By Clive Crook
Published: November 14 2010 20:21
This year Barack Obama, US president, appointed a bipartisan commission to look into ways of curbing public borrowing. Last week, speaking for themselves rather than for the panel as a whole, its chairmen – Erskine Bowles, a Democrat, and Alan Simpson, a Republican – published a series of options and recommendations. Their work was attacked by progressives and conservatives alike. Nancy Pelosi, the Democrats’ leader in the House of Representatives, dismissed it out of hand: “Simply unacceptable”, she said.
The right question to ask of the Bowles-Simpson plan is not whether the chairmen’s advice will be followed in full. It would be good if it were, but it will not be. The right question is what Mr Obama does next. Will he see the plan as a way for him to take charge and make the US think hard about ends and means – which he, the rest of the political class and the country as a whole have avoided up to now? Or will he see the plan, for which he himself asked, as political poison and hide?
If it is the latter, as seems likely, we can conclude that the US has become ungovernable. The Bowles-Simpson plan matters not just for its merits but even more for what it says about the government’s capacity to act. The stakes are that high.
As for the plan, it is good. The chairmen want to spread the burden of deficit reduction across as many programmes as possible and to overhaul the tax system. No big spending programme would be spared. Social Security, the pensions programme, is tweaked (with small and distantly projected increases in the retirement age, among other things). Medicare, the health insurance programme for the elderly, gets a trim. So does defence. Almost nothing is excluded. The cuts required would therefore be manageable.
On the tax side, marginal rates would fall for most taxpayers, yet revenues would rise as exemptions were curbed or eliminated. Most Americans would pay more tax, helping to curb public borrowing, but their incentives to work and save would be improved.
One can quarrel with many items in such a wide-ranging set of proposals – and not just over details. The overall fiscal adjustment may be too mild. It takes decades to balance the budget (though public debt starts to decline more promptly). Also, the chairmen adopt the goal of holding revenues at no more than 21 per cent of gross domestic product indefinitely, without saying why.
That number is questionable; so is the intention to hold it constant. Ageing of the population, by itself, will tend to push the revenue requirement higher. On the other hand, you could argue, absent demographic trends, the fiscal burden of a given volume of public services should fall over time in an economy that is getting richer.
There is plenty to argue about, macro and micro, but the basic strategy is right. The fact is that without something along these lines, the US fiscal problem is insoluble. And although borrowing cannot be brought back down painlessly, the plan is not, as many Democrats are arguing, a sado-conservative fantasy.
The chairmen pay close attention to fairness as well as efficiency. They propose to tax dividends and capital gains as ordinary income, for instance, giving the tax code (lower marginal rates notwithstanding) a strong progressive twist. Their recommendations for Social Security reforms would make the elderly poor better off, not merely protect them from cuts. And so on. The plan attacks the looming fiscal problem and is pro-growth and pro-poor. The basis for compromise among reasonable people is self-evident.
Yet consider the reaction. The Congressional Democratic leadership wants nothing to do with it. Richard Trumka, leader of AFL-CIO, the largest trade union grouping, said the commission “just told working Americans to drop dead”. Grover Norquist, an influential conservative activist with links to the Tea Party, warned Republicans not to support the plan: it was a feint to raise taxes, he said. From the political centre, silence. In Washington, there is no political centre – and that is the crux of the problem.
Moderate Democratic congressmen, typically representing swing districts, were wiped out in the midterms. That is why Ms Pelosi, after leading her forces to their worst defeat in living memory, can claim moral victory and expect to retain command of the party in the House. Meanwhile, those districts have supplied no great infusion of Republican moderates. Thank the Tea Party for that. The men and women on Capitol Hill reflect the views of maybe 40 per cent of the electorate: the true believers at each end of the ideological axis, who would rather bring the ceiling down on everyone than compromise their sacred principles.
Perhaps you are wondering: what about the president? Good question. That vast empty space in the middle is the one he promised to bridge in 2008. I recall, in addition, a good deal of talk about confronting hard questions and leading the country from partisan paralysis to workable solutions. The talk has continued and there has been action as well: nobody could call this an idle administration. But the hardest questions have been shirked and Mr Obama has failed, abjectly, to lead.
Mr President, here is your chance. You appointed two excellent chairman to lead your commission. Here is their advice. Accept it. Take ownership of it. Infuriate the zealots on Capitol Hill and, for heaven’s sake, do something with it.
Copyright The Financial Times Limited 2010
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