Lockbox

July 14th, 2010

A few weeks ago, NBC debuted SNL’s Best of the 2000′s. Included was the now classic skit where Al Gore and George W. Bush are asked to sum up their campaign in one word. Gore (Darrel Hammond) thinks a while and then replies in his thick-as-honey Tennessee accent “…Lockbox.” Bush (Will Ferrell), looks straight at the camera and says with Bushlike certainty “Strategery.”

That skit has become iconic, but when I saw it, I was reminded that at least one politician did see the oncoming crisis and had a plan to deal with at least part of it. For the past year and a half (ever since Barack Obama was elected and the Republican’s discovered that deficits were bad), I have wondered many times how we could have gotten into this situation. For years it was clear to anyone who took a look at budget projections that Baby Boomers were going to start retiring and becoming eligible for Medicare and Social Security soon. Entitlement spending would increase at the same time that the number of people paying into the system was going to decrease. This system resembled a ponzi scheme more than a funding mechanism.  Who, I thought to myself, is responsible for the fact that we now are facing this situation and everyone seems to be acting as though it is a surprise to them?

Well, the answer is that we all are. For years, we elected politicians who said that they were going to balance budgets, but when the rubber hit the road, didn’t. Not only did we not kick these people out of office, we encouraged them to act irresponsibly by punishing any politician who promised to increase taxes or actually did increase taxes in order to balance the budget, and we punished any politician that tried to cut benefits by kicking them out of office (Think Walter Mondale in 1984, Gorge HW Bush in 1992, or Congressional Democrats in 1994).

Being good at their profession (getting elected), it didn’t take the politicians long to figure out this game. Anyone who acted responsibly and asked for sacrifice from individuals for the good of the nation was punished, so politicians just gave the voters what they were requesting through their votes: big government and low taxes.

On each side of the aisle, you can see the cynical calculations taking place over the past decades. The Republican strategy was called “Starve the Beast.” The idea was that you would continue to cut taxes so much that there would be no money for social programs. Then when a crisis hit, the “Permanent Majority” that Karl Rove was carving out would cut social programs and say that they had no choice.

The longstanding pattern was pushed to its most outrageous lengths under the Administration of George W. Bush. Bush and Congressional Republicans pushed through close to $1.8 trillion in tax cuts, while at the same time increasing both domestic discretionary spending and fighting two wars. For the first time in American history, taxes were decreased while America was at war. Included among Bush’s increased domestic spending was a ($500 billion over 10 years) Prescription Drug Entitlement Bill. This bill was passed with absolutely no funding.

Think about that for a second. For all of the Republican fulminating about the gimmicky accounting for the funding of the health care bill, at least it has funding. This prescription drug benefit’s costs were tacked on directly to the deficit. Imagine if Obama had tried to do this in 2010. The Republican’s would have tried to gouge his eyes out. In 2003, they barely batted an eyelash.

Republican’s have made stimulus a bad word over the past year and a half, but looking back, the entire Bush presidency looks like a giant stimulus plan, with trillions of dollars being pumped into the economy through tax cuts and increases in government spending.

Like most politicians, Barack Obama learned his lessons from this history. Not to be outdone by Republican’s, Obama ran on a platform of rescinding the Bush tax cuts for the top income tax bracket, but leaving in place all other Bush tax cuts. In addition, he also proposed an additional tax cut of $500 for individuals and $1000 for families not among the top 5% of earners, even if those families or individuals only paid payroll taxes for the year.

The Democrats in Congress and President Obama followed up their tax cuts (slightly cut down and lasting for only two years) with a long awaited plan to move the country toward providing the benefit of health care that every other industrialized country has. But instead of having a real debate about the coming deficit avalanche, they pushed through Health Care Reform with a budget that was narrow enough to fund the specific plan, while ignoring the fixes that will be needed for the coming crisis. In fact, as funding for half of their plan, they used $500 billion of cuts in Medicare services over a 10 year period. While this technically qualifies as funding, it basically cuts an existing “entitlement” program that is in crisis to fund a new entitlement. The tactics here are different, but the strategy is the same: put a popular status quo (near universal health care) on the table as the starting point for negotiations.

The cumulative result of this recklessness is dramatic. In 2010, tax rates were the lowest that they have been in 50 years (47% of people paid no federal income tax) and federal spending was the highest it has ever been. Not coincidentally, deficits were also at record highs.

To be fair, much of this is an artifact of the unprecedented steps the government has made to keep us out of a Great Depression and I support many of them. In the short term deficits are appropriate and necessary. But for the long term, we need a plan to get our accounts back in balance.

In a recent debate with my conservative uncle, he tagged me for always referring to Bush Tax cuts as “Tax Cuts for the Rich” and pointed out that everyone got a tax cut under Bush (although, to be fair, the rich got hell of a lot more). “Do you support rescinding the Bush Tax cuts for the other 95% of the population,” he asked (assuming that he knew the answer). I thought about it for a second and then responded: Yes. Yes, of course. Because this is a huge crisis and what’s at stake is the future of America.

Look, I know what it feels like to get a check that barely pays your bills and then have the government take more out of it. And I’m sure that if I was lucky enough to be making over $200K, it wouldn’t be fun to have 40% taken out of my paycheck from that point forward. But as conservatives like to say, “Freedom Aint Free.” You can’t maintain a military that polices the globe and provide even the lamest social safety net for 300 million people without raising a lot of revenue.

So I’m open to ideas on how to solve this mess, but I think we need to level with ourselves and accept that it can’t be done without cuts in spending as well as tax increases. If anyone tells you something different, they’re either lying or they don’t know what they’re talking about.

The bottom line here is that, for years, politicians acted irresponsibly and voters allowed them to or even encouraged them to continue those policies. For the past few decades, the question shouldn’t have been “how big of a deficit should we be running,” but “how much of a surplus do we need to be saving so that we don’t have to face a massive fiscal crisis once the Baby Boomers retire?”

Unfortunately, for the past decades we didn’t ask those questions, our politicians didn’t encourage us to ask those questions and the media was (as always) asleep at the switch. Now we face the worst of both worlds. Just as we are recovering from the worst recession since the Great Depression, we are going to be forced to make tough choices that will necessitate sacrifice from all of us.

I don’t expect any progress to be made on this in the months ahead. Requests for sacrifice will not be on the minds of too many congressmen in the months before the election. But the months after the election will be key. Whether the Democrats maintain control of the House is an open question. But certainly, the House will be more conservative in 2011. Soon after their election, the new Congress will be splashed in the face with a cold bucket of water called the Simpson/Bowles Budget Deficit Reduction Commission. In it will be a plan to cut deficits to $550 billion by 2015. The debate that follows should highlight the crisis that we are in…as well as the stakes of failure. It will allow us to take real measure of the seriousness that our elected leaders bring to their job. As we watch the debate unfold, we are going to see whether each party can finally live up to the rhetoric it has espoused for years. We will finally see if Republicans are really concerned about deficits, or if they just want tax cuts. We will finally see if Democrats are willing to ask Americans to sacrifice for the benefits that they have supported for years through borrowing.

The results should be illuminating.

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