Just about everybody is familiar with the bureaucratic concept of “turf.” As in, “That’s my turf.” In other words, stay off.
However, experience indicates that there is an associated bureaucratic concept which is much less widely recognized: “grass.” As in, “That’s my turf – so don’t you tell me that I need to cut the grass.”
Both “turf” and “grass” are at play in the current high-level dispute over the sequester of federal spending. It is worth a review of the bidding thus far.
The sequester was written into law in the debt-limit deal of August 2011. It was intended to be a fail-safe device in case the so-called “Supercommittee” failed to achieve its goal of $1.2 trillion of budget savings. The Supercommittee duly failed. The sequester was postponed from the beginning of this year to the beginning of this March – i.e., Friday. The two parties in Washington argue over whose idea it was, who voted for it, and whose intransigence is causing it now to appear inevitable. Those questions may be of academic interest, but not much more.
The importance of Who Shot the Federal Government As We Know It is limited because there is little dispute that the sequester is a Bad Thing. Oh, there are some who say that there is a debt crisis going on, and so we must cut something. But just about everyone recognizes that the sequester will not solve the problem. More specifically, even those who would accept the sequester with the least remorse understand two facts: First, if we do not have the sequester, the federal government’s finances will explode without fundamental reform of health care. And second, if we do have the sequester, the federal government’s finances will explode without fundamental reform of health care. The sequester will only buy time. A little.
When I left the Office of Management and Budget after eight years, I e-mailed all my colleagues (then and still among the best public servants in the country) that after all of that experience and hard work, I had the OMB thing nailed. If you want to be successful here, I told them, just follow two simple rules:
- Don’t sweat the small stuff; and
- The devil is in the details.
Similarly today, if you believe some of the commentary about what appears to be an impending budget deal to forestall the “fiscal cliff,” our elected policymakers should follow just two simple rules:
- Get a deal that does as much as you can; and
- A bad deal is worse than no deal.
Clearly enough, in this instance as well as the earlier one, you have to choose your rule. And in this instance, I vote for rule number one – noting that it is not the end of the story.
There are still optimists in Washington. Many of them probably lean on the old adage attributed (probably wrongly) to Winston Churchill about “…after all of the other possibilities.” But we are running out of time, so we had better begin to discard those other possibilities at a faster rate.
One of the “other possibilities” would be the President’s insistence on increasing tax rates in the highest brackets of the income tax schedule. The President isn’t alone in this focus on tax rates; Nate Silver of the New York Times, who earned plaudits for the accuracy of his analysis of the presidential race this year, weighed in along the same lines on a rumored congressional proposal.
The bad news is that the situation in Washington is deteriorating so fast that it seems necessary to have more frequent snapshots of the decline. So here goes what may become, at least for a while, a daily (or nearly daily) update.
Depending on to whom you are inclined to listen, the fiscal cliff negotiations are either popping like Vesuvius or winding their way steadily toward a successful conclusion.
The negative stories are easy to find. Discussions between the two sides has become acrimonious.
The President put forward a proposal that entails substantial up-front tax increases (that is, failure to extend the expiring 2001 and 2003 tax cuts for upper-income people) along with smaller and not-yet-specified future spending cuts. His proposal includes a permanent change in the handling of the debt limit, making increases automatic unless negated by the Congress, but with that negation subject to a Presidential legislative veto that can be overturned by the Congress only with a two-thirds vote of both chambers. Republicans are upset on all counts. With virtually no spending restraint on the table with the President’s fingerprints, Democrats exult in that Republicans are more likely to need to specify what they want, and therefore to take responsibility.
The automatic tax increases and spending cuts that will be triggered on January 1, 2013, known as the “fiscal cliff,” are widely recognized to be bad policy.
The fiscal cliff would be bad for the overall economy. The hit on the economy would be too large and too abrupt. Numerous economic forecasters of all stripes predict that it would send the economy back into recession. Given the pre-existing threats to the U.S. economy from global fiscal and financial crises, our own extreme housing overhang and our not-yet-fully-functioning financial system, a plunge over the cliff is far too risky.
The fiscal cliff is also poor budget policy; it would needlessly worsen the efficiency of the federal government. The large across-the-board spending cut in the fiscal cliff is the wrong way to reduce agency budgets. It cuts the highest priorities just as much as the others, and it does not allow shifting funds to restructure programs in a fundamental way.
***Click “Read More” to see the top business executives who endorse CED’s 4-step framework to avoid the fiscal cliff***
Per expectations, we have passed the election with no progress on avoiding the year-end “fiscal cliff.” And also per expectations, several technical issues are proving important. This note will provide some background on two of them.
The Alternative Minimum Tax
The alternative minimum tax (AMT) under the individual income tax has been a bit player in the movie version of “The Incredible Fiscal Cliff.” But those who read the 1,000 page novel (in the original German) know it as a powerful, threatening character. For this reason, the AMT is beginning to get more attention in the specialist press.
National economies today are interdependent, as almost everyone understands. That should be good news, in that strong economies can buck up the weak. But it is bad news when most economies are weak.
And unfortunately today, the weakness of some economies extends beyond the obvious. It includes failures of governance — specifically, failures to address critical problems. This makes the situation of the United States — and of every other country — all the more dangerous.