Why Did the Grand Bargain Fail?

By Charley Moore | September 12, 2012
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What does the fierce, but ultimately futile, battle between Obama and Boehner mean for the 2012 election?

The Grand Bargain would have changed everything in Washington, D.C. and put America back on the path it enjoyed in the mid 1990s: prosperity and balanced budgets.  So, what happened?

Back in August 2011, Washington was engaged in business as usual: stalemate in Congress between a democrat controlled Senate and a republican House of Representatives. Having trounced the democrats in the 2010 mid-term elections, the republicans flexed their newfound muscles and refused to go along with the usually straightforward and uncontroversial increase of the federal debt ceiling.  In so doing, President Obama was engaged in a political fight over deficit spending that led to a series of accusations and ultimately, negotiations.

Writing for the New York Times, Matt Bai lays out the details:

In the months that followed, some of Washington’s most connected Democrats and Republicans told me in casual conversations that they didn’t know whose story to believe, or even what, exactly, had been on the table during the negotiations. A few mentioned, independently of one another, that the entire affair reminded them of “Rashomon,” the classic Kurosawa film in which four characters filter the same murder plot through their different perspectives. Over time, the whole debacle became the perfect metaphor for a city in which the two parties seem more and more to occupy not just opposing places on the political spectrum, but distinct realities altogether.

In his new book, Bob Woodward also covers the debt ceiling “crisis” and the failed grand bargain. Michiko Kakutani explains in a New York Times book review:

“The Price of Politics,” reads like a minutely detailed illustration of these woes. It focuses on “the struggle between President Obama and the United States Congress to manage federal spending and tax policy for the three and one-half years between 2009 and the summer of 2012.” And the bulk of its narrative is devoted to behind-the-scenes negotiations that took place in the summer of 2011, as the country teetered on the brink of a potentially catastrophic default over the federal debt ceiling.

Like every budget, the federal accounts boil down to revenue (taxes) and spending.

So, here are the facts about federal revenue and spending over the past 50 years.

  • In 1960, under President Eisenhower (R), America ran a surplus of of $301 million, the average federal tax rate for median income was 21.4% and federal spending was 17.8% of GDP
  • In 1980, under President Carter (D), America ran a deficit of of $72.8 billion, the average federal tax rate for median income was 26.6% and federal spending was 21.7% of GDP
  • In 1990, under President George H.W. Bush, and following years of Reagan tax cuts, America ran a deficit of $222 billion, the average federal tax rate for median income was 25.8% and federal spending was 21.8% of GDP
  • In 2000, under President Clinton, with a balanced federal budget, America ran a budget surplus of $236 billion, the average federal tax rate for median income was 27.4% and federal spending was 18.2% of GDP
  • By 2008, however, under President George W. Bush, America ran a budget deficit of $458.5 billion, the average federal tax rate for median income was 23.4% (in 2004) and federal spending was 20.7% of GDP

This is the budgetary regime that President Obama inherited, combined with a severely tanking economy.  So, in 2011, America ran a budget deficit of $1.3 trillion. Taxes made up only 17.4% of average wages (in 2009 — the lowest rate for 30 years) and federal spending was 24% of GDP

There is no way to simply get back to where we were in 2000 without combining both revenue increases and spending cuts.  So, why can’t Congress and the White House move forward with a plan that makes sense?  The only rational explanation, from every credible source, appears to be the irrationality of the Tea Party, anti-government, anti-tax wing of the republican Congress.

All you have to do is ask two questions of the people asking for your vote in November:

1)  Are you open to making spending cuts to reduce the federal deficit, including cuts to entitlement programs?  

Almost 100% of candidates will say “yes.”  That’s good news.

2)  Are you open to raising new taxes to reduce the federal deficit?  If so, who and what would you tax?

Almost 100% of democrats will say “yes” and go on to give specific segments of the population they would tax more to pay for the balanced budget.  However, almost 100% of republicans, including Mitt Romney and Paul Ryan, will say “no.”

If you agree that there is no way to reduce the debt materially without both tax revenue and spending cuts, then the only way to achieve that goal is to elect candidates who will do both.  It’s that simple.

We need two rational political parties to deliver a real choice to the electorate.  However, we can’t have that until the Republican party stops the “zero tax” insanity.  Doing so would be for both for the party’s own good, and for the good of the country so that the debate can shift to how to do the things we all know must be done.  The question of what (raise taxes / cut spending) is a no-brainer that isn’t worthy of the billion dollar campaign budgets being spent on such a pyrrhic debate.

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Posted in: Congress, Europe, Policy, Politics