No Certainty or Confidence in Congress

By Steve Kopperud, Policy Directions, Inc.

If there’s anything resembling certainty in the waning days of the 112th Congress, it’s the fact the 800 pound gorilla roaming the halls is the political minefield that is the state of the nation’s economy, including debt, the fact the United States (US) has less annual income today than at any time since the Korean War, and the screaming need for federal tax reform. The second part of this axiom is there’s no way Congress will act to drag the economy and the federal tax system into the twenty-first century before the November 6, 2012, election.

Why? There is no political courage or will to tackle the tough actions necessary to fix a system so irretrievably broken, even as we careen toward the much-feared fiscal cliff, which is that point at which Congress must fish or cut bait, fiscally speaking. At the end of 2012, elected officials can allow their previous work to kick in on New Year’s Day, namely across-the-board budget cuts – “sequestration” – as called for in last fall’s deficit reduction law, and, if no action is taken to extend the Bush-era tax cuts, the advent of what Republicans like to call “the biggest tax increase in US history.” Or Congress can cancel or modify the spending reductions, dodge the tax increase battle, add to the deficit, and put more pressure on the economic “recovery” the country is now enjoying. Sounds European, doesn’t it?

Most understand the stuttering US economy is the cumulative result of several factors, including slow domestic hiring/jobs growth, sluggish real estate markets, overseas uncertainty, particularly in Europe, domestic regulatory uncertainty, and both a Congress and an administration sufficiently worried about their personal employment future to avoid the core issues that should be the center of both Washington debate and campaign rhetoric.

If you read the recommendations of the bipartisan public/private National Commission on Fiscal Responsibility and Reform (the so-called Simpson-Bowles report), you can quibble about regressive versus progressive approaches, argue over recommendations, promote it as the best thing since sliced bread, or turn your nose up at the whole thing. Yet you can’t argue with the fundamental logic of the plan, i.e., the United States cannot cut spending enough to have the needed impact on national deficit or debt, nor can it raise taxes enough to offset rampant spending and still pay down the debt. What must happen, says Simpson-Bowles, is a full-on embrace of a formula to increase revenue, cut spending, produce program efficiencies and reinvention, and, basic to this formula, comprehensive federal tax reform.

Reports like Simpson-Bowles say out loud what President Barack Obama and most of Congress wish would remain unspoken, at least until after the November election. They include recommendations that don’t touch – and would likely be cheered by – the majority of Americans, as in cutting the federal workforce, reducing government procurement, cutting farm subsidies, etc. But once past reinventions, the next step – and arguably the most important step – is a needed change in how Congress approaches the heretofore sacred cows in government spending. The programs no politician will go near for fear of a return to the days of tar and feathering are Medicare, Medicaid, Social Security, and defense spending. I’d also add tax deductions.

I’m fascinated by Simpson-Bowles because there’s something in its list of economic fixes to offend everyone. Want to know why no politician has run into the streets proclaiming the genius of the plan? It’s because the boys and girls on the Simpson-Bowles bandwagon favor:
• a $200 billion reduction in annual discretionary spending;
• a 15 percent reduction in military procurement, closing one-third of overseas military bases, and cutting the federal workforce by 10 percent;
• continuing Medicare cost controls under the Affordable Care Act;
• a new 15 cent per gallon federal gas tax;
• capping home mortgage interest deductions along with employer-provided health benefits;
• cutting farm program benefits, civilian and military pensions, and student loan subsidies; and
• changing the Social Security program to increase payroll taxes along with an increase in the retirement age.

At the very least this report puts all the options on the table. The Simpson-Bowles folks are daring Congress to at least put legislation together as a starting point. So far, no one’s taken the dare.

When this issue of Render hits your desk, the 112th Congress will have fewer than 12 working days until adjournment during which to get the nation’s business completed. The list of “must-pass” legislation continues to contract and includes only those bills necessary to keep existing programs operational. Serious broad economic reform and stimulus – in any form – isn’t part of the mix; the bills are mainly election-year window dressing.

Depending on the outcome of the fall elections, the expected lame duck session will likely bring some form of tax action. The Senate Finance Committee and the House Ways and Means Committee have similar legislation ready to go, but as far as anyone can tell, these bills will only address the extension of about 1,200 expired federal tax breaks and tinkering with the federal tax code.

Other stop-gap measures expected before January 1, 2013, include action on the mandatory across-the-board budget cuts. Some favor a simple can-kicking exercise, delaying the required spending cuts until March or April. Some demand Congress build a wall around the Department of Defense to ensure spending cuts don’t leave the nation vulnerable. When this initially focused approach is unveiled, you can expect any number of bills and amendments to protect other federal departments and programs to be added to that list. In the end, a big chunk of the expected savings from mandatory sequestration will have disappeared.

Can we expect a fiscal miracle during lame duck? Will there be wholesale reform soon? Likely not. Will whatever lame duck action expected set the stage for serious action in the 113th Congress next year? I wish I was more confident.

August 2012 RENDER | back