Obama and Boehner: so close, yet so far apart
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.