"Politics is the art of the possible." — Otto von Bismarck
This mid-December week will have much to do with our fates in 2011. Coming out of November elections focused on the need to reduce public deficits and debt, our political leaders are headed at least temporarily in the opposite direction. We also face growing discord about the United States' continuing involvements in Iraq and Afghanistan. Political polarizations appear to be widening, rather than narrowing, despite a broad public consensus favoring non-partisan problem solving.
Things to watch this week:
• The U.S. Senate was scheduled to begin debate Monday (Dec. 13) on the tax-cut agreement earlier negotiated by President Barack Obama and congresional Republicans.
The extension of Bush-era tax cuts, scheduled to expire Dec. 31, is at the core of the agreement. But the package also is a complex jumble of items which, together, would add $1 trillion in new debt over 10 years (on top of $14 trillion in existing national debt). It also is a de facto second economic stimulus package, at least equal in size to the 2009 original, which could cut unemployment by 1 percent and add l percent to GDP growth by the end of 2011 — or maybe not.
House Democrats, left out of negotiations on the issue, have voted not to bring the package to a House floor vote, although that in the end will happen. Obama, last week, presented the package in a curiously peevish and diffident way. deriding extensions of upper-income tax cuts (his advisor David Axelrod characterized them as "odious" in a Sunday TV appearance) while at the same time scolding House Democrats for questioning his negotiated deal. He thus succeeded in alienating GOP leaders with whom he had made the deal and, at the same time, liberal legislators and leaders who questioned several aspects of the package. If the provisions were so bad, the liberals said, why had Obama bought into them.
The extension of the upper-income cuts is, in fact, not a major component of the package. The Washington Post estimates that the upper-income extensions would account for only $79 billion of the package's two-year cost of $990 billion — or 8 percent of the total.
There also is a provision, though, to lower estate taxes on the wealthy, costing $68 billion. A majority of the provisions, however — including unemployment-benefit extensions (at $56 billion), extending cuts for the middle class ($280 billion), and reductions in the employee payroll tax ($120 billion) — could be counted as victories for the Obama/Democratic agenda. As I see it, Obama got the better of the deal, although neither he nor Democratic dissidents appear to recognize it.
Whether the package bestows favors on the rich, poor, or middle class; on big or small businesses or working people and consumers; or on investors, it is "unpaid for." That is, it all will add to the deficit without reducing spending accordingly elsewhere in the federal budget. And the package keeps growing as new subsidies and sweeteners are added to the bill to attract key congressional votes.
Several tactical stumbles led Obama and the Congress into their present box.
There was the inexplicable decision by Obama, in forming the so-called Bowles-Simpson Deficit Reduction Commission, to require that a weighted rather than simple majority of commission members would be needed to give official approval to its recommendations. (Its membership was then constituted so that a weighted majority would in practice be impossible).
The Deficit Commission's recommendations, if approved, were to be submitted to the Congress for an up-or-down vote. Thiat would have made it easy for legislators of both political parties to buy into taxing and spending decisions which, if separated, could never be approved. Since the weighted majority was from the outset impossible, the Commission's report thus stands only as a set of recommendations without any real juice behind them. A lot of good work as a practical matter wasted. The prospective approval in January of the deficit-reduction proposals would have minimized the importance of this month's tax package.
There was the insistence by congressional Republicans, riding high after their November electoral gains, of all Bush tax cuts as a non-negotiable starting point in talks with the White House. Had Republicans, for instance, not held out for the upper-income and inheritance-tax provisions (together costing $147 billion), they might well have been able to bargain Democratic-sponsored provisions down to a more manageable level, leaving a final product costing perhaps half as much as that now contemplated, yet providing tax relief for most Americans while at the same time providing fresh stimulus.
There also were subjective factors coming into play in this lameduck Congress. Many of the departing House Democrats, defeated in November, blamed their defeats in part on Obama's health-care and other 2009-10 spending initiatives. Other House Democrats, generally more liberal, found it expedient to vent their post-November frustrations on Obama and his deal with the GOP.
They also had a vald point that revenue bills, by law, are supposed to emanate from the House, where Democrats still hold a majority until January. Yet Obama by-passed them completely in reaching his deal.
The Outlook: Congress will approve a tax package before adjournment. But it will cost more, and deepen federal deficits more, than anyone should want. Not good as our national leaders' first action since voters told them do the opposite.
• Obama also was scheduled to begin consideration Monday of policy options in Afghanistan. His conclusions are to be shared with the public later this week.
Ambassador Richard Holbrooke, the administration's Afghan-Pakistan point man, passed away Monday afternoon after days of treatment at George Washington University Hospital in Washington, D.C. with a ruptured aorta. He had the attack while meeting Friday with Secretary of State Hillary Clinton prior to submission of final documents to Obama for his Monday policy review. It was not surprising that Holbrooke, 69, had the attack when he did. He was an exceptionally hard driving, willful executive who no doubt has been frustrated by the fact that for two years he had been trying to solve an insoluble problem.
Obama's advisors have said recently that U.S. troops could not be withdrawn from Afghanistan in 2011, as he earlier promised, but more likely would be there until at least 2014. Gen. David Petraeus and U.S. commanders on the ground have claimed recent progress against Taliban forces. But these realities remain: The Afghan government will not reform itself to meet U.S. ethical or performance standards; the society remains divided by tribe and largely dependent economically on narcotics production and trafficking; a viable, accepted, unitary government of Afghanistan would be a near impossibility in a three-year period; Taliban and other dissident elements in Afghanistan know that we, as the British, Russians and others before us, in the end will tire of our obligations there and withdraw. It is only a matter of waiting us out.
In the meantime, the main anti-insurgency game has moved to next-door Pakistan, where the host government has given only lip service to anti-fundamentalist efforts in border provinces. The Pakistanis, too, see us as departing before long and prefer to make their long-term arrangements with the Taliban and other Afghan leaders.
In Iraq, where we also are scheduled to be gone next year, a government still has not been successfully formed, after national elections many months ago. That is supposed to happen this week.
The Outlook: Obama clearly still feels insecure in dealing with this issue. Previously he has deferred to Pentagon and other advisors who promised a satisfactory exit route from Afghanistan. He has given them at least part of the fresh troops and resources they have sought for the mission. But, on the present policy path, no graceful exit appears possible. The only practical path is to hasten power-sharing talks already underway between the Afghan government and Taliban. Our presence can be maintained to help keep things stable while Afghans sort out their own settlement terms. But a stay-the-course decision until 2014 would be a mistake.
Meantime, our greater focus should be on Pakistan and on regional instabilities being generated by North Korea and Iran and reducing Middle East tensions in general.
• Going local, Gov. Chris Gregoire is formulating proposals to cut the anticipated $4.6-billlion state budget gap over the next two years, to present to the newly elected Legislature, after the outgoing lameduck Legislature acted last weekend to reduce partially a $1.1 billion shortfall in the current budget running through June.
Last weekend's savings were, per usual, partly emphemeral. No cuts were made in "tax expenditures" (subsidies and loopholes) extended to favored companies and sectors —state and local tax expenditures continue to total three times the size of the state's biennial budget — and some federal monies and state funds were shifted from one account to another to get to the necessary cut levels. Burdens were shifted ahead and the anticipated gap in the next biennium thus no doubt will exceed the $4.6 billion now predicted.
Bottom line: Voters in November signaled clearly that they do not want increased state taxing or spending. Finally, one would think, the governor and Legislature will muster the courage to take on the beneficiaries of at least some of those tax expenditures. Either that or cut further and severely the health, education, and safety-net funding already pared last weekend.
All of this, it should be noted, is taking place in a shaky global financial/economic environment. Several European Union countries are running deficits they cannot sustain; they will need to depend on European Central Bank bailouts. Our own economy is in the midst of a long-term structural — not short-term cyclical — adjustment in which slow growth and high unemployment will prevail over a several-year period. The new financial regulation legislation passed this year makes changes around the edges but does nothing fundamental to avert new speculation, and subsequent bubbles and collapses, within the system.
He is not altogether a victim but I mustered great sympathy last Friday for President Obama as he led former President Clinton to the White House press room podium to make the case for his pending tax package. Clinton was upbeat and animated. Obama, only halfway into his term, seemed flat and distracted. Without prior executive experience, and lacking background in many of the financial/economic issues now dominating the public agenda, Obama came to office as the greatest crisis since the Great Depression was spreading across the western financial system.
A liberal critic of Obama's said last week that "he is just not into us." I doubt that. Obama is trying to practice the art of the possible, simultaneously trying to stimulate short-term growth while reducing long-term debt. No easy task, in the present situation, for even the most experienced political leader — especially one who lacks a committed political base (his 2008 electoral base, remember, depended on independent and young voters who have fallen away). His approval ratings are at their all-time low. No U.S. President has ever been reelected after encountering unemployment rates this high at the halfway point of his term. Yet Obama's situation is far from hopeless as he enters 2011.
Without a do-or-die base in the electorate, Obama really will have no choice from this point forward but to do what he thinks is the right thing for the country at large. There is a broad, usually silent political base out there — constituting in fact a majority — that could rally to that kind of governance.
