President Obama is no easy matter. Interestingly, there are three, not two, groups involved. President Obama’s solution, in many ways, looks more like a Republican than a Democratic proposal.
All three camps agree in the need to bring projected Federal expenditures into balance with projected revenues. The devil – and the debate- is in the details. By way of background, the major contributors to the ongoing debt problem – remember the US was running a budget surplus by the end of the Clinton administration – in order are (a) the decline in tax receipts by virtue of the Bush tax cuts, (b) the costs of the wars in Iraq and Afghanistan, (c) increasing costs of Medicare and Medicaid. The costs associated with offsetting the recession are substantial but transitory: the real dilemma lies in balancing the government’s books if and when the economy returns to full employment.
Early last year, when Congress was unable to gain Republican approval for a congressionally run bi-partisan debt reduction commission, President Obama issued an executive order to form his own bipartisan commission. Their report, released last December, called for major changes to both entitlements and the tax code – stemming the growth in Medicare, Medicaid, and Social Security outlays while reducing tax benefits to certain groups.
The politics, surprisingly, are similarly straightforward. The Republicans wish to balance the government’s books by substantially reducing federal disbursements to the unemployed, poor, sick, and retired. Republicans claim they were elected on the promise to not raise taxes, and argue that this pledge extends to maintaining existing tax advantages, for example to oil companies. To their credit, the party, under Ron Paul’s leadership, has put forth an integrated plan. based on reduced spending and lower taxes, to balance the books.
The Democrats, in contrast, are fighting tooth and nail to preserve entitlements while seeking to return tax rates on the richest to earlier levels. Feeling free to take shots at the Republican plan, the Democrats have not advanced their own integrated proposal to balance the books.
President Obama, reminiscent of the health care debate, chose to let the two parties fight it out before taking a position. He was specifically reluctant to enter the fray unless he felt the Republicans were prepared to enter into serious negotiations. With results of political negotiations mixed at best, and with time running out, Obama, in poker parlance, went “all in”. He took the opportunity afforded by a looming fiscal crisis to advance a proposal for a massive $4 trillion cut in the budget deficit over the next decade, with two thirds of the cut resulting from reduced expenditures – Medicaid, Medicare, and Social Security, and one-third from higher revenues, largely by ending tax breaks.
In offering the Republicans this proposal, the President went against his own party. Validating the recommendations of the bipartisan debt reduction commission, he was willing to substantially reign in government entitlements. At the same time he was standing firm on his personal pledge that he would allow any solution be borne solely by the middle and lower classes. Again, reflecting the recommendations of the debt reduction commission, he called for increased tax revenues, primarily from the wealthy.
While Speak Boehner worked with the President to strike a deal, at the end of the day the Republican leadership was unwilling to similarly challenge their rank and file to seize the opportunity offered by the current financial crisis. Rather than having a responsible and meaningful compromise that restores fiscal responsibility, Congress is likely to follow long standing political traditions and somehow muddle through, at least to the next fiscal crisis.
Each side will spin the President’s motivations and the like: Republicans, for example, will continue to characterize the Democrats as the party of tax and spend. The simple fact remains, however, that President Obama –taking the opportunity afforded by the financial crisis- was willing to make substantial concessions on government spending in return for less substantial Republican concessions on taxes I’m not saying he would have received the support of House and Senate Democrats in this regard, but at least he was willing to risk failure in order achieve meaningful progress. Sadly, the same cannot be said for the Republican leadership. The opportunities afforded by our financial crisis appeared to have gone wanting. The American people will suffer as a result.