Our state and national leaders may have been elected on social platforms, but their upcoming agendas will be dominated by taxing and spending issues.
The 2012 political-campaign messaging has stopped, thank God. Election post-mortems have focused a great deal on ethnic, gender, cultural and social divides — and issues associated with them. But now that governance resumes, we'll be most absorbed with unresolved financial/economic issues cutting across those divides and bread-and-butter decisions about taxing, spending and priorities. This is true in Washington, D.C., in Olympia, in West Seattle or Enumclaw.
Here at home, dollars-and-cents will rule: Washington state, King County and Seattle voters reaffirmed their previous messages to elected officials by approving discrete measures they thought worthwhile — such as repairing the Elliott Bay seawall or instituting a new fingerprint system — but by keeping them on a short leash when it came to new taxing and spending.
Voters approved I-1185, strictly limiting state legislators' ability to raise taxes and fees. They also rejected the notion of allowing the University of Washington and Washington State University to invest their monies in stocks and bonds. The latter probably was due to voter suspicion about national-level proposals to allow Social Security funds to be similarly invested and, also, to the schools' big recent losses to their endowments. They did, significantly, approve a lowering of the permissible state debt limit. No doubt about the overall message. Gov.-elect Jay Inslee also took a "no new taxes" pledge, rare for a Democrat, which he will be hard pressed to keep.
Just as at national level, the way out of the state's budget box lies in tax reform, which would yield huge amounts of public revenue, while simultaneously keeping the code progressive. This will be difficult for our new governor and Legislature, since some of the biggest tax benefits flow to powerhouse companies such as Boeing and Microsoft. But state Rep. Reuven Carlyle's proposal in the last legislative session, to review such "tax expenditures" on a rolling basis, could yield real results — and money — over a 4- to 6-year period.
We're not going to enact a state income tax. Voters have signaled their instructions regarding tax and fee increases. The only major source left to fill our residual state budget gaps is in review and repeal of some of the present subsidies and loopholes benefiting politically favored companies and sectors.
Local voters, year after year, have demonstrated themselves willing to approve levies for specific purposes judged meritorious, including not only the seawall-repair and fingerprint ID system approved Tuesday, but also the recent King County children and family services bond levy and Seattle Public Library operating levy.
Next up: Two Seattle School Board-sponsored levies will appear on a February ballot, costing taxpayers $1.25 billion over six years.
We've got some big public money invested in Sound Transit light rail, the Mercer Project, the Yesler Terrace redevelopment, a new Sodo arena project, streetcars and other projects — some screamingly cost-ineffective (that is, far more expensive than dollars spent on alternative approaches to the same problems). Local and state governments are in exactly the same position as our national government, facing unacceptable levels of long-term debt, unable to raise general taxes appreciably and forced to make difficult taxing/spending choices about publicly-financed priorities.
You don't have to be a weatherman, as they say, to see which way the wind is blowing on taxing/spending issues. We've got to reduce our long-term red ink while still financing those things we regard as truly important to us. And we must do it without jeopardizing badly needed short-term jobs and growth.
No wonder campaigning is easier than governing. You get elected by pleasing people and giving them what they want. You must govern by telling them to choose between their vegetables and dessert.
Meanwhile, President Obama faces no more elections. He knows that his presidency ultimately will be judged on his success or failure in dealing with these unresolved issues. The returning congressional leaders, House Speaker John Boehner and Senate Majority Leader Harry Reid, are not term-limited, but they know that their own parties' majorities are tenuous. All recognize that they've got to deliver.
The electoral outcome was close, but there was no doubt that Obama won both the popular and electoral votes. No hanging chads left over to further polarize partisans. In Obama's election-night remarks, and in House Speaker Boehner's response the following day, there were highly encouraging pledges of the bipartisan cooperation that will be necessary.
We are at one of those in-between moments when even fierce partisans are willing to ease up for awhile. But haste will be necessary because, among other things, the U.S. House and Senate taking office in 2013 will have even fewer moderates within them than the ones leaving office. The partisan power balance within them will not be greatly different, but retirements and electoral defeats have removed still more of the centrist, compromise-ready legislators who once facilitated constructive dealmaking. Rep. Norm Dicks is a notable example.
The first task at hand, and a portent of things to come, will be Obama's and congressional leaders' need to deal with the so-called "fiscal cliff," which looms Dec. 31. Automatic spending cuts and tax increases, scheduled for then, will cut as much as 2 percent off the Gross Domestic Product next year, cause a calamitous drop in financial markets and trigger a renewal of raging partisanship — unless Obama and both parties' congressional leaders step up to avert them.
Republicans know that Obama won the election. Thus Boehner last Wednesday put tax-revenue increases on the table. But he also made clear he is looking for a larger framework in which tax rates will not be raised, in which Dec. 31 defense spending cuts will be eased and in which some kind of commitment is made to address long-term entitlement (Medicare, Medicaid, Social Security) reform. There is a deal to be made within that framework and one which Obama, in fact, might welcome.
The Dec. 31 "sequester" strategy, which Obama originated, was meant to give him leverage in short-term budget politics — not to actually happen. So everyone wants a way out. They should be able to find it. The obvious way — both short term and longer-term — will be to turn to tax reform, which both political parties theoretically support, which would provide a gusher of fresh federal revenues without having to increase overall tax rates. Both the bipartisan Simpson-Bowles and Domenici-Rivlin budget recommendations spelled out how that could be done without denting "motherhood" deductions such as those for health care expenses and home-mortgage interest (although I, personally, would favor a cap on deductible mortgage interest). It could be done, in fact, while maintaining progressivity and even lowering overall tax rates. Tax-reform virtue thus can flow from budget necessity and offer both Democrats and Republicans reason to declare victory.
The whole big deal cannot be made by Dec. 31 so some initial, transition measures no doubt will be taken, with both sides agreeing on the larger structural framework to follow in 2013. If, for some reason, a fiscal-cliff deal cannot be reached by Obama and the outgoing lameduck Congress, we'll get immediate bad signals from financial markets and talk of downgrading federal-government securities. Look for at least a 2,000-point immediate drop in the Dow Jones average (and a commensurate drop in your net worth). That would set the fellas back to work.
A new cabinet: The other big portent of things to come will be the constitution of Obama's second-term cabinet. Will it be composed of large, confidence-inspiring leaders or smaller-bore hacks? No one at this point is certain.
Secretary of State Hillary Clinton announced a year ago that she would retire. Treasury Secretary Tim Geithner has said several times that he expects to be dumped and he no doubt is correct in that expectation. Defense Secretary Leon Panetta also has sent signals that he will depart. Those are the Cabinet's Big Three. Another appointment, to be made immediately, will provide a replacement for CIA Director David Petraeus, who resigned last Friday, citing an extra-marital affair.
Given the centrality, both domestically and internationally, of financial/economic issues, the Treasury job is the one where Obama should make his first decision. White House chief of staff Jack Lew is campaigning avidly for the Treasury job. Erskine Bowles, of Simpson-Bowles renown, is another possibility. As is former Deputy Treasury Secretary Roger Altman, who supported Obama's reelection strongly.
Personally, I would have far greater confidence in either Bowles or Altman than Lew, who is regarded by many as a partisan operator rather than a larger-minded policymaker who could command international, financial-community, and bipartisan congressional respect. But, as of now, Lew is rated the frontrunner. After all, he knows and has worked with Obama as the others have not.
Senate Foreign Relations Chairman John Kerry would be a logical choice as Clinton's successor at State. But he is a former presidential candidate in his own right and might also be loathe to give up his Senate position, seniority and independence. U.N. Ambassador Susan Rice is the favorite among Obama insiders. She has loyally followed the White House talking line — even when it has led her to assignments such as blaming the Libyan terrorist attacks on an obscure U.S.-made video — and meets politically correct race and gender criteria. National Security Advisor Tom Donilon is also lobbying for the job, but he is overmatched substantively in his present assignment. He mainly is a political operative and the person thought responsible for a series of recent national-security leaks to media. Kerry would be the best choice but, as of now, I'd bet on Rice at State.
It would be a disappointment to see Panetta depart so soon at Defense. A number of candidates from within Defense or CIA are available, including Ash Carter, Panetta's present deputy. But Carter is seen as a manager and technocrat unlikely to fare well in dealing with Congress or the outside world. Former Republican Sen. Chuck Hagel is also being floated as a possiblity. He would lend bipartisanship to the national-security team, as former Secretary Bob Gates did in Obama's first term. He is well liked by the media and by many of his former congressional colleagues. I do not think, however, that he has the depth or brainpower to be both a policymaker and manager of the enormous Pentagon enterprise. I am hoping that Panetta stays on well into 2013. He has been publicly sour about the arbitrary Defense cuts within the Dec. 31 fiscal-cliff package and, if they can be averted, he might be prevailed upon to stick around awhile.
It's expected that just about every member of the present Obama Cabinet will be gone early in 2013. The most speculation surrounds Attorney General Eric Holder, who has been a lightning-rod for congressional and media criticism. Yet, somewhat like U.N. Ambassador Rice, he has shown a willingness to defend all administration policies and actions. (He did the same, by the way, as Deputy AG in the Clinton Administration, pushing through last-minute pardons and commutations unquestioningly). If Holder departs, the present favorite to replace him is Massachusetts Gov. Deval Patrick, also African American, who has been an Obama ally.
Other names are certain to emerge before Obama makes final decisions about his new Cabinet. In general, though, he appears more likely to settle on those he knows and feels loyalty from than those he does not know and whose independence might unsettle him.
Once into the new year, Obama and the new Congress are likely to take up again immigration-reform legislation that neither the president nor Republicans were willing to address in 2011 0r 2012. Republicans, scorched by the strong Latino vote for Obama in the presidential election, know they must disassociate themselves from the Arizona immigration law, and similar restrictive measures, and get back toward the bipartisan partial-amnesty approach previously on the table. For one thing, they see Latinos — strongly Catholic and strongly for "family values" — as natural GOP allies if the immigration-law controversy could be removed.
Once the uproar abates over the murder of our U.S. ambassador and staff in Libya, there will be consensus between the White House and Congress on most international issues. There will be disagreements — especially if tensions continue to increase between Iran and Israel, as Iran nears a nuclear capability — but none at this moment likely to poison overall executive-legislative cooperation.