TIMOTHY NOAH NOVEMBER 14, 2011
The only thing that's alarming about the super committee's struggle to reach a deal on $1.2 trillion in deficit reduction is the eagerness of reporters and Washington chin-pullers to be alarmed. What exactly will happen if Thanksgiving comes and no deal is reached? "If the panel falls short," Robert Pear explains in the Nov. 14 New York Times, "a series of automatic cuts, split evenly between military and civilian programs, would take effect, starting in 2013." This might be cause for alarm if the current month were Nov. 2012, but if you consult your calendar I think you'll find that it's Nov. 2011. Congress has left itself an awful lot of time to undo the fearsome automatic spending cuts triggered by "sequestration." In all likelihood any such sequestration will be cancelled in November or December 2012, after a presidential election establishes a new power relationship between the two major parties. Which is probably as it should be.
Perhaps some desk editor at the Times pointed all this out to Pear, because his lame "the sky will fall 14 months from now" argument is followed by this: "Some fear that such a failure could lead to the kind of stock market slide and loss of investor confidence that accompanied stalled efforts to raise the federal debt limit earlier this year." I think this doesn't give the stock market nearly enough credit. Last summer's stock market slide, to the limited extent that it had anything at all to do with the debt limit--the Eurozone, you may recall, was melting down at the time--was mainly an after-the-fact expression of alarm that the GOP would risk an immediate U.S. default to maintain its cultish opposition to tax increases. This time out, even if the GOP continues to hold the line on taxes, there will be no immediate consequences. The stock market, in all likelihood, already assumes there will be no deal.
The Washington Post, which all along has been more inclined than the Times to portray the prospect of super committee failure as an end to civilization as we know it, actually seems somewhat affronted that the markets haven't panicked already. Here's Lori Montgomery and Rosalind S. Helderman:
"The markets have been 'ignoring the elephant in the room,' Steven Ricchiuto, chief economist of Mizuho Securities, wrote in a recent research note. Investors 'have been focused like a laser beam on every twist and turn unfolding in the European sovereign debt crisis and have completely ignored the apparent lack of progress being made by the super committee.'"
Another constituency that's irritating the "serious" crowd in Washington by remaining indifferent to the super committee is the voting public. A new poll by Politico and George Washington University finds that 50 percent say they aren't terribly familiar with it. Shocking!
Back to the Post's Montgomery and Helderman:
"By itself, failure to reach agreement may not have severe consequences, analysts said. If the super committee cannot forge consensus, the law requires that $1.2 trillion in automatic, across-the-board cuts be made to agency budgets, including the Pentagon, starting in January 2013. As long as that trigger remains in effect, the government will be on track to significantly reduce future borrowing.
"Analysts, however, said the United States could risk another downgrade of its credit rating and do further damage to business and consumer confidence if the super committee process implodes in a chaotic display of partisan rancor--for example, if a deal is approved by the super committee but is killed on the House floor. And analysts are deeply concerned that lawmakers could 'de-trigger' the automatic cuts, undoing even the modest steps Congress has so far taken to tame the soaring debt."
Oh no! Not another downgrade to our credit rating! Last time that happened ... uh ... there were no consequences at all. Unless you count a rally in Treasury bonds.
During the past week there's been some much-touted movement by super committee Republicans on taxes, but the grand bargain, if there is one, will be to pledge to some sort of tax increase and then kick the details over to the tax-writing committees. "There could be a two-step process that would hopefully give us pro-growth tax reform," Rep. Jeb Hensarling (R., Tex.) said this weekend. "Pro-growth tax reform," for the uninitiated, is Republican-ese for "tax cuts that benefit the rich" The idea is to close enough loopholes that you can renew the Bush tax cuts (even for families earning more than $250,000) and drop the top marginal rate, which was supposed to rise to 39 percent next year, from the current 35 percent to 28 percent. Experts say this can be done without making the tax code more regressive, but I have my doubts. People cite the example of the 1986 tax reform, which was premised on a similar "grand bargain." But one key to that legislation's success was that it was a bait and switch. Four years later George H.W. Bush reneged on his "read my lips" pledge and jacked up the top rate from 28 percent to 31 percent, and three years after that Bill Clinton raised the top rate to 39.6 percent. The result was a tech-driven economic boom.
For present purposes, we ought to keep in mind that the proposed grand bargain on taxes, which is winning Republicans all sorts of undeserved accolades for reasonableness, wouldn't raise much revenue. It might not raise any. So why are we even talking about it in the context of deficit reduction? (Incidentally, I am in favor of deficit reduction. I'm just a little worried about the timing, given the weak economy, and also about the prospect of achieving most of it through excessive budget cuts merely because the Republicans can't be persuaded to raise taxes.)
In the most recent proposals, according to the Wall Street Journal's John D. McKinnon (registration required), the Democrats are proposing $1 trillion in budget cuts and $1 trillion in tax increases, while the Republicans are proposing $700 billion in budget cuts and $250 billion in tax increases. This establishes that the Democrats are more serious than the GOP not only when it comes to raising taxes but also when it comes to cutting spending. Which means that if both sides are unable to bridge the gap by Thanksgiving eve the logical blame will reside with Republicans. (That's assuming the "plague on both your houses" ninny bipartisanship of Bill Daley and most of the press doesn't kick in, which may be asking too much.)
Now it's time for the super committee Democrats to recognize that they've won and stop trying so hard to cut a deal.