US politics risks impeding new fiscal commission
http://www.ft.com/cms/s/0/ad5d0d50-517e-11df-bed9-00144feab49a.htmlBy Edward Luce
Published: April 26 2010 23:23 | Last updated: April 26 2010 23:23
If marriage is the triumph of hope over experience, then Barack Obama’s bipartisan fiscal commission must be its political equivalent. On Tuesday, Mr Obama will open proceedings for an 18-member body on which the hopes of America’s fiscal reformers now rest.
The commission, which is headed by Alan Simpson, a former Republican senator, and Erskine Bowles, who was chief of staff to Bill Clinton, the last (and first modern) president to produce budget surpluses, is charged with recommending ways “to [sic] meaningfully improve our long-run fiscal health”.
But very few observers believe that the polarised condition of US politics will permit the body to come up with serious proposals given that it will require a super-majority of 14 out of its 18 members to produce a finding. That would require the votes of two out of six Republicans on the panel.
“America’s long-term debt challenge is so serious that both sides need to lay down their arms and try to reach an agreement,” says Bruce Reed, executive director of the commission. “The alternative is not worth contemplating.”
With the possible exception of Judd Gregg, the outgoing senator from New Hampshire, all the Republicans on the panel are deeply opposed to tax increases in any form. In addition to the six Democrats, who include Kent Conrad, chairman of the Senate budget committee, there are four non-partisan members.
“Given the sharp partisan divide amongst the members of the commission, it will probably take an act of God to produce the required super-majority for a clear set of proposals,” says John Podesta, head of the Center for American Progress, a liberal think-tank. “The commission can still have a very substantial positive effect by educating the public about the size and scope of the problem and framing the choices facing the American people.”
The Obama administration has asked the body to produce findings that will reduce the US budget deficit to 3 per cent of gross domestic product by 2015 – less than a third of the level at which it is running now. That would require the US Congress to agree to an unprecedented bout of spending cuts and tax increases.
With the inauspicious political climate in mind, Mr Obama has asked the body to produce its recommendations on December 1 – three weeks after the critical mid-term congressional elections, and thus at a moment when politicians may be less tempted to pander to short-term electoral concerns.
But economists worry that the political calendar is moving far too lackadaisically given the speed of America’s fiscal deterioration. US public debt is set to rise to more than 90 per cent of gross domestic product by the end of the decade – more than double the level before the 2008 financial meltdown.
“The problem is that there is no tipping point that will force politicians from both parties to face up to the seriousness of the US fiscal crisis before it happens,” says Bill Gale, an economist at the Brookings Institution. “If you look at the persistence of low yields on US Treasury bonds, we already arguably have a bubble in public debt that could explode well before lawmakers get serious about tackling this crisis.”
Optimists hope that the commission will at least be able to produce 14 votes in favour of reform to the Social Security system, which is considered the lowest-hanging fruit of all the US entitlement programmes. That might entail raising the US retirement age and slowing the growth in pension pay-outs by altering the way it is indexed.
But Democrats, who were opposed to Social Security reform even when the stock market was above 12,000 in 2005, are even more reluctant to overhaul the “third rail of US politics” in the aftermath of a stock market collapse, which badly dented most people’s private pension plans.
Other sacred cows including defence spending, which is set to be $700bn in 2015 – or a fifth of the overall budget.
“Without addressing defence spending, it will be difficult to reverse the growth of unsustainable deficits,” says Mr Podesta. “The commission needs to consider whether this level of investment in the Pentagon is the best way to keep our nation secure.”
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