The super committee fails so let’s go on a spending spree
The super committee has predictably failed – maybe there was green kryptonite hidden in its meeting room. Months of nearly round-the-clock debate about reigning in the national debt, conducted at the highest levels of government, come to a close with nothing done about the problem. This is the essence of contemporary Washington: lots of empty talk, interest groups appeased, all difficult decisions indefinitely tabled and the national interest ignored.
What comes next? Most likely, Congress will make the national debt even worse.
Republicans want to extend the George W. Bush top-rate tax cuts. Democrats want to extend the Barack Obama payroll tax cut, and enact yet another bonus extension of unemployment benefits. One or all may happen by Christmas as both parties switch to full-blown pandering mode.
If the costs in the December 2010 stimulus bill are any guide, a package of extended tax cuts for the well-off, payroll tax cuts for everyone and bonus payments to the unemployed will add around $700 billion to the national debt.
Bear in mind, last December’s stimulus bill (the third, following a 2008 stimulus under Bush and a 2009 stimulus under Obama) entailed $860 billion in borrowing. If another $700 billion or so is borrowed for lead items on the parties’ wish lists, during the very 12 months that Washington has refused to take action to reduce the national debt by $1.2 trillion over many years, an extra $1.5 trillion will be added to the debt in the here and now.
If tax-cut and unemployment-benefit extensions pass, Congress will already have spent every penny of the $1.2 trillion the deficit commission was supposed to save. Though no money has actually been saved yet – the “mandatory” spending reductions triggered by super committee inaction don’t start until 2013, which leaves plenty of time for Congress to cancel them.
As Oprah viewers know, when people finally toss out the clutter from their closets, often the next step is a wild shopping spree. In the case of Congress, the shopping spree looms without the first step of throwing stuff away.
But don’t we need income tax cuts to spur the economy? The entire Great Recession has happened with federal taxes at post-war lows. Bush’s income tax reductions were enacted in 2001 and 2003, and then extended in 2010. If income tax cuts haven’t fixed the economy in many years of use, it’s extremely unlikely that they will magically acquire the power to do so in 2012.
Don’t we need an extended payroll tax cuts to spur demand? A year of payroll tax holiday has led to only a modest increase in the GDP.
Doesn’t high unemployment mean benefits must be extended? The jobless rate is the number one issue in the economy. But as Lawrence Summers argued before his stint in the Obama White House, unemployment benefits can make the jobless rate worse by encouraging people to pass on entry-level employment. Unemployment benefits are hardly lavish. So if they pay about the same for doing nothing as an entry-level wage, why bother to work?
Through unemployment premiums deducted from their paychecks, most Americans funded about half a year of coverage. Now, most who lost jobs have received two years of coverage, courtesy of the national debt, and the president proposes a third year of coverage, also funded by borrowing. Rather than pay people for doing nothing, any benefits extension should require community-service hours.
Beyond looming demands for more tax cuts and benefits, Medicare payments to physicians are scheduled to decline by 27 percent in January. The financing of Obama’s health care package is predicated on enormous Medicare savings down the road, so a Medicare payment cut in January sounds like good news. But there’s already a move afoot to cancel the cut.
For nine consecutive years, Congress has cancelled scheduled Medicare payment cuts to physicians, who constitute one of the country’s best-funded lobbies. Mere weeks after the 2010 enactment of his health care plan, which promised unspecified big spending cuts, President Obama asked Congress to cancel the only scheduled Medicare spending cut, saying “we cannot allow this to happen.”
It’s true that the Medicare physician fee structure needs fundamental reform. For about two decades, Medicare has paid hospitals per-patient flat fees called DRGs, rather than paying per procedure, as with doctors. Peter Orszag, Obama’s first budget director, notes this approach has contained taxpayer costs at hospitals. Something similar might work for physicians.
But when Washington forecasts dramatic health care cost cuts in the future, while repeatedly cancelling health care cost cuts in the present, this makes concern about the national debt seem like a big joke. That, in turn, emboldens interest groups to reach into the cookie jar.
Some commentators contend that more borrow-and-spend will repair the economy. Perhaps. Your columnist believes reckless borrowing has become a core reason the economy and job creation remain cool.
Political leaders of both parties seem determined to push the nation off a fiscal cliff. That leads to pessimism about the country’s future, which discourages investment and job creation. Why hire if the country’s leaders are acting irresponsibly?
With the failure of the super committee, Americans ought to feel dismayed by yet another indication that leaders of both parties are more concerned about their own temperature than that of the nation’s.
Photo: Mineral curator Mike Romsey holds a newly classified mineral, to be named Jadarite, at the Natural History Museum in central London April 25, 2007. A mineral found by geologists in Serbia shares virtually the same chemical composition as the fictional kryptonite from outer space, used by the superhero’s nemesis Lex Luthor to weaken him in the film “Superman Returns”. REUTERS/Toby Melville