However, I am also a realist. We have dug ourselves such an enormous hole that we are not going to extricate ourselves from the excesses quickly. When 42 cents of every dollar we spend is borrowed the consequences of making big changes immediately is like asking a drug addict to quit their addiction cold turkey. There is also the reality that Democrats still control the Senate and the Presidency. Nothing is going to really get done in the near term unless you can put something on the table that is agreeable to all.
It is important to keep all of this in mind as you evaluate the budget battles going on in Washington. I have not gotten too worked up about the recent budget continuing resolution extensions. These are small but important skirmishes. However, the big battles lie ahead. Most particularly, the looming vote to increase the debt ceiling vote that will likely be required in the next month.
I think to this point John Boehner and the House Republicans have played their cards right. They have won every small skirmish and have brought spending down little by little each time. President Obama and the Democrats are on the defensive. It was not even 2 months ago that President Obama released his proposed budget for 2012. Tomorrow he will release a new budget proposal that is supposed to make new recommendations for entitlement reform and tax increases. Does anyone believe that he would be doing this if it were not for the success of the House Republicans on these budget battles and the release of Paul Ryan's Path to Prosperity 2012 Budget Proposal?
Many of those on the right (and I am probably far more conservative than most of them) believe that the Republicans should have gone to the mat over the continuing resolution bill last week and risked a government shutdown. I disagree. Most voters have little idea of what a continuing resolution is. Shutting down government over something that people don't understand would not have been smart. On the other hand, people have a better understanding of what a debt or credit limit is. This is the issue to take a stand on. The Republicans should not agree to any debt ceiling increase unless there is a credible, long term plan to reduce the deficit. As I recommended in my post, "Debt Ceiling Dilemma" almost 3 months ago,
The Republicans have the high ground. The debt ceiling limit increase should be tied to long term budget reforms that set hard future budget targets. We need a reasonable glide path that brings the spending excess down in steps. Perhaps this is also the opportunity to tie passage of the debt limit with Congressional approval of a Balanced Budget Amendment and/or Federal Spending Limitation to the Constitution.President Obama is going to propose some type of tax increases tomorrow afternoon. I know these are an anathema for conservatives as they are for me. However, the future of our country is more important than personal ideology. I am not willing to exclude anything that may be needed to fix the problem. If you are going to be credible in the debt limit debate and in the 2012 General Election you can't take things off the table. However, I am also not willing to agree to any tax increases until needed spending cuts are in the bank. I do not believe that most Americans (and even most conservatives) are unwilling to consider taxes as part of a grand bargain. However, taxpayers have always been taken to the cleaners in these deals in the past. It is supposed to be spending cuts and tax increases but the tax increases take affect and the spending cuts never get implemented. The only way the taxpayers can be protected is to say NO. NO. NO. NO.NO to any tax increases.
How should the budget targets work? One suggestion might be to make the spending cuts the Republicans talked about in the Fall campaign as the starting point. Budget targets are then established for the next 5 years to bring the budget into balance by the end of that period. This provides the opportunity for a recovery in the economy to lessen some of the pain. However, if cuts are needed, the budget deal I am recommending would require across the board cuts on everything except interest on the debt. Is this hatchet job the best way to do this? No. But having this trigger mechansim out there is the only way to get something done. Congress has proven over and over that they only will act if they have no other choice. If Congress has a better way to do it when the target date is reached, they can pass alternative legislation that gets the same overall result to avoid the across the board cuts that are scheduled.
Opposing all tax increases is the only way that any Republican has been able to stay politically viable. If you even hint that you would consider a tax increase, your political future is over. However, I don't see how that strategy can continue under current circumstances if Republicans want to become the governing party for the long term. I also don't see how the Democrats can be viable if they do not come forward with plans for real spending cuts. The future is going to belong to the party that shows that it has a practical plan to dig us out. Which party can uphold their principles and also be practical?
I think the Republicans would be well served to agree to a tax increase in the upcoming debt ceiling discussions, if and only if, federal outlays are first reduced to no more than 20% of GDP (we are now over 24% of GDP). Tax increases would be in play but would only be triggered if the spending cuts come first. If a tax increase was required, taxes as a % of revenues could not exceed 18% in total (which is the long term historical average over the last 30 years). See the chart below from the Heritage Foundation's Chart Book:
In fiscal 2010, federal revenues were only about 15% but they are expected to recover with the economy. The current OMB estimate for next year is that revenues as a % of GDP will be 16.6% of GDP. Therefore, spending cuts of of at least 4% of GDP would be needed first in order to trigger any tax increase on the back end. There would need to be $3 or $4 dollars of spending cuts in advance for every $1 of tax increase using this approach.
Does this strategy sound familiar? I learned it from my mother. I could not have my dessert until I ate my vegetables. I could not play baseball until I did my homework. I could not watch television until I cleaned my room. The taxpayers should not put a dime into any budget deal until the spending cuts are in the bank. However, if you look at the chart above it is clear there is a revenue problem in addition to a spending problem. Facts are facts. I am convinced that the taxpayers (including that 1% at the top who pay 40% of all the income taxes collected) would support this deal if they believed that they would not get stabbed in the back as they have so many times before.
Now is the time for the Republicans to lead us out of the mess. However, to do this they must be realistic and reasonable. This plan is both and would be difficult for the Democrats to defend against. With this plan in play I would be very comfortable in having a showdown on the debt limit. The Democrats want tax increases. They can have them but they can't have their dessert first. Let the Democrats be the ones to take us over the cliff if they want to. They would have a tough time explaining their position to the American people. I want the Republicans to maintain the high ground and I want them to be in a position to win it all in 2012. To do that they have to show that they are both practical and principled. They have to also show that they can be trusted. This is their chance to do it. It is the time to go all in but only if they have a totally defensible position.
As for my momma, I hope you see that she did not raise no fool!
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