The real debt deadline: Now the clock starts ticking
By Matthew Leatherman
For everything that runs on a clock, from basketball games to work deadlines, anxiety builds as time winds down. Our national politics over the past year has been defined by fiscal countdowns first to government shutdown, then to debt default, and now to find another $1.2 trillion in reductions before ěsequester,î a blunt and automated savings process, finds it for us. Anticipation is mounting, yet most Americans are unaware that the supercommitteeís collapse marks the clockís start for sequester and not its end.
The Budget Control Act passed in August contained three well-advertised dates. The supercommittee is supposed to report on its savings plan by Nov. 23, Congress is slated to vote on it by Dec. 23, and if the process breaks down and the 10-year, $1.2 trillion debt reduction target isnít met, then sequester will be triggered on Jan. 15. But thereís also an all-important fourth date: sequester isnít actually implemented until Jan. 2, 2013.
None of the administration or congressional negotiators has explained why they agreed to this yearlong lag between trigger and impact. Still, the reason seems apparent. Both parties expect to capture the White House and strengthen their hand in Congress next November, and both plan to rewrite the law in their favor between winning a new mandate and the real sequester deadline.
In that light, 2012 stands to be even more politically charged than 2011. Presidential nominees and congressional candidates will do their best to pin blame for the supercommitteeís failure on their opponents and to persuade the public that their approach for reducing the debt is better. The role of government domestically and internationally over the next generation will sway in that balance.
From its beginning, this exercise has been more about how to reduce the debt than whether it should be reduced. Republicans concentrate on cutting taxes and shrinking government in order to create space for business and individuals to flourish. Democrats emphasize a social safety net for those that still struggle and infrastructure investment as a foundation for a better future ó both of which depend on more revenue.
Those are real differences, and an election may well be the best way to bridge them. But in addition to misdirecting the American people, there are major liabilities in punting this decision for another year.
Most immediately, confessing to the markets that this plan was unreliable all along could introduce the exact volatility weíre trying to avoid. Many in Washington knew that the supercommittee was set up to fail, but what about the financial services sector? The assumption is that investors also saw it coming, but no one actually knows that for sure. Interest on U.S. bonds most likely will stay low, but only because the Euro-area currency crises make their credit look even less trustworthy.
The next risk comes between Novemberís election and the real deadline for sequester in January 2013. Elected officials presume that the poll results will be so decisive that one side will be able to dictate terms to the other but seem to ignore that Barack Obama will remain president for those two months and that the Republicans still will control the House. The defeated party may allow the victor to pass their ideal debt reduction package, but that assumes a much more concessionary spirit than weíve seen so far.
Most important, but also farthest away, is the risk that a partisan plan written by the election winners will eventually collapse. Structural budget problems like the ones we have require durable solutions. A winner-takes-all approach is the opposite. Whenever control of Congress and the White House flips, as it inevitably will, their occupants likely will be focused on undoing their predecessorsí work instead of following through on a legitimately negotiated strategy. Imagine a world in which every political year is like 2011.
Fortunately, there is a deal out there that could overcome these differences: raise revenue by eliminating most tax deductions; return some of that money to the taxpayers by lowering rates across the board, and put all spending, including defense and entitlements, on the table for a scrub. All it takes is compromise.
Today compromise has fallen into ill favor. Thatís what allowed Congress and the administration to set up a supercommittee process designed to fail and to postpone the consequences solely so they could politick on it. But this too comes with a trade-off. We can either get down to the business of negotiating our respective views about government, or we can indulge in ideological catharsis at the expense of even more endemic stagnation. Meanwhile, now the clock really is ticking.
Salisbury native Matthew Leatherman is an analyst with the Washington, D.C.,-based Stimson Centerís project on budgeting for foreign affairs and defense and a contributor to its blog, The Will and the Wallet.