The 4 Failures of the Supercommittee
The supercommittee's inability to reach a deal on the deficit this week is a multi-dimensional failure.
If you're most concerned about the deficit, you'll care most that the supercommittee failed to reduce the deficit. If you're most concerned about taxes, you'll care most that they've punted the punt on tax reform. If you're most concerned about growth, as I am, you'll care most that we've missed an opportunity to expand and extend stimulus measures like the payroll tax cut and unemployment benefits. And if you're most concerned about the optics of Congress doing its job, you'll care most that our leaders don't seem to care much at all.
These four failures are all good reasons to be angry, dispirited, or simply exhausted by Congress's bipartisan re-failure. Now would be a responsible time to reduce the deficit. Now would be a fine time to trade in our ridiculous clown car of a tax code -- too crowded to be ideal, too small to be practical. Now would be a perfect time for Congress to buck its critics by reaching an agreement that reformed entitlements, raised taxes, and extended stimulus.
But the failure you should care about the most is the failure that we'll feel first. And that's the failure to address the growth crisis.
The U.S. government has vast needs. We need to put more people to work. We need to keep money in families' pockets. We need to build roads and pipes. We need help local and state governments. With all of these needs, you'd probably hope for some free money. That's funny, because, as Ezra Klein wrote this morning, the U.S. government can borrow money at rates as close to "free" as we've ever seen. "As of Friday, the federal government could borrow for five years at a real interest rate of -0.7 percent," he wrote. That means that "that once inflation is taken into account, the bank is paying you to borrow money. That just doesn't happen. But right now, it's happening for the United States government."
Just because the failure was bipartisan doesn't mean each party shares equally in the blame. The standard line is that, while deficit reduction requires both revenue and entitlement reform, Republicans won't do revenue and Democrats won't do entitlement reform. But this report from the New York Times suggests that Democrats offered a proposal to reduce deficits by $3 trillion over 10 years with $1.3 trillion of new revenue and the beginnings of entitlement reform.
The Democratic proposal included as much as $500 billion of savings in health care programs, higher Medicare premiums for high-income beneficiaries and use of a less generous measure of inflation that would reduce annual cost-of-living adjustments in Social Security benefits.
A day later Republicans on the committee rejected the Democratic offer and came back with a proposal that would reduce deficits by $2.2 trillion and that included $640 billion of nontax revenue that Democrats said was too modest.
If true, these reports suggest that Democrats offered Republicans not only a fair deal, but a center-right deal in line with the Bowles-Simpson plan that received votes from multiple sitting Republican senators.
Consider the following: Their deal would have raised taxes by 43 cents for every dollar saved. By comparison, in the five grand bargains of the 1980s and early 1990s, tax increases accounted for 61 cents of every dollar saved, Catherine Rampell wrote for the New York Times. "In President Reagan's 1982 and 1984 budget-trimming deals, more than 80 percent of deficit reductions came from tax increases," she said.
You might say that Democrats didn't go far enough on entitlement reform. But they went just as far as Bowles-Simpson and the Bipartisan Policy Center's deficit plans. Both of those panels found about 15% of their savings in health care and Social Security savings. The Democrats' found about 16%.
The GOP's excuse for rejecting the Democrats' offer is that "now is not the time to raise taxes." This is a nifty juke for two reasons. First, there is no such thing as "the time to raise taxes" for Republicans. Second, "now" isn't the time most Democrats wants to raise taxes, anyway. The White House is still pushing for an extension for the payroll tax cut, which would keep effective tax rates at 50-year lows for most families. The supercommittee could have easily voted to schedule tax increases to begin in 2013 on the most wealthy and creep into the upper-middle class over the course of the decade as the economy moves to full strength.
This is your upshot. The supercommmittee has failed not because Democrats wouldn't touch entitlements, but because Republicans can't bring themselves to meaningfully raise taxes.