The politics of debt and spending cuts

At National Review, Kevin Williamson says a typical Washington compromise — Republicans agree to raise the debt ceiling, Democrats agree to extend the current tax rates — isn’t a good outcome. Here’s what he suggests instead:

My best guess is that the debt ceiling is going up. Nobody reasonably expects a Republican House to be able to prevail upon a Democratic Senate and President Obama to balance the budget today. But Republicans can — and must — insist on a real deficit-reduction program that is very largely focused on spending cuts rather than tax hikes, one that has some real teeth on the enforcement end of things. The timeline doesn’t have to be tomorrow, but it had better not have a 20-year grace period, either: Real cuts should start kicking in right now, and the deficit should be significantly reduced within five years and radically reduced within ten.

Both politically and economically, I still think the Simpson-Bowles proposal is the best starting point. House Republicans can and should remind voters every day that the deficit-commission chairmen appointed by President Obama have recommended an array of spending cuts, and then get to work. They can pass the cuts as a package or they can force them through one at a time, but get going now: The fact that these are Obama-appointed chairmen is politically powerful at this moment, but if the full panel waters down its recommendations, that will take away some of the fire. Now is the time to move the ball forward.

And, speaking of Simpson-Bowles and the Bush tax cuts, I much prefer a Simpson-Bowles tax system (no deductions, top rate of 23 percent) to the Bush tax regime (crazy complicated deductions, top rate 35 percent). So, House Republicans could say, “Hey, look, we’re offering you jokers a bipartisan olive branch: We’ll drop the whole argument about the Bush tax cuts if we can go straight to implementing the bipartisan Simpson-Bowles program, for which we thank the chairmen and President Obama, who appointed them.” No, Simpson-Bowles is not perfect: But passing it does not preclude passing additional spending cuts down the line or additional reforms of our tax system. And if you want to get something in exchange for raising the debt ceiling, a program that actually lowers the deficit would be appropriate.

Sounds pretty good to me. But Williamson ends on a note that doesn’t get mentioned very often:

Why now? Why move so aggressively? Here is one reason: We are not out of the fiscal woods yet, by a long shot, and the Greco-Irish disease is going to make a showing in California, Illinois, New Jersey, and elsewhere. We had better have a real plan for controlling the national debt in place before we have to deal with the coming state meltdowns.

It doesn’t take much boldness to predict that federal bailouts for individual states will be the mother of all political fights. You’ve seen the statistics that states like Georgia spend less per capita than other states. What will happen when the citizens of this and other states that haven’t overspent, and require their legislatures and governors to balance their budgets, are asked to bail out their highly irresponsible neighbors?

The states in the biggest trouble — the three that Williamson mentions, along with the likes of New York — are also the biggest states. Take California, New York, Illinois and New Jersey for starters, and already a quarter of the members of the U.S. House are represented (at least before reapportionment takes place). But the math in the Senate is very different. Anyone who’s ever questioned why the Idahos and North Dakotas of the world have as many U.S. senators as the Californias and New Yorks should look no further than an issue like this.

That said, the implications of these states’ debt for the rest of us, in the form of the value of the dollar, are analogous to what we’ve seen in Europe with the Greek and Irish bailouts. Germans and Finns didn’t benefit from overspending by Athens and Dublin, but they are bound together by a single currency. Doing nothing about a Golden State meltdown may not be a plausible option.

Our situation is better than theirs in a lot of ways. But the tea party rallies we’ve seen over the past year and a half will look like patty-cake compared to the protests you’ll see in, say, San Francisco if Washington tells Californians they have to slash their education budget or give public-sector pensions a sizable haircut if they want a bailout — or in Atlanta if Washington bails out California without such conditions.

Any member of Congress who prefers to avoid that situation better start by getting serious about putting our national finances in order, and now.

20 comments Add your comment

Roekest

November 24th, 2010
11:27 am

Surprised to see you throw Jersey into the mix. One thing that state has that all the others lack: a governor who has no qualms slashing the budget and getting in the face of unions. Unions need to vanish in the other states you mentioned. That’s California’s biggest problem: a public sector union that will hold on to their pensions, even if it means the death of their state. Control the unions = control the bleeding.

Jefferson

November 24th, 2010
11:29 am

Who in Atlanta will rally ? They will be wasting their time. If the feds can give money to wall st and not make them change why do you think they will try it on the states?

BS Aplenty

November 24th, 2010
12:06 pm

Excellent insight, indeed, Mr. Wingfield. Who will bail out these “blue” state failures with their Democrat-majority legislatures, high tax rates and nobody in charge with a full set of stones. I’d say “Ahnald” should have the stones but after all the ‘roids he’s taken in a lifetime, well,…

BS Aplenty

November 24th, 2010
12:14 pm

On a more productive note. What will happen first to Cali, et al. is what happened to Greece and, now, Ireland. The IMF (US Treasury) will open a sizeable credit line to continue to allow these misbehaving children to operate their states.

What happens next is uber-important. The fiscal and other measures IMPOSED by Congress on these children will and should be harsh. But they won’t. ‘Cause our president won’t want to lose the votes in these Dem states with large union populations and illegal immigrants fleecing those governments. And state legislatures that are incompetent to resolve the issue.

CJ

November 24th, 2010
12:25 pm

House Republicans could say, “Hey, look, we’re offering you jokers a bipartisan olive branch: We’ll drop the whole argument about the Bush tax cuts if we can go straight to implementing the bipartisan Simpson-Bowles program, for which we thank the chairmen and President Obama, who appointed them.

Jokers, huh? Williamson’s idea is no olive branch.

“Chairmen” is the key word here. Obama didn’t appoint Simpson and Bowles and only Simpson and Bowles. He created a commission with several individuals. So, to suggest that the proposal that only these two guys have agreed to, without a vote from the rest of the commission, is somehow Obama’s product or his commission’s product is, of course, misleading.

These two individuals created a tax scheme that mostly raises taxes on the poor and middle class and mostly cuts taxes for the wealthy. It also cuts benefits for the poor and middle class. Of course, it would continue the current trend of shrinking the middle class and enriching the rich, and that’s why the right likes it so much. It’s also part of the reason why, thankfully, most of the commission will never agree to this ridiculous scheme.

As far as getting out of the fiscal woods, the only thing that austerity cuts have accomplished on behalf of “Greco-Irish disease” is to exacerbate it. No surprise there, since massive spending cuts, by definition, generally lead to economic contraction, fewer jobs, and lower revenue. Ireland’s economy has contracted without mercy for three straight years, not because of not enough austerity, but because of it.

What’s the solution, focus on creating jobs–teachers, cops, firemen, clean energy jobs, maintaining and rebuilding our infrastructure, health care, and R&D. More jobs create more customers which create more jobs which create more taxpayers which grows the economy which increases revenue which reduces the deficit. Sorry. Haven’t figured out a way to get these facts on a bumper sticker.

Kyle Wingfield

November 24th, 2010
12:50 pm

I’m not sure where you get your info, CJ, but the Brookings Institution disagrees with your claim that the Simpson-Bowles plan benefits the rich: http://taxvox.taxpolicycenter.org/blog/_archives/2010/11/16/4680042.html

DannyX

November 24th, 2010
12:51 pm

I think its fair to add Red State Texas to the list of troubled states. Texas? Republican darling Texas?

Oh, my.

At least California can now change course. They kicked the Republican Party out of the Governor’s office.

Kyle Wingfield

November 24th, 2010
12:51 pm

CJ, your bumper sticker has already been printed, distributed and — in many cases — torn off. It goes like this:

Obama ‘08

BS Aplenty

November 24th, 2010
1:02 pm

Sorry. Haven’t figured out a way to get these facts on a bumper sticker.

Socialists – We Spend All Your Money then Accuse You of Not Paying Enough Taxes.

or, how ’bout:

Socialists – We’re Thieves But We Just Don’t Have The Stones To Point A Gun At You

or:

Socialists – We’re Always Around to Help You Spend YOUR Money. Not So Much When It’s Time to Make It..

and my favorite:

Socialists – We’re Too Damned Lazy to Make Up Our Own BumperStickers So We Have To Get The Conservatives To Do It For Us..

Glad to be of service, Libtard.

BS Aplenty

November 24th, 2010
1:12 pm

Happy Thanksgiving to All.

carlosgvv

November 24th, 2010
1:13 pm

“Republicans can and must insist on a real deficit-reduction program”

No, Kyle. Republicans can and must check with their corporate masters before doing anything. If big business wants to reduce the deficit orders will be given and the Republicans will march. If not, Republicans will do nothing.

Kyle Wingfield

November 24th, 2010
1:14 pm

DannyX: It’s true that Texas faces a shortfall. But as far as I know, it’s also true that Texas still has billions of dollars in its reserves, and hasn’t had to cut its budget very much in recent years (the state operates on two-year budget cycles, which I think merits consideration by our state and the federal government). So comparing Texas to California isn’t really accurate.

Churchill's MOM

November 24th, 2010
1:15 pm

I like the Heritage plan better.. Last week on PBS they had a program on cotton subsidies, the US lost its case in the world court but rather than end cotton subsidies, Saxby & his lobbyist friends chose for us to borrow money from China to pay subsidies to cotton farmers in Brazil. The simple facts are, we only have 1 party the green party and it’s controlled by the Lobbyist.

http://www.heritage.org/Research/Reports/2010/10/How-to-Cut-343-Billion-from-the-Federal-Budget

You’ll have a great holiday, we are about to leave for my parents for a feasting & hunting.

DannyX

November 24th, 2010
1:45 pm

BS, the only tax increase I have noticed in a long time comes from our Republican friends in Georgia.

My tax bill went up $300 a year because Georgia Republicans didn’t ‘extend’ the Barnes property tax cuts. They did cut corporate taxes by about a billion the same year, if that helps.

jconservative

November 24th, 2010
2:24 pm

Nice article Kyle.

I refuse to hold my breathe until the House Republicans and the Senate Democrats agree on a compromise.

We are 30 years late in doing spending cuts. They should have been done in 1981 with the tax cuts. But it just never happened. No one wants to be the bad guy & cut voters pet programs. And no one dares to cut defense & face the charge of being a traitor.

Suggestion: add removing all US troops from Germany to the compromise you outlined.

Moderate Line

November 24th, 2010
2:25 pm

Individual income tax as a percentage of GDP = 6.4% in 2009
The last year below that mark was 1950.
Corporate income tax as a percentage of GDP = 1.0% in 2009
The last year below that mark was 1936.
Table 2.3
http://www.whitehouse.gov/omb/budget/Historicals/

Jefferson

November 24th, 2010
2:48 pm

Last time the buget was in order 2000, return spending to that level, raise taxes to that level and more on the upper income, corps and wall st. to pay for the debt run up since then to pay back in 10 years, after all they are the only ones who got richer in the last 10 years.

CJ

November 24th, 2010
3:23 pm

Kyle,

I got some of my information from Brookings/Tax Policy Center (updated 11/18): “…when compared with current law, the Chairmen’s Mark would reduce after-tax income in the bottom two quintiles of the income distribution and would raise after-tax income in the top three quintiles, making the system on average less progressive…”

http://www.taxpolicycenter.org/taxtopics/bowles-simpson.cfm

With regard to your Obama ‘08 snark, both TARP and the Recovery Act worked! You and the rest of the corporate media are seemingly living in your own Bizarro World where austerity cuts fail and you demand more and stimulus succeeds and you demand less.

http://www.marketwatch.com/story/stimulus-worked-but-not-as-well-as-hoped-2010-10-29

As I said, austerity hawks aren’t interested in jobs, the economy, or free markets. They’re interested in enriching the rich. Period.

CJ

November 24th, 2010
3:25 pm

I responded to your post with links Kyle. Will you please keep an eye out?

No More Progressives!

November 27th, 2010
9:51 am

“With regard to your Obama ‘08 snark, both TARP and the Recovery Act worked!”

Really? When? How did they work?

Who has recovered, and from what?