Month: January 2013

The existential polarization of America

Posted on by j.giglio

America is in the midst of an existential crisis, unable to agree on what it wants to be. Washington is more divided than ever before, pulled apart by two different visions of the role government should play. One rests on a deep skepticism and the other embodies faith in government’s power to serve society.

Until this conflict is resolved, America will remain a divided society. It’s a recipe for disaster, making it difficult to address pressing economic and fiscal issues.

This, as Bush 43 used to say, requires “some ‘splaining.”

Sure, a bill passed late on New Year’s Day averted widespread tax increases and delayed spending cuts that threatened to take a bite out of the economy. But critical issues, including deficit reduction and growing the economy, remain unresolved.

The fiscal cliff deal didn’t solve anything. In the short term, America is struggling with a weak economy and we have a long-term problem with out-of-control debt that is growing faster than GDP.

The White House will tangle anew with congressional Republicans over a confluence of three looming fiscal deadlines: raising the $16.4 trillion federal borrowing limit, averting automatic March 1 spending cuts to defense and domestic programs, and renewing the congressional resolution that has been keeping the government operating and expires on March 27.

Actually, the government could exhaust its ability to pay its bills by mid-February, forcing it to use a series of accounting gimmicks that, if used in the private sector, result in jail time. One includes delaying tax refunds. Happy Valentine’s Day, America.

After the 2011 fight over raising the debt limit, the credit rating agency Standard & Poor’s downgraded the U.S. government’s blue-chip AAA bond rating because it feared that America’s dysfunctional political system could not deliver a credible plan to reduce the federal debt. Standard & Poor’s cited an overabundance of “political brinksmanship” and warned that “the differences between political parties have proven … extraordinarily difficult to bridge.”

The newest round of budget battles could make the fiscal cliff deal look like a morning in Sunday school. In the House, the Republicans are a divided party with 25 percent of their members committed to the Tea Party and its implacable opposition to any tax increases. They won’t agree to raise the debt limit without equivalent offsetting spending cuts that Democrats are sure to resist. The Democrats are loath to rein in pension and health care entitlements that most economists agree are unsustainable.

The fiscal cliff fight revealed the weakness of our political system in a way that has seldom been done before. There is no consensus on what’s driving this unprecedented polarization.

Some point to everything from the growing role of money in politics, to changes in the way news is covered in the Internet age, to partisan gerrymandering. For example, repeated redrawing of districts by both parties has created conservative districts that are far more conservative and liberal districts that are far more liberal, with the resulting chasm between the two. Indeed the number of swing House seats has dropped dramatically in the last two decades.

But it is useless to focus on any single cause because many factors are now at play, all reinforcing one another, threatening the country’s ability to solve critical pressing issues.

As far back as the 18th century, the Founding Fathers, with their distrust of centralized government power, designed a system that makes paralysis the normal state of affairs. Each house of Congress must separately pass a bill before the President can sign it into law.

The dark truth is that unless the political class in Washington can arrive at a reasonable compromise, we are just marking time until the next fiscal crisis. And it will undoubtedly be one in which working men and women will draw the short straw.

originally published: January 19, 2013

Eating soup with our hands

Posted on by j.giglio

With the usual drama and theatrics, Congress and the White House put together a last-minute New Year’s Day deal to avert pushing the economy into recession. As a result, we have temporarily overcome our cremnophobia – fear of cliffs.

But once again, our leaders averted immediate crisis without addressing any of the nation’s most pressing fiscal problems.

By way of background, during an absurd tangle over the nation’s debt ceiling in the summer of 2011, Congress and the White House agreed to get serious about reducing the deficit and accumulated debt. But when they couldn’t agree on how, they instead struck a deal.

Congress created a super committee that was given the job of developing a long-term budget solution. The deal stipulated that if the committee failed, a $600 billion mix of spending cuts and tax increases would automatically take effect on January 1, 2013. Half the spending cuts would come from the defense budget and half from domestic spending.

Nobody wanted the cuts, but that was the point. They were designed to be so intolerable that Congress would make a deal to avoid them.

Predictably, it didn’t work. The super committee failed and Congress and the White House did nothing until just before New Year’s, when they passed the American Taxpayer Relief Act of2012.

The law makes most of the Bush tax cuts permanent- at least for now. Current tax rates were extended for individuals with incomes up to $400,000; $450,000 for married couples.

Households above these thresholds will see their income, capital gains, dividend and estate tax rates increase slightly. The law also permanently fixes the Alternative Minimum Tax and extends an additional year of unemployment benefits to two million people.

It also postpones the first installment of automatic spending cuts for two months while Congress works on a fiscal plan and the country hits the current $16.4 trillion debt ceiling. Congress and the White House again star as Scarlet O’Hara- I’ll worry about it tomorrow.

After all the sound and fury, the headline number for increased revenue is about $600 billion over 10 years. But the Congressional Budget Office estimates that compared to going off the cliff, this deal will add about $4 trillion to the debt during that time.

The inconvenient truth is that the fiscal cliff minideal was another missed opportunity to remodel our fiscal house. It dodged all the important questions about entitlement reform, stabilizing debt as a share of the overall economy, and comprehensive tax reform that helps America’s long-term prospects by promoting growth and generating revenue.

But special interests benefited from the deal. Several tax breaks that were to lapse at the end of 2012 were extended.

Accelerated tax write-offs for NASCAR track owners will cost taxpayers about $70 million. Film and television producers get to expense the first $15 million of production costs incurred in America to encourage domestic TV and film production, at an estimated cost of about $430 million.

Tax perks for algae growers total $59 million, consumers get $7 million in breaks for buying electric motorcycles and manufacturers of energy-efficient appliances retain perks worth about $650 million.

Meanwhile, the expiration of the temporary 2 percent payroll tax cut means the average American worker will pay another $1,200. So much for good old-fashioned middle class tax relief.

As Democratic Sen. Joe Manchin of West Virginia noted, “Something has gone terribly wrong when the biggest threat to our American economy is the American Congress.”

Now it remains to be seen whether the recent fiscal follies are a coming attraction for the next crisis, when Congress must again raise the $16.4 trillion debt ceiling in March.

Is this any way to run a country? To paraphrase 19th century writer Sydney Smith, if Americans had made the same progress in the culinary arts as they have in governing themselves, they would still be eating soup with their hands.

originally published: January 12, 2013