Middle-class America holds no influence over Congress  

The rest of the world watched the latest game of chicken over the U.S. government shutdown, which stretched on for more than two weeks and threatened to result in financial default, all of which again raised the question of whether the world’s leading power has lost the capacity to govern itself. Congress has not passed a proper budget since 2009.

The first government shutdown in 17 years ended when the Senate and the House of Representatives reached another 11th hour deal to avoid a financial default and get the government running again late on the evening of Oct. 16. The president signed the legislation early the next day. The bill approved funding the government until Jan. 15, 2014 and suspended the nation’s borrowing limit of $16.7 trillion until Feb. 7.

Of course, Congress could not resist larding the legislation with pork. Senate Minority Leader Mitch McConnell, who was instrumental in ending the crisis, got $2.9 billion for a dam in his home state of Kentucky. Congress also awarded the widow of the late New Jersey Sen. Frank Lautenberg $174,000, the equivalent of one year’s salary. In 2012, the Capitol Hill publication Roll Call named Lautenberg one of the 50 richest members of Congress with a net worth of about $56.8 million.

The threat of a government default is off the table for now. But instead of resolving underlying disputes, the short-term deal only pushed the hard choices off to another day. It gives the parties some time to  cool off and negotiate a broader spending plan.

Brace yourself for another cliffhanger that resembles a bad daytime soap opera. America will continue its habit of governing by crisis after crisis after crisis. In this troubled political environment, is it any wonder that businesses are sitting on their cash rather than investing in new factories, equipment, and more workers?

As part of the recent deal, the House and Senate will appoint members to a bipartisan group tasked with hammering out an agreement by Dec. 13 on a blueprint for tax and spending policies over the next decade, that may include tax increases and structural reforms to entitlement programs such as Medicare something the two parties have not agreed on in years.

Given the recent track record, the chance that this new forum can deliver by its deadline, in time for Congress to act by Jan. 15, on funding to keep the government open, is slim to none.

Can the U.S. recover its tarnished image? Is the recent dysfunction in Washington now behind us, or is it destined to become part of the permanent bleak political landscape?

Conventional wisdom holds that the deal made in Washington guarantees another shutdown and debt ceiling fight early next year. In other words, Americans will soon be witnessing another psychodrama being played out with politicians again acting badly, more divided than ever, and pulled apart by two different conceptions of government.

If you believe the political roosters on Capitol Hill can be counted on to stop squawking, bridge the gap between competing visions of the role of government and reach agreement on critical problems ranging from employment to energy to entitlements to education, then you have every confidence in the full faith and credit of the U.S. government.

The average hard-working, middle-class family is coming to recognize that they don’t have a shred of influence and that our leaders in Washington seem to care only about those who write the checks that allow them to stay in power. Nobody wants to have to say it, but Americans need to read it to begin to understand that campaign contributions are politicians’ favorite form of catnip.

originally published: November 2, 2013

The continuing resolution continues

While the average American family is working out daunting problems of health care coverage, home mortgage payments, financing a college education and making ends meet -not to mention saying goodbye to summer – Congress returns on Sept. 9.

Those same average Americans want the feds to round up the folks responsible for paternity of the economic crisis, slap the cuffs on them and send them to Guantanamo. But they have come to understand that no wealthy client is ever guilty until they run out of money.

The long August recess was a chance for lawmakers to hear from constituents, chill out and recharge their batteries before returning to the capitol to address two major budget deadlines: Funding the government for the 2014 fiscal year that begins Oct. 1, and once again raising the nation’s debt ceiling.

Since Congress is only in session for nine days in September and there is little hope for a broader deficit reduction agreement with the White House, lawmakers will likely pass a continuing resolution to avoid a partial government shutdown. Republicans will try to leverage the need to raise the debt ceiling to extract cuts in Obamacare and other government spending. The debt ceiling is the maximum amount of gross debt Congress allows the federal government to carry. The current limit is $16.7 trillion.

In the summer of 2011, the White House and congressional Republicans locked horns in a bitter fight over the ceiling. An agreement was finally reached in August to increase the debt ceiling through the early part of 2013 as part of the Budget Control Act, which set caps on certain spending levels and led to across-the-board “sequester” cuts that are scheduled to continue through 2021. After this debt ceiling debacle, Standard & Poor’s reduced its rating on long-term U.S. debt from AAA to AA+ reflecting the federal government’s dysfunctional politics.

The Treasury Department says the government will reach its borrowing limit in mid-October and be unable to pay all its bills soon after. The feds actually hit the ceiling on what it could borrow in May. Since then, Treasury has used a variety of accounting techniques to continue to borrow. A sharp decline in spending this year and repayments from bailed out mortgage fmance giants Fannie Mae and Freddie Mac also eased the reliance on debt.

Republicans are demanding significant new spending cuts in exchange for increasing the $16.7 trillion debt limit, with some also insisting on delaying or scrapping Obamacare. They want any increase in the debt limit offset dollar-for-dollar by other cost savings.

Meanwhile, the President insists he will not negotiate on the debt limit to pay the bills Congress has racked up. It is worthwhile noting that as a senator, President Obama voted against raising the debt ceiling. This debt ceiling stalemate could shut down the government, force the first default on U.S. debt in the nation’s history and add to the general anxiety besetting the average American, who has come to believe that what passes for fiscal governance is a political gong show.

This just isn’t a problem with politicians, it’s also a problem with voters, who say deficits and debt are major concerns, but favor government spending to create jobs and oppose major cuts to most government programs. They want something for nothing.

What lies ahead is another replay of this tired script and before the ink is even dry on the latest budget deals; they will become part of the permanent, rolling fiscal cliff. The choices are pure Woody Allen: “More than at any other time in history, mankind is at a crossroads. One path leads to despair and utter hopelessness, the other to extinction. Let us pray we have the wisdom to choose correctly.”

originally published: September 7, 2013

Congress has come to a fork in the country’s fiscal road

Here’s a safe prediction for 2013: The folks in D.C. will continue the policies of extend and pretend, endlessly kicking the can into the high grass, lurching from crisis to crisis and showdown to showdown without addressing the causes of our fiscal woes, as pundits complain about how uncertainty is undermining economic recovery.

The New Year could have begun with America falling off the “fiscal cliff’ if lawmakers had not reached an agreement at the last possible moment. But the deal left unresolved the issue of raising the current debt ceiling of $16.394 trillion. House Republicans would not agree to raise it without drastic spending cuts to get the national debt and deficits under control.

Those same House Republicans then gathered at their annual legislative retreat, where they decided to retreat from their resolute debt ceiling position and agreed to allow government borrowing to continue until May 19, long enough for the House and the Senate to pass a budget for the next fiscal year.

The House bill does not raise the federal debt ceiling; it simply allows the government to borrow as necessary to meet its obligations until May 19 and requires that the House and Senate pass a budget by April 15. If either body fails to meet the budget deadline, lawmakers’ salaries would be held in escrow until their chamber passes a budget.

The legislation is a strategic move by House Republicans to avoid a fight over the debt ceiling and shift the political debate to areas where they believe they have greater political leverage. The goal is to draw the Democratic Senate into taking action to cut deficits by requiring the Senate to pass a budget  resolution for the first time since 2009. Yes, the Senate Budget Committee has failed to produce a budget, which it is required to do by law, in each of the last three years , during which time the nation has added more than $1 trillion annually to the deficit.

The next real showdown will come over sequestration, $110 billion in automatic spending cuts that would take effect March 1. The sequester calls for roughly $55 billion each in ·budget cuts to defense and non-defense spending. These forced spending cuts were delayed until March as part of the American Taxpayer Relief Act of 2012, the New Year’s deal that avoided the full-on “fiscal cliff.”

Pentagon advocates warn that the cuts will hit the defense budget hardest. But when you spend over $700 billion annually on defense, what you need most isn’t allies but an enemy.

Meanwhile, the government’s ability to fund itself (the continuing resolution) runs out March 27. Republicans have made it clear that they are willing to let the government shut down to force deep spending cuts and/or changes to Medicare and Social Security that would address the long-term deficit Issue.

It is against this backdrop that Congress and the White House will take up the deficit issue next month. Once again they are putting off the difficult decisions needed to get the country’s fiscal house in order, deal with persistent unemployment, and stagnant and declining wages.

The most fun you can have with the budget deficit is to lay bets on the mythic narratives each party will spin, explaining why they kicked the can down the road once again. This brings to mind a quote from Woody Allen: “More than any other time in history, mankind faces a crossroad. One path leads to despair and utter hopelessness, the other to total extinction. Let us pray we have the wisdom to choose correctly.”

originally published: February 2, 2013

Eating soup with our hands

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

Politics trumps economics

The number of elected officials in Congress who can be counted on to put the country’s interest above their personal gain can be counted without the need for removing both hands from your pockets.

Once again, this crowd has validated our worst suspicions that the typical D.C. politicians, unlike criminals, are best judged guilty until proven innocent.

After having faced the threat of financial default this summer over the debt ceiling, Congress created the  Joint Select Committee on Deficit Reduction, consisting of six Republicans and six Democrats from both the House and the Senate and charged them with developing a bipartisan plan to cut the budget deficit by $1.2 trillion over the next 10 years. As we know, these folks failed to agree on a deficit reduction package, and Standard & Poor’s stripped the United States of its AAA credit rating.

In sum, the Republican members of the committee were unwilling to increase taxes, while the Democratic members were against excessive tax cuts. So for the umpteenth time, we failed to make progress in putting our fiscal house in order. To put it mildly, another high-profile failure demonstrated the inability of the two political parties to reach consensus about how to attack our mounting public debt and recurring fiscal deficits. They diminished themselves, put the economy at risk and weakened America’s brand. A good man in politics, as in the popular old song, is hard to find.

Then we watched and listened to each side trip over one another to engage in the blame game. In theory, the failure to arrive at an agreement means that automatic spending cuts of $1.2 trillion over the next decade go into effect Jan. 1, 2013, without a change in legislation. Most of these trigger cuts will impact the Department of Defense and social programs. Once again, we saw the two parties choosing sides and the Republicans arguing to avoid all defense cuts and the Democrats refusing to cut social programs.

Just to put this all in perspective, we have $15 trillion in public debt corresponding roughly to the size of our annual gross domestic product, not too distant from the Ita!ian debt level of 120 percent of their gross domestic product. Of course, we are not counting the trillion more in unfunded liabilities that are not  reflected on the nation’s books.

Finally, in December, we watched the latest episode of the congressional soap opera when both houses agreed to a 60-day payroll tax cut for 160 million workers. Another example of business as usual.

To reach a one-year deal on the payroll tax cut, first enacted as a stimulus to the economy in January 2011, both parties will have to agree whether the tax cut will be funded through spending cuts or higher taxes on  the wealthy. Will Congress act this month to extend the tax cut for the entire year? Based on continued partisan divisions and with a presidential election in 11 months, who knows? But for sure we will not cut the deficit or make real progress on reducing our outstanding debt, helping the 25 million Americans who need work, and preventing the economy from sliding into recession without developing a sensible long-term fiscal plan that provides for tax increases and spending cuts. If not, we will continue to trade on the future and keep our fingers crossed that things don’t get worse over the next 11 months. But then whoever said governing was easy?

originally published: January 12, 2012

2020 Vision

BOSTON, July 2020: Back in 2000, few could have imagined that America could go so completely down the drain in less than 20 years. But from today’s vantage point in the summer of 2020, the evidence is unmistakable.

Real GDP has fallen by roughly half since 2010. The unemployment rate is estimated to be around 20 percent, but estimates are all we have since Washington stopped releasing numbers following a 2014 scandal about the published rate’s integrity.

Large segments of the Interstate Highway System have been mothballed for lack of money to fix worn­ out bridges, tripling travel times for most commuters and quadrupling them for freight. Transportation costs have skyrocketed.

Consumers are screaming about endless inflation. Most have been forced to dramatically cut back on purchases, which has led to bankruptcy for even more companies. Their laid-off employees – regular family wage earners- have been added to the ranks of the jobless.

Americans largely ceased relying on the federal government after its pervasive klutziness and inability to agree on a deal to raise the national debt ceiling triggered a series of major defaults in 2011.

After Congress foolishly insisted on linking the purely technical issue of raising the debt limit to unimaginably complex policy issues about what programs to cut and whose taxes to raise, they couldn’t come to an agreement with then-President Obama. The Treasury was forced to stop making debt payments, which crippled the nation’s borrowing capability.

The feds had to slash spending to levels that could be covered by current revenues, which continued to decline since less federal spending meant less economic activity. This death spiral necessitated even more cuts.

Thanks to its incompetence, the federal government lost functional control over the states, which began to fragment and soon ceased to be united in any meaningful way.

Some jurisdictions have been able to exploit national fragmentation. California and New York City, for example, have won U.N. recognition as “Independent Sovereign Political Entities” where no foreign governments (including the one in Washington) are allowed to collect taxes. These jurisdictions  are free to move aggressively around the world doing profitable business with nations whose citizens still live prosperous lives.

As Rhett Butler told Scarlett O’Hara in “Gone with the Wind”: “There are as many fortunes to be made from the decline of a society as from the rise of one.”

Could it have been different? It’s certainly tempting to think about the long list of might have beens that could have saved the America we once enjoyed and believed in.

The one feasible way to restore American prosperity by dealing with deficit and debt problems would have been for the federal government to take measures to grow the economy, like making huge capital investments in transportation and other infrastructure assets that produce large economic bangs for the buck.

In 2009, for example, President Obama began talking up a federal program to give America the kind of high-speed inter-city rail network Europe already had and China was building to boost competitiveness by speeding people, jobs and goods to markets less expensively.

But Washington’s knee-jerk assumption was that such a program could only gain the necessary political support by allocating its capital spending as widely as possible. Rather than concentrating it in a few key corridors that generate most of the nation’s economic activity, they tried to give a little to everybody .  The economy unraveled before any of it was completed.

Obama’s subsequent program amounted to a series of glitzy PowerPoint presentations that made audiences yawn. And the waves of economic activity that could have washed over the nation as a result of upgrading transportation infrastructure in those key urban corridors never materialized.

Instead, America withdrew into its self-flagellating austerity kick and watched its economy shrink and jobs disappear. The citizens of a once-proud nation lost all faith in it, and that was the point of no return.

originally published: July 27, 2011