The real deadline for the Super Committee to reach a deal has passed. Despite a November 23rd target date, midnight Monday was the point of no return, because the Congressional Budget Office (CBO) needed 48 hours to analyze the agreement before it could be voted on in Congress. A last minute meeting Monday afternoon yielded no breakthrough, with both parties blaming the other for the failure to reach an agreement. The official announcement of failure came less than an hour after the markets closed. ”After months of hard work and intense deliberations, we have come to the conclusion today that it will not be possible to make any bipartisan agreement available to the public before the committee’s deadline,” said co-chairs Rep. Jeb Hensarling (R-TX) and Sen. Patty Murray (D-WA).
How serious was the effort to find a bipartisan consensus on reining in the nation’s runaway debt? The last time the 12 members met was November 1st. Thus the failure to find common ground was seemingly inevitable, and beginning in 2013 “sequestration,” automatic cuts evenly divided between military and domestic spending, will kick in.
Or will they? On Monday it was revealed that Republican Senators John McCain (R-AZ) and Lindsey Graham (R-SC) are putting together legislation to prevent what they characterize as “devastating cuts” to the military. Some House Republicans are reportedly engaged in a similar effort, even as Democrats insist domestic programs will not be the sole source of savings. Leaders of both parties in the House and Senate are not enthused about abandoning the triggers. And president Obama told the Super Committee’s Democrat and Republican co-Chairmen that he “will not accept any measure that attempts to turn off the automatic cut trigger,” according to White House Spokesman Jay Carney.
Such an announcement seemingly represents the high-water mark in terms of leadership by the president. Even as the failure of the Super Committee was becoming more and more inevitable, the president remained out of the country. Such an abdication of leadership on fiscal matters is nothing new. The $3.8 trillion budget he submitted to Congress was so patently unserious it was voted down 97-0 in the Senate. He dismissed every recommendation made by the National Commission on Fiscal Responsibility and Reform, despite the fact that he had put together the commission himself, because some of their choices conflicted with his hard-left worldview. He presided over the first downgrade of the nation’s fiscal rating, engendered in large part by the massive amount of debt his administration has amassed in less than one term. And he continues to engage in the kind of class-warfare rhetoric that makes meaningful compromise almost impossible to achieve.
Yet if a comment made by unnamed Democratic aide is any indication, failure may have been part of the administration’s re-election strategy. “The worm has turned a little bit,“ the aide remarked. ”The national conversation now is about income inequality and about jobs, and it’s not really about cutting the size of government anymore or cutting spending. 2010 gave one answer to that question. But 2012 will give another, and we’ve got to see what it is.”
Such cynicism is well-founded. Dwelling on economics in general, and the economic data that animated the Super Committee specifically, is not the American public’s strong suit. Thus it hardly matters that Republicans were demanding genuine cuts to spending instead of accounting gimmicks, such as counting the money the nation will no longer be spending on wars in Afghanistan and Iraq as $700 billion in “savings.” Nor does it matter that they offered as much as $250 billion in tax cuts via reforming the tax code, even as the main drivers of deficit spending, namely Medicare, Medicaid and Social Security, remain largely off limits to cuts–except for a 2 percent reduction in payments to Medicare providers.
As far as the public is concerned, the failure of the Super Committee is “everyone’s fault.”
How unsustainable is the path on which the country currently finds itself? One of the more sobering assessments of where we’ve been moving for the last 48 years can be seen in this chart, which traces the explosion of government spending from 1963 to the present. What it reveals is an enormously successful nation in terms of GDP growth relative to the population: though we now have 67.6 percent more Americans than we did in 1963, GDP has expanded by 228.2 percent. Unfortunately, the chart also reveals the primary source of our fiscal troubles: annual social spending has increased by a stratospheric 739.2 percent.
Whether the public approves of such spending or not is irrelevant. It is unsustainable. Yet there is a disconnection in the public’s thinking. While more than four-in-five Americans disapprove of the job Congress is doing, a substantial number of Americans have been more than willing to cede ever-increasing levels of power to Congress that massive amounts of federal spending automatically confer. Federal spending which now consumes 41 percent of America’s GDP, compared with 28 percent in 1963. If the OWS movement is really concerned about an unseemly concentration of wealth and power in the hands of the few, camping out in Washington, D.C. makes far more sense than hanging around Wall Street.
Yet there is something far more ominous that remains an ever-present backdrop to this drama. The failure of the Super Committee was largely irrelevant in fiscal terms. Even with the automatic budget cuts engendered by that failure, federal spending will still increase by almost $2 trillion over the next ten years. And despite the claim by some analysts that the Republican-controlled House’s spending cuts of $38 billion from fiscal 2011’s budget have slowed the economy, the reality is that government spending has increased almost 5 percent so far this year.
Furthermore, the $1.2 trillion in “savings” over ten years must be measured against the $1.3 trillion in deficits spending we’ve accumulated this year alone. All a “successful” deal would have accomplished would be to slow down the rate of projected spending increases marginally more than the failure to reach a deal would have. It’s the equivalent of claiming one is curing oneself of alcoholism by drinking five martinis a day instead of six.
And even marginal savings might prove irrelevant. Despite the fact that a Moody’s economist said his firm is not likely to downgrade America’s debt due to the failure to reach a deal, nothing prevents a downgrade from occurring in the future. A downgrade which could raise America’s interest payments, making even the illusion of savings irrelevant.
That is not to say there is no downside at all in the Super Committee’s failure to resolve their differences. Congress has yet to act on a number of other fiscal matters that must be addressed before the current continuing resolution keeping the government going expires on December 16th. Those items include an unemployment benefit extensions, a Medicare doctor payment fix, a patch to the Alternative Minimum Tax and an extension to the expiring payroll tax holiday. All of them could have a significant impact on the economy if Congress fails to act. Yet the rancor produced by the failure of the Super Committee only exacerbates an already tenuous negotiating process.
In reality, only one group of Americans possess the most effective means for altering the nation’s current and unsustainable trajectory: the voting public. Whether they are up to the task remains to be seen. Despite all the rhetoric, the prime drivers of spending, social welfare programs, remain cherished items, even if the means of paying for them remain largely unrealistic, absent Euro-welfare state levels of taxation. Levels of taxation which have left that continent on the brink of its own date with fiscally disastrous destiny.
And lest anyone think “taxes on the rich” will solve the problem, it won’t. First, even at a rate of 100 percent on everyone making over $200,000 (America’s “rich” according to the president), there still wouldn’t be enough revenue collected to cover what we’re spending. Only a substantial tax hike on the middle class, where the “real money” is would do that. Furthermore, suffocating taxes would crush the one economic necessity that would mitigate much of the ideological intransigence of both parties: several years of sustained growth that would invariably bring in higher levels of revenue.
Second, the fundamental fallacy of taxation constantly promoted by the left is the idea that raising taxes by X produces X amount of additional revenue. This is based on their erroneous belief in static tax analysis, the idea that people will behave exactly the same way regardless of their tax burden. They won’t. The higher the tax burden, the more people engage in tax avoidance behavior. To what extent? Job Czar and GE CEO Jeffrey Immelt’s company provides a cautionary tale for the ages. General Electric submitted a 57,000-page federal tax return for 2010–one that produced a tax liability of zero, despite $14 billion in profits.
Whether Republicans are up to the task of educating the public on the primary driver of debt, aka runaway, reckless spending, between now and 2012 remains to be seen. Certainly “tax the rich” makes for a better sound bite than something like “beware of static tax analysis.” But the reduced spending argument must be won if the nation is to avoid bankruptcy. The failure of the Super Committee is nothing more than the latest deflection away from that argument.
Yet that deflection is only temporary. Either we get our own fiscal house in order or we will learn, much like Europe is learning, that the market will do it for us. Italy and Greece are not the only countries whose borrowing costs can spiral beyond the point where debt relief becomes impossible. Unfortunately, it looks like the 2012 election is probably the only realistic opportunity to accomplish anything meaningful. A lot can happen in a year. It’s a genuine shame that the best the nation can hope for is to tread water between now and then. If there’s anything we’ve learned from the failure of the Super Committee, it’s precisely that.
Freedom Center pamphlets now available on Kindle: Click here.
Leave a Reply