The Republicans displayed a recklessness that should have disqualified them from being taken seriously. Any deal that was reached would contain substantial cuts in the coming fiscal year—too soon, as Fed Chairman Ben Bernanke and the head of the Congressional Budget Office Doug Elmendorf have recently warned.
The antitax dogma of the Republican Party is strongly rooted in mythology. The theory that tax cuts create jobs has been discredited by the results of George Bush’s tax policies. The Republicans cling to the myth that “small business” owners are the “job creators,” and so they oppose proposals to eliminate the Bush rate cuts for even those earning over $250,000. But relatively few small business owners earn $250,000—in fact, fewer than 3 percent of the 20 million people who file business income on their personal tax forms (the 1040s) earn that much.
Finally, the antitax position of many conservatives would seem to be illogical, since they also hate deficits: but their real aim is to reduce or eliminate federal programs. They call efforts to redistribute wealth “socialism,” but have no problem redistributing from the poor and middle class to the wealthy through taxes, as set forth in Paul Ryan’s budget plan, which the House approved on April 15. Under the Ryan plan, the taxes of the richest one percent of Americans would be cut in half, while taxes would be raised on most of the middle class. People earning over $1 million would be taxed at a lower effective rate than the middle class.
Consistent with the philosophy of Ryan’s idol Ayn Rand, this scheme would by 2050 eliminate virtually all federal programs other than defense and Social Security, much of which would be privatized, while his voucher program would replace Medicare. The Ryan plan was so radical that even Republican candidates have been distancing themselves from it though the party higher-ups had declared it a “litmus test” for Republicans seeking office.
Still, liberal-leaning budget analysts agree that the budget is on an “unsustainable” path, with debt constantly rising as a share of the Gross Domestic Product. As of now, the debt is close to 70 percent of GDP. James Horney of the highly respected Center on Budget and Policy Priorities says that that’s a workable percentage, but that steps should be taken to stabilize it by the end of this decade. That would require, Horney says, a substantial amount of deficit reduction—no easy task—including increases in revenues.
This does not mean, Horney adds, that we need to balance the budget to reach that goal. If there are needs to be met by borrowing—especially now, to boost economic growth and employment—we should borrow. The borrowing today should go to extend unemployment benefits (scheduled to expire in December), create infrastructure programs that will provide jobs (for which there are a number of ideas floating around), as well as provide more fiscal relief to the states. (In the recent dismal unemployment figures, public employees were particularly hard hit—partly because they were a target of Republican governors.)
But even more significant is the question of how our leaders, in particular the President, ended up with such misguided policies—emphasizing budget- cutting over growth. The Republicans exploited the need to avoid an economic collapse that could result from not raising the debt limit by demanding that programs that Congress had agreed to should now be unagreed to.
The President began the year with the unfortunate slogan “Win the Future”—which emphatically meant growth and investment. He ended up in Republican territory, at least rhetorically accepting the highly flawed conception equating the federal government with a household: he and Goolsbee repeated the sampler-stitched maxim “We must live within our means,” ignoring that at times the government simply must borrow in order to meet the people’s needs, as is the case now, with high unemployment. It’s no time for austerity. Instead, the government is borrowing in order to give tax cuts to the wealthy and pay for at least two wars.
A final deal became exigent for the major players: naturally, Obama didn’t want to preside over a calamity; and just as urgently, the Republican leaders didn’t want to be pinned with the blame for bringing about the calamity—which poll after poll suggested they would be. Thus it was assumed that a deal would be reached not because the Republicans had a sudden surge of responsibility but because they feared the political consequences of not appearing to be responsible.
Anyway, they had lured the President so far onto their territory that any deal would represent a substantial victory for them—the President’s rhetoric notwithstanding. It was all about theater and politics. But Obama—and the country—would still have to live with the consequences of the policy.
Both the President and the House Republicans, the major parties to the negotiations, are running longer-term political risks. The Tea Party, which has dominated the entire eighty-five-member freshman class, or one third of the Republican House caucus, has pulled the House Republican Party so far to the right that it risks coming across to the public as too obdurate, as putting its own ideology and own partisan interests ahead of the nation’s needs. (And given the possible effects of a default by the United States, perhaps other nations as well.) The “old boys”—the “establishment” Republicans, represented by Boehner—were willing to compromise, while Cantor, as majority leader, had to pay attention to the rambunctious Tea Party group. Each was useful to the other.
In the end, the President had made the Republicans look bad, but what did he get for it? He ended up agreeing to new restrictions that will hamstring his policies for as long as he serves in office. His own actions will have led to new laws that forbid him to borrow money for any government policy—unless, at some time, he goes out and campaigns hard for raising taxes in any form. His actions so far shed light on how likely that is.
This country’s economy is beset with a number of new difficulties, among them that recovery from the last recession remains more elusive than was generally expected, while the US is confronting a variety of international economic instabilities, especially the large debts and possible default of several countries in the eurozone, bringing on unpopular austerity measures. Recent experience with what should have been a simple matter of raising the debt ceiling, normally done with no difficulty, is reason for deep unease about our political system’s ability to deal with such challenges.
—July 19, 2011