Around the Halls: President Obama’s Deficit Reduction Plan and the Super Committee

As President Obama releases his plan for economic growth and deficit reduction, the Joint Select Committee on Deficit Reduction begins its work to find $1.5 trillion in deficit reductions. Brookings scholars discuss Obama’s plan and the implications it has for the super committee and the U.S. economy, including Isabel Sawhill on whether the president’s plan is class warfare, Bill Frenzel on the importance of partnership within the committee, William Galston on the president’s vision and what it means for negotiations, Thomas Mann on the political difficulties facing Obama, and Michael O’Hanlon on steps politicians can take to ensure the committee reaches its goal.

Class Warfare? Not really.
Isabel Sawhill, Senior Fellow, Economic Studies

This morning the president announced the second half of his economic plan to restore economic growth by outlining how he would pay for the $450 billion jobs proposal released earlier this month and reduce long-term deficits by about $4 trillion.

The fiscal plan is balanced in two ways. First it marries short-run job creation measures to get the economy growing again with long-term fiscal restraint to restore confidence. Second, it combines revenue increases with spending cuts, calling for shared sacrifice from all groups. I earlier applauded the president’s jobs proposal but wondered how it would be paid for. Now we know.

One element of the plan, the “Buffet rule” would insure that wealthy Americans pay as much in taxes as the middle class. Republicans immediately branded this and other proposed revenue increases for the well-off as class warfare.
Let’s analyze this war a bit.

One question that needs to be asked is who started this war? Was it Obama or was it George W. Bush when he tilted his tax cuts to favor the wealthy?

A second question is who escalated the war most recently? Wasn’t it the Republicans that went nuclear when they held the economy hostage to getting their way on the debt ceiling bill? To be sure, it was a very effective weapon. They got a package of all spending cuts. They have now threatened to use this particular WMD every time we need to raise the debt ceiling.

A third question is how does one get broadly shared sacrifice if one doesn’t raise revenues? The nonelderly wealthy don’t benefit from most government programs so a package that is all spending cuts and no revenues involves reducing deficits and debt on the backs of the middle class and the poor.

The president is not likely to make these arguments because he is not the warring type. What he did point out in his speech this morning is that it is a simple matter of trade offs and fairness to ask everyone to tighten their belts. If we don’t raise taxes, we will have to cut spending across the board by about one quarter, and that includes benefits that go to seniors, defense spending, and programs such as education , research, and transportation that help us remain competitive.

While I like the president’s generally balanced approach, he could be criticized for not asking the merely affluent as well as the wealthy to sacrifice more. If we did not extend the Bush tax cuts for most people once they expire at the end of 2012, the fiscal problem would be largely solved. A still better solution, as the President noted, would be to overhaul the entire tax code so that it is simpler, fairer, and more growth-oriented. I would then add a Value Added Tax that would further add to our competitiveness. None of this means that entitlements don’t need to be reformed as well. They do – Social Security included. It’s just that taking all revenues off the table and threatening a financial crisis every time the debt ceiling is reached is a new form of fiscal warfare. It would be irresponsible to allow this kind of warfare to go unchecked.

One Road to Super Committee Success
Bill Frenzel, Guest Scholar, Economic Studies

America’s political system works clumsily. Checks and balances abound. Mr. Madison and his colleagues in Philadelphia intended it to work that way. Through our history, the system has performed better in times of comity and compromise; today, they have been largely discarded.
The executive and legislative branches, the divided houses of Congress, and the major political parties are at each others’ throats. The American people understand it because they are sharply divided on the issues, too, and they have encouraged open warfare in the political system.
This is not a new phenomenon, especially as we near a major quadrennial election. But nowadays, the animosities and distrust appear to run deeper, and live longer. In this environment, finding responsible policies that a majority of American can tolerate is extremely difficult.

Normally, in the rigorous competition of presidential elections, our system flourishes. Unfortunately, these are not normal times. Our fiscal condition is rotten; our debt has been downgraded; our economy is threatening to slip back into recession. The normal political processes, exacerbated by polarization, are not taking us where we need to go.
The Joint Select (Super) Committee on the Deficit has been chosen to find the right fiscal solution. To find that solution direction most easily, its members need to be transformed from political warriors into statesmen and women. They might look back in history to kinder, gentler political eras when comity was the norm. Specifically they should remember a few simple rules:

  1. The other political party is the opposition, not the enemy. One of Washington’s favorite stories is of Speaker Sam Rayburn reminding young Rep. Lyndon B. Johnson that Republicans are the opposition, and not the enemy. Whether or not Mr. Johnson ever really learned that lesson, Mr. Rayburn was right.
  2. The opposition may be misguided, but it is not evil. Politics is a contact sport. It is hard for activists to love their opponents. Nevertheless, if disparate views are to be reconciled, political negotiators must understand that, no matter how hare-brained the opposition’s schemes may be, those opponents believe they are doing their best for their country.
  3. Compromise flowers best in an atmosphere of comity and mutual respect. Super Committee members need to understand that the opposition got to the Committee the same way they did. They are all elected, and they all have strong beliefs. They may not be equal in all respects, and they not be lovable, but they ought to be treated as equals.
  4. In bargaining, if you don’t give anything up, you don’t get anything. Bob Strauss, one of the United State’s master trade negotiators used to say, “You don’t get something for nothing.” If a negotiator makes every one of his/her positions non-negotiable, that negotiator will be unsuccessful.

Every member of the new Super Committee is able and talented. Each has the ability to help the Committee succeed. The Committee may do so, even in the present poisonous atmosphere. But, if it allows comity and compromise to sweeten the air, the Super Committee is far more likely to achieve, or even surpass, its goals.

Because the stakes are so high, and because divided government will probably still be with us after the November 2012 elections, the Super Committee should make its job as easy as possible. Comity is one of the roads to success.

The President’s Vision on the Budget Deficit
William A. Galston, Senior Fellow, Governance Studies

Last week, Speaker of the House John Boehner announced his preferred framework for the congressional super-committee: cut deficits and debt through entitlement reforms and spending cuts without raising taxes. Today, President Obama replied with his own framework: raise taxes on the wealthy by $1.5 trillion, reduce spending without significantly affecting Medicare or Medicaid beneficiaries, and exclude Social Security from the budget discussion. Although the consensus formula for comprehensive tax reform involves broadening the tax code’s base while reducing rates, the president laid out general reform principles without indicating how his base-broadening proposals would actually reduce rates for anyone.

Observers with memories will notice that both the speaker and the president have stepped back from the compromise they tried to negotiate this summer. Three months ago, it was widely reported, Boehner was willing to accept $800 billion in additional revenues while Obama put on the table an increase in the age of Medicare eligibility and significant changes in the calculation of Social Security benefits. Asked about the difference, an unidentified administration official said, “What we were talking about with the speaker was designed to get majorities in the House and Senate. This is the president’s vision.”

Translation: today’s proposals will not become law. They stake out a bargaining position and announce a platform for the president’s reelection campaign. Meanwhile, the super-committee faces a Thanksgiving deadline to come up with at least $1.2 trillion in deficit reductions or trigger mandatory cuts in defense and domestic programs that no one really wants. Nothing that either side has said in the past week makes the committee’s job any easier, and the clock is ticking.

The President’s Plan for Economic Growth and Deficit Reduction
Thomas E. Mann, Senior Fellow, Governance Studies

For largely understandable reasons, it has taken President Obama a while to get to today’s position. He now understands that he has no partner on the other side of the aisle with which to engage in serious negotiations to provide a necessary additional short-term jolt to an economy with persistently high unemployment and at risk of following into another recession and to put in place a broad plan to stabilize the public debt over the next decade. Republicans are dead set on denying the President a policy victory that might help him in the 2012 elections and have decided to maintain their non-negotiable position on tax increases. The so-called super committee, a creature of the party leadership, has virtually no chance of agreeing to anything of consequence. Nothing proposed by Obama today could have altered that political reality. So better to lead with a restatement of his jobs program and a proposal for tax increases on the wealthiest sliver of Americans, and to avoid making any dramatic pre-emptive concessions on Medicare, Medicaid, and Social Security. He is pursuing a “tit-for-tat” strategy in the face of Republican defections on serious negotiations; game theory suggests this is a better strategy for inducing cooperation than what he has tried before. The only way out of this mess is for American voters, before or through the election, to pressure Republicans to return to something approaching the center of the playing field.

Don’t Let the Super Committee Fail
Michael O’Hanlon, Senior Fellow, Foreign Policy

With President Obama’s expected unveiling of a detailed deficit reduction plan this upcoming week, aimed to influence and cajole the super committee, which must report with its proposal by November 23, the debate about how to reduce our huge fiscal overhang is about to get intense again.

President Obama can be expected to put forth a balanced approach for cutting $1.5 trillion in government spending, with a mix of tax increases and spending cuts in most discretionary parts of the government budget as well as some aspects of Medicaid and Medicare. Most likely, any tax increases the president proposes, relative to the current Bush-era tax rates due to expire at the end of next year, will focus on just higher-income earners.

This will be a reasonable plan. But if the super committee goes a different direction, and its 6 Republicans adamantly oppose any talk of any tax increases whatsoever (or, more accurately, any suggestion that Bush tax cuts not be extended), there is a better approach for Democrats than to simply vote it down and allow sequestration to kick in. They should take whatever package of balanced spending cuts is possible to achieve this year, approve it, and then let the 2012 campaign be a referendum on what to do next.

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