07.10.11

Our Pathetic Debt Debate

A grand bargain on the deficit was crushed when Speaker Boehner pulled out of talks, refusing to budge on revenue increases. John Avlon on the childish rhetoric that’s pushing America to the brink.

A cataclysmic game of chicken. Negotiating with a gun to your head. A Thelma & Louise-style full throttle off a cliff.

The dire metaphors for the debt-ceiling debate proliferate as we get closer to the August 2nd due date.

President Obama seemed determined to try and draw up a grand-bargain, and for a while Speaker Boehner did as well, knowing that this may be their last, best chance. After all, the closer we get to Election Day—a short-term ‘mini-deal’ would require a second round of negotiations in just a few months—the more silly season grandstanding will intrude.

But late yesterday, Speaker Boehner announced that no grand bargain was in his cards—he could not get his conference to agree on anything other than a short-term solution. That’s pathetic.

It’s pathetic that being “the adult in the room” is now a compliment in Washington, but that’s where we are a nation because of polarization. The activist class and ideologues of both parties throw tantrums and hold the nation hostage.

It doesn’t take a rocket scientist to see that the way to reduce the long term deficit and debt requires at least three things—spending cuts, revenue increases and entitlement reform.  Economic growth is the final X-factor essential component.

But one side effect of all the hyper-partisan Kool-Aid drinking in D.C. is that compromise is now considered collaboration.

But one side effect of all the hyper-partisan Kool-Aid drinking in D.C. is that compromise is now considered collaboration. Dick Armey’s once scandalous statement that “bipartisanship is another name for date rape” is approaching accepted Washington conventional wisdom.

Conservatives refuse to consider revenue increases and Democrats refuse to consider entitlement reform. The deficit continues to grow, impacting our long-term financial stability, as the fiscal cliff that is the debt-ceiling vote gets closer.

Here’s the worst part: The hyper-partisans in both parties actually think they can gain tactical advantage by having our nation default.

Some Republicans see the failure as an indictment of Obama’s leadership that will compound economic problems and help make the case for a new president in 2012. Some Democrats see default as the political equivalent of the government closure during the Clinton years, an ideological over-reach which will provoke a massive Main Street backlash.

The sick thing about all this political strategizing is that everyone agrees that not raising the debt ceiling will actually make our fiscal problems much worse. It will deepen the national debt and make economic recovery—i.e., job creation—much more difficult and distant.

So it’s time for a little truth-telling that takes the absolutists in both parties out to the woodshed.

First, the Republicans have chosen to make the once routine debt ceiling vote a matter of national crisis—essentially creating a problem where there never was any before when Bush took us from surplus to deficit. That is evidence of partisanship, not principle.

But what is most offensive is the shifting definition of tax increase, which shows just how far fiscal responsibility and fiscal conservatism have become de-linked.

Tax reform has always been the obvious opportunity for a grand bargain—closing loopholes and possibly reducing some rates as a way of stimulating growth while raising revenue. It is an achievable compromise.

But Eric Cantor’s newest negotiation stance seems to be say that any tax simplification that closes loopholes must be offset by an equivalent amount of tax cuts—essentially making them revenue neutral, which ignores the entire purpose of this forced fire drill: to reduce the deficit. It's more evidence that too many in the GOP would rather demagogue the deficit than actually deal with it.

This is idiotic and intellectually dishonest—evidence of the all-or-nothing school of negotiation, which is not negotiation at all. So let’s be honest: Eric Cantor, and now John Boehner, is letting Grover Norquist determine the terms of debate. This is what happens what a Grand Old Party starts to look like a cult—it is held hostage by ideological absolutists. This is also called Stockholm Syndrome.

But the liberal Democrats are proving to be almost as intractable as they accuse President Obama of being insufficiently ideological by even considering entitlement reforms as part of a grand-bargain.

Nancy Pelosi’s statement that “we are not going to balance the budget on the backs of America’s seniors, women and people with disabilities” was an epic bit of color-by-numbers pandering that surely still left some groups out. Nonetheless, she was far from alone—Obama is basically being called a traitor by the far-left these days, again exposing the surreal schizophrenia of our political debates, where the president is called a communist by conservatives and a corporate sell-out by liberals.

Let’s take a closer look at Social Security reform as a way of re-centering this debate. Here are the facts, straight from the mouth of the former Comptroller General of the United States, David Walker. “Social Security is now negative cash flow and is adding to annual deficits. These deficits will increase in the future. In addition, Social Security has a $9 trillion funding gap in current dollar terms for the next 75-years of which about $2.6 trillion is backed by USG securities. The balance is a naked promise to pay that is not protected according to the Supreme Court.”

Here’s the thing: Everyone agrees that keeping Social Security solvent is a pretty simple process that wouldn’t affect anyone within a decade plus of retiring, but still have a significant impact on our long-term deficit and debt.

First, change the pay-out formula from indexing to wage indexing to price indexing (sounds scary, I know.)  Second, allow Social Security to be means tested. This reform is consistently popular in polls—Bill Gates doesn’t need your tax-payer dollars. Finally, raise the retirement age to 69 in 2075, a la the Simpson-Bowles Commission, with exemptions for folks who work in manual labor, etc.

For some reason, this last option inspires the biggest freak-out, despite the fact that almost no one alive today will be affected. Liberals scream that such a reform would gut the New Deal, but here’s something to consider. When FDR implemented Social Security with an implement age of 65, the life expectancy was 63. To really be true to FDR’s original formulation, the retirement age should actually be 75. Any takers? Didn’t think so. The takeaway? Everybody take a deep breath and calm down.

The American economy will improve when we are on a better fiscal footing. That means dealing with our long-term deficit and debt—as well as showing the world that we can actually govern, which in a democracy means being able to reason together. The hyper-partisan all-or-nothing crowd is killing our credibility as the leading democratic republic on earth. Remember, the world’s sole super-power cannot be the world’s largest debtor nation indefinitely.

There will be economic benefits that will come with a grand bargain as well as political benefits.  A broad-based plan of tax reform that raises revenues, cuts spending (that includes the Pentagon) and reforms entitlements would be a win-win for the nation, both now and into the future. The Simpson-Bowles plan remains the best model for moving forward. It should have enjoyed the support of the president and congressional Republicans from the beginning, instead of only lip service.

The biggest obstacle is the nihilistic all-or-nothing crowd that sees tactical advantage in taking our nation over the cliff, putting special interests over the national interest. The inmates are running the asylum. President Obama’s willingness to be reasonable is not being rewarded by Republicans. This will only push us further apart and closer to the brink.