Ottawa Citizen

Obama and Boehner: so close, yet so far apart

- IAN LEE Ian Lee is a pro­fes­sor in the Sprott School of Busi­ness at Car­leton Univer­sity.

Karma is a funny thing, as pres­i­dents and prime min­is­ters learn. It can come back and kick you — when you least ex­pect it — where it hurts the most.

This re­quires, as Ge­orge W Bush used to say, “some ’splain­ing”:

The fis­cal cliff is a con­flu­ence of hap­pen­stance, bad karma and per­haps too much testos­terone.

In 2001, then pres­i­dent Ge­orge W. Bush pro­posed a mas­sive re­duc­tion in taxes in part to stim­u­late the econ­omy by us­ing the large fis­cal sur­plus of the U.S. government. How­ever, in­stead of en­gag­ing in dis­cus­sion and com­pro­mise with the Demo­cratic op­po­si­tion to en­sure their sup­port, Bush re­lied on a leg­isla­tive tech­nique called “rec­on­cil­i­a­tion” as it only re­quired a sim­ple ma­jor­ity of his own party mem­bers. The down­side of us­ing rec­on­cil­i­a­tion is that any bill passed in this man­ner can­not be per­ma­nent as with or­di­nary bills. The bill must ex­pire within 10 years.

For this rea­son, the Bush tax cuts had to be re­newed in 2010 but by this time the U.S. econ­omy was in the midst of the worst re­ces­sion since the De­pres­sion. Thus both par­ties agreed to leg­isla­tively ex­tend the Bush tax cuts for two more years and they added tem­po­rary re­duc­tions in pay­roll taxes and ex­tended un­em­ploy­ment in­surance ben­e­fits. This package was passed with an ex­piry date of Dec. 31, 2012.

How­ever, dur­ing the sum­mer of 2011, as the enor­mity of the $1.1-tril­lion U.S. government deficit be­gan to at­tract much greater at­ten­tion from busi­ness, cap­i­tal mar­kets, pun­dits and politi­cians, Pres­i­dent Barack Obama un­der­took ne­go­ti­a­tions with the Repub­li­cans to try to achieve a “grand bargain” that would once and for all elim­i­nate the an­nual U.S. deficit and sta­bi­lize the U.S. debt now around 100 per cent of GDP. Obama and U.S. House Speaker John Boehner, leader of the Repub­li­cans, agreed on 85 per cent of the is­sues but could not agree on the re­main­der.

Con­se­quently the two par­ties agreed to an up­dated ver­sion of Mu­tual As­sured De­struc­tion (MAD) — a “Thelma and Louise fis­cal sui­cide pact” — by leg­is­lat­ing au­to­matic dra­co­nian tax in­creases and very deep ex­pen­di­ture cuts to take ef­fect Jan. 1, 2013 if the two par­ties were un­able to achieve a com­pro­mise by that date. The ra­tio­nale was to en­sure that agree­ment was reached.

Thus, did the pres­i­dent, the Se­nate and the House man­u­fac­ture what Fed­eral Re­serve chair Ben Ber­nanke called the “fis­cal cliff.”

Mere days away, the gap be­tween the two par­ties is van­ish­ingly small for they dif­fer by only $300 bil­lion in tax rev­enues and $150 bil­lion in spend­ing re­duc­tions for a to­tal of $450 bil­lion over 10 years, or $45 bil­lion a year in an econ­omy with a $16-tril­lion GDP.

It may seem strange to Cana­di­ans that Pres­i­dent Obama must ne­go­ti­ate with Speaker Boehner, as the pres­i­dent won this year’s elec­tion. How­ever, due to the con­sti­tu­tional prin­ci­ple of di­vided government and checks and bal­ances, both houses must sep­a­rately pass the bill be­fore the pres­i­dent can sign it into law.

The im­passe is due to pro­found philo­soph­i­cal dif­fer­ences be­tween the two par­ties con­cern­ing the role of government and the drivers of eco­nomic growth that has not been ad­e­quately re­solved in the last three elec­tion cy­cles as ev­i­denced by close elec­tions for Se­nate, House and the pres­i­dency.

The Democrats are loath to rein in pen­sion and health-care en­ti­tle­ments — which most econ­o­mists agree are un­sus­tain­able in the longer run. The Repub­li­cans are a di­vided party with 25 per cent of their mem­bers com­mit­ted to the Tea Party and its im­pla­ca­ble op­po­si­tion to any tax in­creases. Yet, the U.S. government is both un­der-tax­ing and over-spend­ing rel­a­tive to the his­tor­i­cal norm of ap­prox­i­mately 19 per cent of GDP.

Tra­di­tion­ally, com­pro­mise has been the oil that en­sures the leg­isla­tive ma­chin­ery does not seize. How­ever, re­peated ger­ry­man­der­ing of elec­toral bound­aries by both par­ties has en­sured that con­ser­va­tive dis­tricts are far more con­ser­va­tive to­day while lib­eral dis­tricts are far more lib­eral, with a re­sult­ing chasm be­tween the two. In­deed, the num­ber of swing U.S. House seats has dropped dra­mat­i­cally in the last two decades.

This re­quires a pres­i­dent with the skills of a Lin­coln. Obama used his ma­jori­ties in the first term to achieve his suc­cesses. Now, with a Repub­li­can House he will need to not only de­liver fine speeches but learn to ne­go­ti­ate, wheel and deal as Lin­coln did to as­sure pas­sage of the 13th Amend­ment so bril­liantly por­trayed by Steven Spiel­berg in his cur­rent film.

Un­for­tu­nately in the U.S. (and to a lesser de­gree in Canada), to­day peo­ple are more anti-po­lit­i­cal while com­pro­mise is seen as an un­eth­i­cal “sell­out” that must be avoided at all costs.

Yet, as New York Times colum­nist David Brooks stated so elo­quently, pol­i­tics prop­erly un­der­stood is the mar­riage of “high vi­sion and low cun­ning.”

The les­son learned from Lin­coln is that politi­cians from both sides of the aisle must sub­li­mate their per­sonal in­ter­ests in or­der to achieve the greater good for the en­tire coun­try.

In this light, pol­i­tics can be no­ble be­cause of and not in spite of com­pro­mise.

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