No Common Ground Between Obama And The Republicans on Debt, Spending and Taxes Expect a heated 2012 campaign. But this battle will not solve anything, as America is confused and divided on taxes and spending

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By Paolo von Schirach

July 15, 2011

WASHINGTON – Watching President Obama today during another press conference on the negotiations that should lead to an agreement on raising the debt ceiling and spending cuts was a bit unreal. The President sounded reasonable, quite conciliatory. “Look — he almost said– this is not that difficult. We all want to see a lower debt. But we also need a bit more revenue. If the Republicans would just stop listening to their anti tax hard core ideologues, we could do this fast. Americans want this and it is our responsibility”. How very reasonable.

What about entitlements?

Except that I did not hear President Obama squarely say in that press conference that he is committed to serious entitlement reform. And, without that, the rest is literally smoke and mirrors. And he knows that. Which makes me think that this TV exercise is not about pleading for an agreement but about posturing so that when failure to get a deal becomes obvious, he can start apportioning blame from a high moral ground. “I really wanted this deal. But they just wouln’t listen to reason”.

Republicans: “No” to any and all taxes

On the other side of the fence the Republicans are equally disingenuous. Their total opposition to all “jobs killing tax hikes” is also posturing. It is all about keeping ideological purity on the part of many who got elected having made solemn pledges that they would never, never vote for a tax hike. While one could agree with House Speaker John Boehner that America has a spending problem and not a revenue problem, and while we can also agree that tax hikes in a weak economy can be counter productive, it is unwise to rule out any and all revenue increases as a matter of principle. Some revenue increases would help reducing the deficit. Most serious plans, starting with the Bowles-Simpson December 2010 debt commision report, include them.

No more borrowing

Further down the line, there are those (the Tea Party Movement vangards) who oppose raising the debt ceiling also as a matter of principle. I share their frustration. America has gotten used to over spending, followed by more borrowing, followed by more over spending. At some point, this has to stop. I agree with the principle. However, this is hardly the right time. To say that now is the moment to halt all this and deny any additional borrowing ability is insane.

Bachmann: not to worry, we have enough money left

It is plain obvious that there are just too many policies and programs in place predicated on a certain level of funding. The idea that cutting all new borrowing today is no big deal is astonishing and completely crazy. And yet I heard Congresswoman Michele Bachmann say exactly that, with conviction, in a TV interview. Washington gets money from general revenue, said presidential contender Bachmann more or less. So, you simply use this money to take care of the most important issues.

And how do you do that? Simple. Being responsible Americans, we make sure that the interest on the debt is paid, and there is money for that. Then you make sure that you pay the soldiers in Afghanistan, Iraq, etc. And, I presume, we also pay for the entire supply chain that keeps the war effort going. May be there is some more left for Social Security checks and Medicare/Medicaid payments. Fine, We do that. At that point we have finished all the money. Which means that the rest of the US Government essentially will close down. No more Departments of Agriculture, Energy, Transportation, Education. No more Securities and Exchange Commission, no more Federal Communications Commission, no more National Institutes of Health. How do you like that? But, according to Ms. Bachmann this is not an issue. And this lady wants to be President? Of what?

Sarah Palin: “you got to prioritise”

And conservative movement leader and rumored presidential candidate Sarah Palin said more or less the same in another TV interview. She repeated the same nonsense that, even with no new borrowing, Washington would still get revenue. So, she argued, the point is that, if you have less, you just have to “prioritise”. Easy, no? You keep Health and Human Services, but you cut Homeland Security by –say– 50%. You fire every other FBI agent, close down the National Security Agency and you send the Coast Guard home. Now, this is what seasoned executives like the sturdy former Alaska Governor would do. But Obama, the poor fellow, he does not know how to prioritise, you see. With less money to play with, he would get all confused.

No consensus on anything

So, let’s take it altogether. The president talks for an hour, saying that we can get an agreement that would get America out of the woods, without seriously addressing entitlement reform. The Republicans say “No” to any new taxes. A presidential contender and an anointed national conservative leader say that default is perfectly manageable, if you only know how to “prioritise”. So, you have the clever, the ideologues and the nutty in the same room. And you want an agreement? On this basis?

There was merit in a comprehensive agreement

In principle, the basic idea about having a comprehensive deal that would authorise more federal borrowing and significant spending cuts at the same time seemed good. In one move, Washington would signal that it can act to make sure that it will have enough cash to pay for its current obligations, while it would say to everybody that the era of gigantic spending increases is over and that the Federal Government is now on a serious diet. As I said, nice idea. Except that is premised on political agreement on appropriate levels of cutting and spending that is just not there. (See above).

No deal

As things stand, there may some twisted gimmick (Senator McConnell’s idea) that will allow the dreaded debt ceiling to be raised, but without the Republicans in Congress leaving any fingerprints on this dreadful action. This way America will not default, there will be more (borrowed) money to pay the bills and the big debate on taxing and spending will move on to the 2012 electoral campaigns now beginning to unfold. Fine? Not really. While it is alright in a democracy to settle big issues through a national political vote, it is by no means clear that the 2012 elections outcome will provide the needed clarity.

We need serious entitlement reform

Remember what is at stake here. All major entitlement programs, tax reform, the future of a variety of discretionary programs and myriad of subsidies: to agriculture, ethanol, renewable energy, oil and gas, you name it. Entitlements are the real big ticket item. Remember that they alone already absorb more than 60% of federal spending. The growth dynamics of Medicare indicate that, without significant changes, it will eat up most federal revenue in a few more years. The program needs serious overhaul. As currently structured, since it is a pass through for bills generated by doctors who have every interest to over prescribe, Medicare has no internal check mechanisms. And so, higher costs keep barreling ahead. And, while this is the biggest issue, it is not the only one. There is Medicaid and Social Security. Perhaps a bit less complicated, but thorny nonetheless. And then everything else.

Reform ideas are politicised

But the problem about putting on the table any serious entitlement reform plan is that it immediately turns into a carnival of shameless demagoguery. Easy to accuse any attempt at restructuring programs as a mean spirited conspiracy aimed at depriving America’s seniors of their hard earned benefits. The whole thing turns immediately political and the objective is only to score points. Any serious reform proposal that –by definition– has to entail reducing benefits is presented as a calamity to be fought against at all costs.

Americans do not get that the debt is largely about money they get

On top of that, most Americans are genuinely confused about what it would take to really cut spending, thus reducing deficits and reversing the national debt growth trend. Inordinately large numbers of Americans believe that the debt is mostly about “fraud, waste and abuse”,or “foreign aid”, or about that particularly egregious earmark. This is all fantasy.

People do not want all this debt; but they cannot yet digest the fact that most of it is due to benefits they get.

And so we have a huge disconnect here. There cannot be any serious discussion about spending reductions without a real entitlement overhaul. And yet, somehow, the elected leaders have been vague about this “detail”. And so they have no idea how to sell entitlement reform without angering too many voters.

In this atmosphere, serious debate is impossible

From the above it is obvious that a serious debate is almost impossible, as the fruitless negotiations between the White House and Congressional leaders carried out until now amply demonstrate. Lacking honest dialogue, then there are only attempts at manipulating public opinion.

Again, at its core, the issue is rather simple. America wants public services, including entitlements. Yet, all serious people know that, in order to preserve entitlement programs designed in a different era, we need fundamental changes regarding their scope and cost. And finally, we need to agree on who pays for what.

As the President smilingly said on TV, it should be simple. But it is not.

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