Just over a year ago, Republicans won the midterm election in a landslide. They picked up a historic number of seats in the House of Representatives, substantially narrowed the Democratic majority in the Senate, and took control of scores of state legislatures and governors’ mansions. The message from voters was clear: they wanted to put an end to the hyper-activist agenda coming from the Obama administration, and to renew policymakers’ focus on promoting private sector economic growth, not more government jobs.
Still, because it was a midterm election, the Republicans weren’t in a position to take full control of government. At the national level, they took over one house of one branch of the federal government. Barack Obama would still be occupying the White House, and would for at least two more years. And Democrats were able to hang onto a slim majority in the U.S. Senate too, despite losing six seats in the election.
Thus, 2011 began with great uncertainty and anticipation. How would the new House majority, propelled into office with the energy from the emergent Tea Party movement, share power with a Democratic White House and Senate? And what would it all mean for economic and fiscal policy?
Now that 2011 is nearing an end, it’s safe to say that this particular political marriage — arranged to some extent by the voters who pulled the lever both for Barack Obama in 2008 and then for conservative Republican congressional candidates in 2010 — has been a rocky one, to put it mildly. Over the course of the past year, the news has been dominated by a series of high-level budget negotiations that were initiated by both sides with great fanfare and much hope for historic and game-changing breakthroughs, and that ended instead as spectacular, headline-grabbing failures.
It began with the Biden-Cantor talks of May and June, aimed at easing the way for a budget deal that could be attached to a measure raising the debt limit. Those talks were followed by the initially secret and then not-so-secret Boehner-Obama talks of June and July — those of “grand bargain” fame. When those talks crashed and burned without even a not-so-grand bargain to show for them, the Reid-McConnell-Boehner talks of early August swooped in to pick up the pieces. Those negotiations did in fact result in a partial but unsatisfying accord, the Budget Control Act, which had as one of its key features an agreement to — what else? — keep talking. This time the result was the creation of a highly unusual and powerful congressional committee, the so-called “Super Committee.” That bipartisan group of twelve got to work in late August and continued its deliberations all the way through November — before disbanding with no agreement in hand yet again. Even in these final days of the year, the parties continue to remain at an impasse over even the smallest of agenda items from the budget talks, namely what to do about a number of provisions set to expire on January 1, 2012 (including the payroll tax cut of 2011, the “doc fix” for Medicare physician fees, and extended benefits for the long-term unemployed).
Ironically, after spending months upon months with each other in the back rooms of Congress talking through their differences on budgetary matters, the most apparent and visible byproduct of this seemingly endless negotiation has been an escalation in the bitter and acrimonious finger-pointing by the parties over who is most to blame for the lack of progress.
Which raises an interesting question: Who is to blame? Certainly, the mainstream media believes it has the answer. They long ago decided that the villains in this recurring can’t-seem-to-cut-a-deal drama are the “extremist” Republicans in the House who are said to be outside the mainstream and won’t agree to the reasonable and “balanced” plans proposed by the president and his allies.
But this narrative ignores both the reality of the substantive disputes in question, as well as the key role the president played in what has transpired in 2011.
The primary medium- and long-term fiscal challenge that the country must face is the projected rise in entitlement costs. In 1971, spending on Social Security, Medicare, and Medicaid amounted to just 4.3 percent of GDP. By 2030, the Congressional Budget Office (CBO) expects spending on these programs, plus the new health entitlements created in Obamacare, to reach 15.2 percent of GDP. Meanwhile, CBO also expects revenue to hold steady at near the historical average of 18 percent of GDP — even if all of the tax policies carried over from the Bush era are extended into the indefinite future. When other spending is added to the projections for entitlements, it’s abundantly clear that something must give to avoid crushing and debilitating debts.
The two parties simply do not agree on how to go about addressing this immense challenge. The president and his allies want to raise taxes substantially above their historic levels, to something approaching 25 percent of GDP, to close the long-term fiscal gap. The GOP, meanwhile, wants to slow the rise in entitlement spending with far-reaching reforms of the key programs, and most especially with reforms that would bring market discipline to the health entitlements. These perspectives represent fundamental differences in governing visions, and there was never much chance that a compromise could be found in 2011 even under the best of circumstances, no matter how long well-intentioned members from both parties sat across from each other in some back room of the U.S. Capitol.
Still, what happened in 2011 was not entirely inconsequential. The Budget Control Act, with all of its shortcomings, did impose a modest amount of spending discipline on the annual appropriations process by re-imposing enforceable caps. The cutting and reform required to meet these caps is minimal for the moment, but that can change if the caps are lowered in coming years as the deficit-cutting imperative intensifies.
Even more importantly, the House Republicans, led by Budget Committee Chairman Paul Ryan, laid out a comprehensive budget plan that would restore fiscal balance without a tax increase of any kind. The plan includes cuts in nearly every corner of the budget, totaling $6 trillion over a decade, and a vision for tax reform that would lower rates and broaden the base, thus promoting strong economic growth. It also restores solvency to Medicare with reforms that would improve quality even as they also improve the cost-effectiveness of the care provided to seniors.
This was not a plan that expected to draw support from the president or his allies, and was not really intended to do so. Rather, it was a plan drawn up to provide a stark contrast to the vision of higher taxes and higher spending proposed by the president.
There’s no question that the United States needs to make much more progress in terms of deficit cutting and tax and entitlement reforms — and soon. Some hoped that 2011 would be the year to make such progress, with power split between the two parties. But it’s far more likely that 2013 will be the year for big policy changes, after voters decide what direction they want to go when they head to the ballot box in November 2012.