Debt Agreement Could Bring Big Upsides
Everyone’s talking — legitimately —about whether failing to reach a debt limit deal would be “catastrophic” or merely “serious.” And about who would get the blame.
But what about the upside? Just imagine the good that would result if Congress and the Obama administration actually reached a debt reduction-debt limit agreement next month — the earlier, the better — and demonstrated intent to do bigger things in the future.
At home and abroad, the growing hoards who doubt America’s ability to manage its affairs would regain confidence — and it likely would have both economic and political benefits.
Instead of looking for other places to park their money, domestic and foreign investors would do so in the United States — not only for the short run but for the long. America would be the “safe place” not just amid European turmoil, but for the foreseeable future.
We’d not just avoid the downgrading of America’s credit rating and a damaging spike in interest rates, but we would probably experience a boost in our gross domestic product and hiring as our economic house would be coming into order.
There’d be a “confidence stimulus” more permanent than any temporary surge in government spending or short-term tax cut.
Perhaps more importantly, an agreement would begin lifting the pall that has descended on public attitudes toward politicians and the nation’s future.
Sixty-three percent of adults think the country is on the wrong track, according to the latest Associated Press-GFK poll and 69 percent say the economy is getting worse, not better, according to Gallup.
But, more disturbingly, 55 percent of adults think their children will have a lower standard of living than they do and only 23 percent, a higher standard.
It’s no wonder President Barack Obama’s approval rating is dipping into the mid-40s — and on the economy, to 37 percent, according to a McClatchy-Marist poll.
But Congress’ approval rating now averages only 18.5 percent, according to RealClearPolitics.com. For Democrats in Congress, only 35 percent approve in the AP poll. For Republicans, it’s 29 percent. The public obviously thinks its leaders aren’t grown-ups.
The latest indicators are that if there is a default, Republicans would get more blame than Obama — 42 percent to 33 percent, according to the Pew Research Center.
And, as Obama demonstrated in his press conference Wednesday, he’s prepared to intensify the blame on the Republicans for protecting “tax breaks of millionaires and billionaires, jet plane owners and oil companies” at the expense of college students, food safety and Medicare recipients.
Polls indicate the public favors taxing rich people to close the deficit but not cutting Medicare or Social Security. Obama has the upper hand in the blame game, if it comes to that.
Then again, if a default leads to higher interest rates and the anemic economic recovery falters, Obama could suffer in 2012 — as Democrats accuse the GOP of plotting.
So, no one really knows who will have it worse. That’s a good reason for both parties to take risks with their bases and get a deal done that includes both spending cuts and revenue increases.
The bigger the deal, the better — though it now appears unlikely that a complex agreement to reduce deficits by $4 trillion can be negotiated and pushed through Congress by Aug. 2.
So, it looks like the deal will have to be smaller — $2 trillion to push the issue past the 2012 election or $800 billion until late this year.
In either case, the elements of a deal are apparent for all to see — more spending cuts than revenue increases. That’s because, according to the Congressional Budget Office, spending is set to surge to 25.5 percent of the GDP by 2020, whereas its historical average is 20.6 percent, while revenue will approximate its 18.1 percent average.
The deal needs to include targets for longer-term debt reduction and triggers for automatic spending cuts and revenue increases if the targets are not met.
The two parties are at an impasse, of course, because Democrats refuse to contemplate cuts in Medicare and Social Security benefits and Republicans (so far) refuse to agree to any “tax increases,” even if they’re accomplished by reducing subsidies that are really spending by another name.
Ideally, this summer’s deal would set the stage for a tax reform agreement that would eliminate market-distorting preferences, lower rates and raise more revenue, particularly by spurring growth.
It would require courage. Republicans would have to stand up to Grover Norquist of Americans for Tax Reform, who vows to punish anyone who raises revenue even an iota. And Democrats will have to offend AARP, which thought about endorsing necessary entitlement limits, then repudiated the idea.
But just imagine that the two parties actually saved America — not just from default this summer but from Greek-level debt burdens in the future.
The 2012 elections could be about who’s a hero. There’d still be plenty left to dispute. But China, instead of thinking that the 21st century will witness America’s decline and its domination of the world, would have to think again.