Debt-limit debate: Bizarro!

Debt-limit impasse has been all show and no substance. One solution to debt-limit dilemma over cuts or tax increases: 'pay as you go' for any further tax-cut extensions.

I’m kind of at a loss for words these days, just stunned at the dysfunctional behavior surrounding the debt limit debate. (The fact that I was quoted as saying “geez” about it speaks volumes.) As Senator McCain put it, it really is “bizarro” to insist on a balanced budget amendment when no one involved is close to being willing to actually do what the amendment would require (a balanced budget). If we knew how to balance the budget and were willing to do it, why would we even need to raise the debt limit?

That’s the simple evidence that what’s going on on Capitol Hill is all show and no substance, all acting and no action, all political posturing and no policymaking. If policymakers were serious about doing their job with the real work of getting our fiscal house in order, they’d follow the advice given in the Washington Post’s editorial today:

…Given that the House measure is dead on arrival, the focus then shifts to Senate Majority Leader Harry M. Reid (D-Nev.). Can the leader craft a compromise, two-step measure that would bring enough Republicans on board to get past the 60-vote hurdle? The Gang of Six sympathizers ought to be amenable to the notion of a supercommittee to come up with additional savings.

How much in savings? We repeat: There is no rational basis for insisting on a dollar of savings for every dollar increase in the debt ceiling. The Gang of Sixers should be willing to accept an enforcement mechanism — a set of fiscal measures that will be triggered if a second round of savings is not adopted — that reflects the fundamental wisdom of the Gang of Six and every commission that has preceded it. That is that the debt problem can only be resolved with a mix of spending cuts and revenue increases.

The devil will be in the details of this trigger — in creating, as President Obama said Friday, one that is “smart and balanced.” The checkered history of these efforts teaches that the enforcement mechanism cannot be so dire that no one is willing to implement it. At the same time, it cannot be so lopsided that one side is eager for a standoff and ultimate trigger-pulling. In short, an effective trigger must involve shared pain that would be unpleasant but not unendurable…

This is similar to the advice given by my organization, the Concord Coalition, as endorsed by Ezra Klein earlier this week:

As the two parties drill down into ever more baroque and peculiar debt-ceiling plans, it’s worth stepping back and remembering just how easy this could, and should, be. Here, for instance, is a three-part proposal from the deficit hawks at the Concord Coalition…

[T]he basic thinking here is sound: Raise the debt ceiling so the economy is out of danger, put in place a strong enforcement mechanism so the next part of the deal comes through, and then cut the deal or let the trigger do its work.Notice that in this deal, the consequence of not reaching a deal on the deficit is that SAVEGO reduces the deficit, rather than the debt ceiling destroys the economy. Doesn’t that make more sense?

I feel compelled to suggest (once again) that one simple/clean “enforcement mechanism” could be to commit to a strict pay-as-you-go standard with the Bush tax cuts at the time of their next scheduled expiration at the end of 2012. Paying for any extension of the tax cuts, versus not paying for them, could make an up to $2.5 trillion difference over ten years relative to the “current policy extended” scenario of extending all of them without paying for any of them, according to CBO. (This doesn’t even count the cost of extending AMT relief, by the way.) Paying for extension of just the portion of the Bush tax cuts that President Obama proposes to extend would still make up to a $1.8 trillion difference, also according to CBO.

“Pay as you go” is a much less “bizarro” way to enforce budget discipline than the House-passed version of a balanced budget amendment is. It would not on its own be sufficient to solve our fiscal challenges (because it only puts the pay-for standard on new policy commitments rather than helping us pay for our existing commitments), but at least it would be substantially helpful.

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