August 23, 2014

The President's Debt Tour: "Game On" but to What End?

House Republicans have adopted a budget they say will make tough but necessary spending cuts to rein in our nation’s burgeoning budget deficits. President Obama says the Republican plan is too radical. He hit the road last week to sell his own deficit reduction plan, which he says is more balanced.

So, it’s “game on.”

But just what is the purpose of this game?

If the purpose is to gain advantage for the 2012 elections, then recent events make sense. If, however, the purpose is to build consensus around a fiscal sustainability plan, we’re off on the wrong track. Rather than seeking areas of common ground, which clearly exist, the President and Republican leaders seem more interested in sharpening their differences.

Consider two major issues: tax reform and health care.

In both instances there is the potential for compromise. Indeed, without compromise on health care and taxes, it is hard to see how a meaningful plan for fiscal sustainability can be enacted.

Two bipartisan groups that looked at these issues last year were each able to find consensus, at least around a broad approach.

On tax reform, the Bowles-Simpson and Domenici-Rivlin commissions both recommended that most tax expenditures – deductions, exclusions and credits – be eliminated or greatly scaled back in exchange for lower rates and higher revenues. Republicans have now ruled this out.

On health care, both groups raised the possibility of controlling federal spending by shifting to a defined contribution or “premium support” model for Medicare. The President has now ruled this out.

Republicans are concerned about the level of taxation that would be needed to fund existing entitlement promises, particularly for health care. Democrats are concerned about the magnitude of spending cuts that would be needed in an aging society to avoid any increase in revenues.

They both have a point and there is plenty of room for debate. Acknowledging as much would be a big first step toward working out solutions.

The second step should be a more determined effort to engage the public in the decision-making process, not to try “winning” them over with heated rhetoric about how unacceptable each other’s solutions are.

At The Concord Coalition, we have seen that this can work. In our “Fiscal Wake-Up” and “Fiscal Solutions” tours, analysts of diverse perspectives have been able to agree on certain basic facts and the nature of the trade-offs that must eventually be made. In our experience, audiences armed with agreed upon facts and presented with alternative solutions are perfectly capable of making the tough choices that politicians seem intent on avoiding.

Now is the time for that “adult conversation” everyone keeps saying we need. If the President is unwilling to challenge his base by taking on entitlement reform (meaning Medicare, Medicaid and Social Security) and the Republicans are unwilling to challenge their base by taking on tax reform that results in needed revenues, we have little chance of averting a crisis.

All of which serves to validate the concerns of independent analysts who worry that an otherwise preventable crisis could grow out of political intransigence.

Last week’s decision by Standard & Poor’s to downgrade its outlook for U. S. Treasury bonds from stable to negative was the latest in a long line of official and unofficial reports bluntly warning that the federal government is on an unsustainable fiscal path and urging immediate action.

According to Standard & Poor’s, “there is at least a one-in-three likelihood that we could lower our long-term rating on the U.S. [from AAA] within two years. The outlook reflects our view of the increased risk that the political negotiations over when and how to address both the medium and long-term fiscal challenges will persist until at least after national elections in 2012.”

Given where things stand, it’s hard to argue with this analysis.

Time is not on our side. The statutory debt limit will be reached sometime in the next three months, long before the current campaign-style rhetoric will play out at the polls.

Make no mistake. Change will come. It must. The status quo is simply not sustainable. But the changes will be far more reasonable, equitable and politically acceptable if they arise from a national dialogue in which all sides bring their values to the table than if the changes result from a crisis caused by politicians who stubbornly persist in trying to win a unilateral victory.