There are democratic uprisings and wars in the Middle East and an epic natural disaster and a nuclear crisis in Japan, but our leaders had better start paying more attention to our federal budget. Every day it's getting a bit worse.
The fundamentals are simple but shocking: In the face of an annual $1.6 trillion deficit, and with federal debt approaching 100 percent of GDP, Congress has failed to pass a budget for the current fiscal year. The federal government would have been shut down several times by now were it not for "continuing resolutions" that are little more than marvels of avoidance behavior. These resolutions only fund government for several weeks at a time and also require cuts in the nondefense discretionary spending—the spending that is essentially irrelevant to the budget crisis. (Total nondefense discretionary spending is only 12 percent of the total budget.) The cuts being discussed and the agreements being contemplated do not in any meaningful way address the big four—Medicaid, Medicare, Social Security, defense spending—that now constitute about 62 percent of the budget.
Yet this avoidance behavior has served the political needs of congressional leaders from both parties: Republicans have appeared to play tough by proposing $61 billion in cuts for the remainder of the fiscal year. The number sounds big enough that many listeners presume it must mean something. Of course, these cuts fail to tackle the big four, a subtlety lost on the vast majority of the public—even Tea Party supporters who clamor the loudest for real budget cuts, yet have no clue what those would really entail. Nobody is holding the Republicans accountable for their staggering failure to confront the reality of the budget crisis.
Democrats have properly argued that the Republicans' proposed cuts are both irrelevant in the context of the real budget debate and wrongly focused in terms of the nation's needs. Yet senior Democrats have likewise failed to offer an alternative that would begin to confront the reality of the budget crisis.
In all likelihood, the two parties will reach some compromise over $40 billion to $50 billion in domestic discretionary cuts, creating a basis for a final budget for this fiscal year. They will leave the real issues deferred and ignored.
Addressing the true budget debacle—the "grown up" conversation everybody pretends to want to have—as the Bowles-Simpson report did last December—has been left for the distant future. This means it is not likely to happen, given that we're entering the 2012 presidential campaign season and that dealing with sensitive budget issues in the midst of that will be impossible.
In the long term, the president will suffer most politically from this failure to face reality. As the deficit stalemate continues into the summer and next year, Republicans will brutally attack the president for failing to have cut sufficiently. They will accuse the president of lack of leadership, an argument that, based on what's happened so far, would be unfortunately accurate.
There is a way out for the president: He can call the GOP's bluff by refusing to sign another continuing resolution or even a real budget for the remainder of this fiscal year unless the Republicans sign onto a series of principles that will provide a framework for a genuine long-term budget resolution. This would give the president what he desperately needs, a "leadership" moment on domestic issues, and also permit him to reclaim the agenda-setting mantle on the budget.
Would this require the president to take unpopular positions on tough issues? You bet. But if he fails to do so, it will only get worse. If the Republicans can avoid getting engaged in the serious discussion of compromise on entitlements and defense and yet claim that they have forced the president to make $50 billion in concessions, there will be little incentive for them to return to the table. And then the president will be stuck with a seriously unbalanced budget—in the range of a trillion dollars a year—into the foreseeable future, the political responsibility for having done too little about it.
This is the moment when the president has enough leverage to refuse to capitulate to a weak interim deal. Once he signs a bill that carries us to September, he will be too deep into the political season to negotiate. This week he still can stand tall and announce that there will be a government shutdown unless the Republicans leave behind their empty rhetoric, confront the big four, and consider the possibility of a restructured tax code.
By embracing the possibility of a shutdown, looking the Republicans squarely in the eye, and saying the burden is on them to live up to the campaign rhetoric that just got them elected, he would trump them at their own game.