The headlines out of Washington probably have most casual observers convinced we’re embroiled in another of our annual slapfights over the budget, and maybe the deficit. That’s not the case. What’s actually going on is a lot stranger, and a lot more perilous.
Right now, Republicans and Democrats are going to the mat over a bill to keep the federal government’s lights on through the end of the fiscal year—a “continuing resolution,” in Washington’s customarily inelegant parlance. And this fight is little more than sparring practice for April or May, when we’re scheduled for an unnecessary and dangerous brawl over whether Congress will raise the debt ceiling. Only after that, during the summer, will debate begin over the budget for 2012. What you need to know about each of these bills is that they’re “must pass” legislation: a breakdown in negotiations or collapse into gridlock could mean economic catastrophe, with our fragile recovery shattered amid the market chaos of a government shutdown or, worse, a default on our debt.
What I wish I could tell you is that all this wrangling is likely to produce what economists say we need: growth now and a plan to tackle long-term deficits soon. But the reality is quite the opposite, I fear. There’s a good chance politicians will destroy hundreds of thousands of jobs this year without doing anything at all about our long-term deficit problems. There’s a win-win on the table here, but there’s also a lose-lose—and it looks like Washington may choose the latter.
Most economists don’t think we should start cutting spending until 2012. The recovery is simply too weak, the labor market too fragile, and businesses too restrained in their hiring for the government to slash spending on goods, services, and workers. Eventually the private sector will take up the slack so that Washington can focus on deficit reduction and debating whether to subsidize National Public Radio. But until then, the government needs to keep supporting the recovery.
That’s why the budget hawks—the people who worry most about the deficit—have all proposed holding off on deficit reduction until 2012. This was the position of both the president’s fiscal commission and the widely respected Bipartisan Policy Center. Stimulus now, cuts in a year or two.
But in December, Republicans blocked Democrats from passing money to fund the government in 2011. That had an unanticipated result: when the Tea Party candidates came into office in January, they took the next step and demanded that the GOP’s promised $100 billion in cuts—a figure that Republican leaders had meant for the 2012 budget—apply to the remainder of 2011. Speaker John Boehner put up some initial resistance but quickly folded.
The prospect of sharp cuts in 2011 have turned the economists downright gloomy. Forecasters were predicting a year of growth strong enough to launch the economy to self-sustaining recovery. But then they were asked to add the GOP’s cuts to their calculation. Fed chairman Ben Bernanke estimated they would cost 200,000 jobs. The firm Macroeconomic Forecasters ran its own analysis and came back with 500,000 in job losses. Mark Zandi, the chief economist of Moodys.com, predicted 700,000. No matter who’s right, the number is far too high.
If those job losses were the necessary cost of doing something serious about the deficit, perhaps Republicans could justify them. But that’s not the case. The GOP’s spending cuts come from the 12 percent of the budget known as “nondefense discretionary spending.” That’s not Medicare, Medicaid, big tax breaks like the mortgage-interest deduction, military spending, or Social Security—not, in other words, any of the major contributors to the deficit. Rather, it’s a hodgepodge of programs for education, retraining workers, housing the homeless, investing in infrastructure, and so forth. This part of the budget tends to be lean, as politicians continually return to it to make cuts. Why? Because its beneficiaries tend to be politically weak—kids rather than seniors, or unemployed workers rather than corporate titans.
Senate Democrats, frustrated by the depth of the cuts Republicans have proposed, have tried to negotiate. “Tax cuts and expanded mandatory programs are a large part of what got us here,” said Sen. Chuck Schumer, “and they are going to have to be part of the solution.” Republicans were not interested. “Right now we need to crawl before we can walk, and that means finishing last year’s business and complet[ing] a spending bill,” said Michael Steel, a spokesman for House Speaker John Boehner. “[The Democrats’] answer is to raise taxes, not to cut spending, and that’s not something anyone else is talking about,” said Don Stewart, a spokesman for Senate Minority Leader Mitch McConnell.
Stewart happens to be wrong about that. A Bloomberg poll released last week showed that letting the Bush tax cuts for the rich expire was the single most popular way to reduce the budget deficit. And an NBC–Wall Street Journal poll released a week before that found that financing deficit reduction with a surtax on millionaires was similarly popular. Republicans may not want to talk about raising taxes on the wealthy, but other people do.
“I just don’t see a reasonable way to get there through spending cuts alone,” says Maya MacGuineas, director of the Committee for a Responsible Federal Budget. “And I’m saying that as someone who doesn’t think revenues should be the bulk of the solution.”
The trouble is that congressional Republicans don’t think new revenues should be any part of the solution. Americans for Tax Reform, an influential conservative group focused on fiscal issues, is known for pushing Republicans to sign a pledge promising they will not, under any circumstances, vote for a tax increase of any kind. That even goes for closing loopholes “unless it’s matched dollar for dollar by lowering tax rates.” The president of Americans for Tax Reform, Grover Norquist, says that “about 97 percent of the Republicans in the House and 85 percent in the Senate have signed on. It’s become a party position.”
He’s right about that. He’s also right when he says that “the goal is to reduce the size and scope of government spending, not to focus on the deficit.” That’s where his organization is, and it’s where the Republicans are. Trouble is, it’s not the right place for our economic policy to be.
What our economy needs, in the words of Peter Orszag, the former director of the Office of Management and Budget, is “short term-stimulus now and out-year deficit reduction for later. Instead, so far we’re getting short-term deficit reduction and out-year nothing.” Which is to say, we’re getting theworst of all worlds—and all of us are going to pay the price.