Obama struck a bipartisan deal on tax cuts. Can he do the same on deficit reduction?

Obama struck a bipartisan deal on tax cuts. Can he do the same on deficit reduction?

Obama struck a bipartisan deal on tax cuts. Can he do the same on deficit reduction?

Who's winning, who's losing, and why.
Dec. 7 2010 3:54 PM

Deficit Attention Disorder

Obama struck a bipartisan deal on tax cuts. Can he do the same on deficit reduction? 

 Senate Minority Leader Mitch McConnell (R-KY) (2nd R) and  House Minority Leader John Boehner (R-OH) (R). Click image to expand.
Senate Minority Leader Mitch McConnell and House Minority Leader John Boehner talk with reporters.

President Obama's tax deal may have irked his liberal base. It may have left congressional Democrats seething. It may have rankled some Republicans who wanted to extend the Bush tax cuts permanently, instead of for two years. But at least it proved that the two parties can sit down and hash out a compromise, right? Which could bode well for a similar deal to reduce the deficit, right? Right?

Nah. All this compromise proved is that Democrats and Republicans can trade favors that aren't especially damaging to either side. It wasn't the kind of painful chit-swapping that deficit reduction will entail. And it certainly doesn't bring us any closer to solving the deficit crisis—if anything, it pushes us farther away.

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The deal on the Bush tax cuts does represent compromise. It's just not a tough compromise. Both parties traded policies that were good for both parties—a tax cut extension for Republicans, an unemployment insurance extension for Democrats, an estate tax reduction for Republicans, a student-loan credit for Democrats, and so on. It's like two kids dividing a bowl of Halloween candy and then complaining because each thinks the other got more.

A fight over deficit reduction, on the other hand, would require trading painful policies, not pleasurable ones. Just look at the myriad deficit reduction plans that have cropped up in recent weeks. The Bipartisan Policy Center would impose a five-year freeze on discretionary spending, a cap on Medicare benefits, and a 6.5 percent sales tax. A new plan by the Center for American Progress would raise taxes on the rich, reinstate the estate tax, and tax foreign oil—not exactly a bipartisan conversation-starter. The president's commission would raise the retirement age and "simplify" the tax system (which would also make it generate more revenue). This last plan—the only one with any real influence—failed to get the 14 out of the 18 votes necessary to recommend it to Congress. If a group of business leaders and former government officials couldn't reach consensus, how will a group of currently serving officials with reelections at stake agree?

Another difference between the tax cut deal and deficit reduction: The tax cuts had a deadline. Republicans and Democrats needed to agree on a plan, or else the Bush tax cuts would have expired on Jan. 1—a scenario that horrified both parties, albeit for different reasons. (Some liberal commentators, including Paul Krugman, support letting the cuts lapse.) The parties had two options: make a deal, or sabotage the whole thing and try to blame the failure on the other party. Compromise made sense for both sides.

A do-or-die moment hasn't arrived for deficit reduction—yet. The annual deficit exceeded $1.4 trillion this year, and the total national debt has reached $13.8 trillion. Politicos on left and right are harping on the need to reduce the deficit. Think tanks seem to hold weekly forums on the topic. A new wave of Republicans was elected on platforms of fiscal hawkishness. Economists disagree on just how urgent reducing the deficit is. But most acknowledge the need to address it. The indicators of true fiscal crisis—rising interest rates, a sliding dollar, investors threatening to pull their money out of Treasury bonds—haven't happened yet. And until they do, it's hard to imagine the two parties mustering the necessary bipartisan spirit.

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If anything, Obama's tax deal shows that deficit reduction isn't on the horizon. The plan—a combination of extending old cuts and granting new breaks—would expand the deficit by an estimated $700 billion to $900 billion. Which, my colleague Annie Lowrey points out, amounts to a second stimulus. The White House assures Americans that the plan will not worsen the deficit in the medium and long terms. Setting aside that arithmetic-defying statement, it's fair to push for stimulus now and belt-tightening later on the grounds that the economy is still slumping and spurring economic growth is the best way to reduce the deficit.

But the fact that congressional leaders have agreed to balloon the deficit even further without blinking—and that Americans haven't been yelling about it—suggests it's no one's top priority. Americans have been telling pollsters that deficit reduction is more important than economic stimulus. But it's hard to imagine voters punishing their representatives, Democrat or Republican, for cutting their taxes.

Assuming that bipartisanship on a relatively easy issue presages bipartisanship on a tough issue ignores what bipartisanship is: a series of self-interested political decisions that happen to line up. Just because those interests line up on tax cuts—neither party wants to see all cuts lapse in 2011—does not mean they line up on deficit reduction. Democrats can "reach out" to Republicans all they want. Obama can "fight harder" and show more "nerve" than anyone thought possible. But as we've learned from health care reform, Wall Street reform, and the stimulus package, bipartisanship occurs only when it absolutely has to.

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