The battle between President Obama and Republican leaders in Congress is looking like a professional wrestling match. Both sides are playing to the crowd with overly dramatic flourishes, hoping to inflict pile-drivers and power-slams on the other. The fake blood, in the form of threats of lost Social Security checks and Wall Street crashes, is already oozing onto the mat.
The two main elements of the debate are on the table, but a third piece is not being discussed.
Republicans want spending cuts, the first element of the debate. Reducing the size of the federal government is a reasonable response to big deficits and arguably a necessary step to take, with or without this crisis. Social Security, Medicaid and Medicare benefits must be rethought, given that demographic projections tilt toward far more recipients than payers in the coming years.
Cuts to defense spending are on the table as well, an important step that was not possible in the first years of President Bush’s War on Terror, when blank checks were handed out to defense contractors.
But no state or federal government has ever significantly rolled back its budget. The best that can be hoped for is to slow spending. Many municipalities in Maine have valiantly held the line on spending in recent years, but even that will not hold for long.
Democrats want tax rates to shift back to more sensible levels, which is the second element of the debate. The tax holiday wealthy Americans enjoyed during the Bush years must end sometime. And now is the time. Those tax cuts were like agreeing to a big 401(k) deduction from your weekly paycheck that left you with barely enough money to pay the rent and buy food. And unlike the 401(k), which will pay off in retirement, the tax cuts did not produce the jobs promised.
The third component of this dilemma is government revenue. It slows during recessions, so the best way to increase revenue is to grow the economy. There is little the federal government can do to jump-start growth other than borrow and spend. And that, of course, is politically impossible now. Some economists argued for a $3 trillion stimulus, instead of the $800 billion that won approval, but that ship has sailed.
When the economy begins growing robustly again, more people will be working and businesses will earn profits and more money will flow into government coffers. This is when Republicans, who claim to favor fiscal restraint despite approving the reckless spending of the Bush years, can — and must — step up as gatekeepers.
It won’t resolve the current impasse, but if both sides can commit to dedicating a portion of new revenue to pay down the debt and also agree to resist funding new programs and expanding existing activities, it might pave the way toward a broader compromise. And it also might truly transform the way we raise and spend money.