Why We’re Ungovernable: Gridlock and the Fiscal Cliff

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Europe’s political problems are hogging the headlines, with good reason. So much debt is coming due so soon that big decisions about Greece and Spain have to be made within the next couple of months to avoid a systemic melt-down.

But the US has some deadlines of its own, with no consensus on what to do about them. Consider:

Congress staring over edge of ‘fiscal cliff’

For Congress, the outlines of the pending fiscal crisis are clear: Don’t do a thing, and watch the economy slip into a double-dip recession early next year. Or cancel the looming tax increases and spending cuts, watch the deficit rise, and push the government ever closer to a European-style debt crisis.

That decision was put in stark terms Tuesday by the Congressional Budget Office, which in a new analysis said the economy will plunge into a recession early next year if Congress lets taxes rise and spending be cut, as called for under the law.
But if Congress changes the law to keep taxes low and spending high, it could add more than half a trillion dollars to the deficit in 2013, marking a fifth straight year of trillion-dollar deficits and risking the patience of the country’s creditors.

The CBO numbers come just as the debate is heating up on Capitol Hill over how to handle the looming “fiscal cliff,” which Congress created by continually pushing off tough decisions on both taxes and spending.

Senate Majority Leader Harry Reid, Nevada Democrat, signaled Tuesday that he will allow the automatic spending cuts called for in last year’s debt deal to go into effect — culling billions of dollars from defense and domestic spending — unless Republicans agree to allow taxes to increase on at least some taxpayers.

“If Republicans want to walk away from the bipartisan spending cuts agreed to last August, they will have to work with Democrats to replace them with a balanced deficit-reduction package that asks millionaires to pay their fair share,” Mr. Reid said.

Republicans remain adamant that the lower income- and investment-tax rates passed in 2001 and 2003 under President Bush, and extended in 2010 under President Obama, must be extended again.

“No economy can sustain such a hit without being hurled into recession,” said Sen Orrin G. Hatch, the ranking Republican on the Senate Finance Committee, which oversees tax policy.

One thing both sides say they agree on, however, is the need to act now.

Last week, House Speaker John A. Boehner kicked off the conversation, drawing a line in the sand in saying that he won’t allow another increase in the federal government’s debt ceiling unless it’s matched dollar-for-dollar with future spending cuts — just as the 2011 debt deal was.

Mr. Boehner also signaled he was open to ending some special tax breaks, as long as the money was used to bring down tax rates for everyone. He acknowledged there would be some who would pay more and some who would pay less.

But Democrats said much of the extra money the government would generate by closing those loopholes should go to funding the promises already made on spending, such as Social Security, Medicare and regular domestic spending.

The list of expiring laws reads like a taxpayer’s worst nightmare: The alternative minimum tax would bite ever deeper, last year’s 2-percentage-point payroll-tax cut would disappear, business-investing tax breaks would end, and almost all of the 2001 and 2003 tax cuts would expire. Meanwhile, some tax increases from Mr. Obama’s health care law are slated to begin biting in January.

Meanwhile, the US political middle has collapsed, making compromise virtually impossible:

Is polarization really all Republicans fault?

In a piece for the Post’s Sunday Outlook section, Thomas Mann and Norm Ornstein write that the rise in political polarization in Congress is not the effect of both parties moving to their ideological extremes but rather of Republicans moving far further to the right than Democrats

So, are they right? Is it really Republicans’ fault that we are in the partisan pickle in which Congress is either unable or unwilling to solve problems — whether small or large — facing the country?

What’s undeniably true is that we are living in an age of hyperpartisanship. Mann and Ornstein cite a study conducted by political scientists Keith Poole and Howard Rosenthal that details that fact vividly.

The annual National Journal vote ratings — an invaluable resource — tells the story well. In 2010 and 2011, there was no Senate Democrat with a more conservative voting record than any Senate Republican and no Senate Republican with a more liberal voting record than any Senate Democrat. That had happened only one other time in the previous 30 years before it happened in the last two years straight.

Mann and Ornstein are on very solid ground then in their assertion that we are in uniquely partisan times. There is considerably more disagreement about whether that blame should lie at the doorstep of the GOP, however.

“Both caucuses have moved to the polar caps as more one-party districts are created and members’ reelections are dependent on primaries and not the general elections,” said Tom Davis, a well known moderate and former Virginia Republican House Member. “The political coalitions have evolved into a parliamentary system, which doesn’t work in a checks and balances framework.”

Some thoughts

We have indeed become more polarized, but viewing this as something that just came out of the blue or as a plot by one side or the other misses the point, which is that the more debt a country takes on, the harder and thus less politically marketable the fixes become. Cutting defense, Social Security, or Medicare in half — which is what it would take to make a dent in the current deficit — is unthinkable for those programs’ proponents, so the arguments coalesce around irrelevancies like slight changes in marginal tax rates or penalties for expat billionaires. It’s all just wasted effort.

Looked at another way, easy money over extended periods of time drives good people out of both public and private institutions and replaces them with predators impervious to our opinion of them. That John Corzine is free and JPMorgan Chase’s traders are still gambling with taxpayer money just reinforces the perception that there are two sets of rules, one for the aristocracy and another for the serfs.

One last way of looking at this is that both sides of the spending equation — the military industrial complex and big banks on the right, the entitlement/regulatory state on the left — have gotten everything they’ve wanted for such a long time that they’ve evolved into monsters. No one on the other side wants to compromise with an entity that is fundamentally evil, so the belief takes hold that the only way to fix the country is to “win”, that is, to completely impose one’s view rather than splitting the difference. This may be true, but in a democracy it’s a recipe for gridlock.

But gridlock is a temporary condition. For a country as for a family, when big debts are coming due inaction is not an option. Someone will act in the coming year; it just might be our creditors rather than our leaders.

Source: Dollar Collapse

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