Elmendorf's
recommendations were simple: Pair short-term economic stimulus, such as
increased aid to the unemployed and a payroll tax cut, with longer-term
deficit-reduction measures such as curbing spending on safety-net
programs and allowing temporary tax cuts to expire. Passed as one large
package, the moves would spark growth now and reduce the debt load
later.
Elmendorf told Congress that "there is no intrinsic
contradiction" in a pairing. "If policymakers wanted to achieve both
short-term stimulus and long-term sustainability," he said, "a
combination of policies would be required: changes in taxes and spending
that would widen the deficit now but reduce it relative to current
baseline projections after a few years. Developing such a combination
would be feasible but not easy."
There's your policy blueprint -
the original "grand bargain," which economists across the political
spectrum have lauded. If enacted this fall, such a bargain might include
extending unemployment benefits; doubling down on last year's payroll
tax cut, by extending it and expanding it to reduce the employer-side
tax, too; and phased-in cost savings for Social Security and Medicare
to bring the federal budget into balance.
As Elmendorf noted last
year, it won't be easy. Frenzied bipartisan deficit talks this summer
ended with no stimulus and no immediate restraint on the entitlement
spending and tax policies from which the government's debt problems
stem. Congress raising the government's borrowing limit at the last
possible moment.
That's the dysfunction that S&P cited as the
primary factor in its downgrade: "The political brinkmanship of recent
months," the ratings agency said, "highlights what we see as America's
governance and policymaking becoming less stable, less effective, and
less predictable than what we previously believed."
And yet, the
summer brinkmanship may have yielded a political blueprint for passing a
grand bargain, ironically enough. Thanks to the debt-ceiling fight, and
the budget agreement that held off a government shutdown this spring,
we now have a pretty solid idea of who's willing to compromise in
Washington and who isn't.
If they seriously want to accelerate
growth and restore America's AAA S&P rating, President Obama and
congressional leaders should go back to work on a grand bargain - and
they should negotiate exclusively within the center-right coalition that
came together to pass the debt-limit deal. That includes a
supermajority in the Senate and, in the House, 174 Republicans and 95
Democrats.
It's a large enough group to leave room for negotiation
on the size of the immediate stimulus and the shape of the long-term
balancing plan. And for the next year, at least, it's Washington's best
chance to prove S&P wrong about lawmakers' ability to solve
problems.
