And so the congressional supercommittee saga came to an end yesterday, with no deal to cut the U.S. debt by $1.2 trillion over the next decade.
The airwaves were filled with recrimination, but the post-mortem pretty much boils down to this: Democrats wouldn’t agree to deep cuts in domestic programs without comparable tax increases, and Republicans favored hefty domestic spending cuts but would raise taxes by only a trivial amount.
Stock markets registered their disapproval, with the S&P 500 closing down 1.86 percent. Still, the reaction seemed subdued. There were no credit-rating downgrades, and U.S. Treasury yields remained near historic lows. The bipartisan supercommittee of House and Senate lawmakers delivered what the markets expected: nothing.
It might feel good to lay this failure at the feet of one party or the other, but that would be churlish. Both sides have deeply held beliefs that are difficult to reconcile. Republicans think the way to shrink the $15 trillion national debt is with low-tax, low-regulation, low-spending government. Democrats believe pretty much the opposite: The path to debt reduction is through more government spending in the short term and a combination of tax increases, entitlement reforms and stricter regulation for the long haul.
It would also be easy to blame the standoff on the electoral hopes of (name your party here) in 2012. But if re-election were the driving force, surely lawmakers would have found a way to do a deal, especially considering that voter approval for Congress as a whole is already in the root cellar, at about 13 percent.
Instead, the yearlong budget stalemate can best be described as a congressional cri de coeur. The only way the gridlock will end is if voters step up and decide what the supercommittee could not. One side or the other of the ideological divide, which the supercommittee never came close to bridging, must be handed a popular mandate. In practice, this means voters, less than a year from now, must choose a president and a Congress based on whether they think the U.S. should raise taxes.
Here’s the proposition through a Democratic lens: The single thing standing in the way of a supercommittee agreement was Republican intransigence about extending the tax cuts for top earners, enacted under President George W. Bush, that are scheduled to expire at the end of 2012. Those tax cuts, worth about $800 billion over 10 years, have largely benefited the wealthy, who’ve done far better in the post-crisis years than the middle class or the poor have.
As for the entitlement programs, Democrats would block major cuts in Medicare, although they are open to cost-sharing ideas, including raising premiums and deductibles on the upper-income seniors. And they would consider making the cost-of-living formula for Medicare and Social Security benefits less generous, as well as gradually increasing the eligibility age for both programs.
Republicans would frame the proposition this way: Democrats turned down an offer that included $250 billion in new revenue by eliminating some tax breaks. Overall, though, the GOP would seek to lower income-tax rates, even for the rich, and make up for the lost revenue by cutting deeply into domestic spending. Republicans would try to make permanent the Bush-era tax cuts in an attempt to boost economic growth.
Republicans also remain convinced that the proposal by Representative Paul Ryan of Wisconsin would greatly reduce Medicare spending by giving seniors vouchers for a fixed amount of insurance coverage. Furthermore, Republicans would no longer extend jobless benefits, now at 99 weeks, even if unemployment stays at 9 percent.
So there you have it. We’d add a third proposition: The bond market still has faith in the U.S.’s ability to pay its debts, but that sentiment could quickly turn, and the U.S. could come under attack the way Europe has. The U.S.’s debt problem isn’t solved, it’s just deferred.
There are plenty of ways to fix that. In past editorials, we’ve identified tax increases and spending cuts that total $1.76 trillion in savings by 2021. These include overhauling the tax code to eliminate deductions, broaden the base and lower marginal rates. One example: Phase out the mortgage-interest deduction, which costs about $100 billion a year and disproportionately benefits the well-to-do.
We’ve also endorsed slowly raising the Medicare and Social Security eligibility age to 67 from 65, increasing cost-sharing in both programs and ensuring that the rich pay somewhat more for their benefits. We would grant states more flexibility to convert Medicaid programs to managed care and expand Medicaid drug rebates to the Medicare drug program, which alone would trim $160 billion. Finally, we have outlined cuts in the defense budget that wouldn’t harm national security.
The important point is that voters should require candidates to be specific about how they’d both raise taxes and cut spending for a total of at least $1.2 trillion or, even better, $4 trillion in savings -- and then support the candidate, regardless of party, who best reflects their view. The decision about how to address our debt is fundamentally one for voters, not a supercommittee, to make.
To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at email@example.com.