How Washington Will Use the Coming Budget Wars To Duck Hard Choices

By :: August 27th, 2013

Treasury Secretary Jack Lew has notified Congress that the U.S. government will reach the limits of its ability to borrow in mid-October.  Lew’s letter sounds the opening notes of the overture to this fall’s fiscal grand opera. Between October 1 and the end of the calendar year, President Obama and Congress will battle over the debt limit, fiscal 2014 spending, and a fistful of expiring tax provisions.

A dwindling few see this depressing confluence of fiscal deadlines as an opportunity to reach the long-awaited Grand Bargain. But in reality it is just the opposite, an excuse to avoid the tough choices of tax and entitlement reform. After all, it is easier for Washington to battle over self-made, short-term crises than resolve structural tax and spending challenges.

If you are a Republican, it is easier to demand that the Affordable Care Act be defunded than to back tough, specific cuts to Medicare. If you are Democrat, it is easier to rail against the inequities of the sequester than kill government programs that don’t work. And if you are a politician of either party, it is much easier to embrace the vague concept of tax reform than to cut specific popular tax preferences.

But having raised the profile of the great budget debate, lawmakers can’t just walk away from it. This is especially true for Republicans, who must somehow satisfy their tea party wing. But Democrats have something of the same problem with their left, weakened as that faction is these days.  So they need a distraction from the tough choices. What better diversion than a good headline-generating brawl.  

While a handful of lawmakers seem serious about remaking fiscal policy, most have a different agenda: Saving face without doing much at all.

Thus between now and New Year’s Day Washington will focus on trivia. Will the debt limit be extended for six months or a year? Will Congress fund 2014 agency budgets at sequester levels, Obama’s proposed levels, or something in the middle—an argument likely to center on about 1 percent of total federal spending?

House Ways & Means Committee Chairman Dave Camp (R-MI) says that in October--in the midst of all that noise—he’ll propose his version of tax reform. In a healthy political environment, Camp’s plan would kick off a welcome debate over tax reform. But in the current dysfunctional atmosphere, it is likely to get lost in the cacophony. This will be too bad. But for many in Washington, replacing serious debate with loud short-term squabbles over phony fiscal crises is exactly the idea.      

 

5Comments

  1. Michael Bindner  ::  2:24 am on August 28th, 2013:

    The ATRA gave Obama all of his tax goals except the Buffett Rule, although that is less of a problem with what is essentially a 25% tax on dividends and capital gains. As for repealing Obamacare, it won’t happen because it can’t get the 60 votes needed to overcome a Budget Act point of order – since doing so would increase the deficit.

    The real reason the GOP is so intent on overturning Obamacare is the fact that it increases taxes on the wealthy – not for any provision in the act itself (which, as we all know, was a Heritage Foundation idea). While there are still some Medicare reforms that could be made, quite a bit of future Medicare savings will come out of the implementation of Obamacare – things that could not be scored but will lower costs in the long term.

    There are certainly additional reforms that are possible, like raising the Hospital Insurance payroll tax and increasing premiums on Parts B and D – however to do the latter it would be necessary to increase the basic payment for most Social Security retirees. There are two ways to do that – increase the income cap and change the bend points to make them even more progressive than they already are or decouple the employer and employee payroll taxes, credit the employer contribution equally (and do this retroactively for current retirees) and fund the employer contribution without income caps (leaving the cap in place, or even reducing it, gets rid of the problem of highly paid Social Security recipients). If we want to broaden the employer contribution base even more, fund it with a value added tax or a VAT-like Net Business Receipts Tax (which allows for insured personal retirement accounts holding employer voting stock and shares in an insurance fund of all employee owned firms).

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