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Debt Talks Get Urgent
As lawmakers quarrel, the deadline comes closer.


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Andrew Stiles

Congress has developed an unfortunate habit of rushing through “emergency” legislation at the very last minute against the backdrop of some looming existential threat to the fabric of society (TARP, the stimulus, this year’s “budget deal”). The resulting laws can hardly been seen as successful, and Sen. Jeff Sessions (R., Ala.) fears the trend will continue in the coming weeks if negotiators are unable to iron out a deal to raise the debt limit.

Sessions tells National Review Online that this sort of “panic situation” would be unacceptable, and that party leaders had “better get busy” if they are to draft a proposal that can be scored, analyzed, and verified before members are asked to vote on it. The White House has declared August 2 the deadline by which the debt ceiling must be raised, and has warned that a failure to do so would precipitate a catastrophic economic collapse.

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Debt negotiations led by Vice President Joe Biden reached an impasse last week when Republicans Jon Kyl (R., Ariz.) and Eric Cantor (R., Va.) decided to abandon the talks because Democrats refused to take tax hikes off the table. Sessions says he sensed a “growing unease” regarding the negotiations, but was surprised to see the talks collapse so quickly. “Nobody knew what was really going on and how insistent the Democrats were on substantial tax increases,” he says. “Our leadership has been perfectly clear and said no. At some point, if you’re not communicating with one another, you have to bring it to a halt.”

The talks have entered a new phase of urgency as President Obama met with House Speaker John Boehner (R., Ohio) privately last week and hosted Senate leaders Harry Reid (D., Nev.) and Mitch McConnell (R., Ky.) at the White House on Monday. But Sessions is hardly optimistic that a new round of closed-doors negotiations will resolve the issue. “We’ve got good leaders, so maybe something will break in a good way, but I’m not particularly confident,” he says. “I’m not so sure we’re going to gain anything in secret talks with the A team instead of the B team.”

Part of the problem, he argues, is Washington’s obsession with “secret groups” and commissions. Lawmakers would be much closer to a deal if they had simply followed the regular budget process. House Republicans did so in April when they formally adopted “The Path to Prosperity” under the leadership of House Budget Committee chairman Paul Ryan (R., Wis.). Unfortunately, Sen. Kent Conrad (D., N.D.), chairman of the Senate Budget Committee, has opted to hold off on releasing a Democratic budget proposal as long as bipartisan talks are underway.

Sessions has been agitating for an open budget process for months. “The American people deserve to know where their elected leaders stand,” he says. Democrats are afraid, he argues, to introduce, and subsequently vote on, a budget that dramatically increases taxes. Conrad has even said he was considering a one-to-one ratio of spending cuts to tax hikes. By comparison, the president’s bipartisan deficit commission recommended a ratio of three-to-one.

“They cannot bring forth a budget their members support that the American people will support, and they understand that,” Sessions said in a recent interview with Fox News. He also suggests that Reid has spurned any budget-related floor action in order to avoid exposing a rift within the Democratic party, specifically when it comes to taxes. As Sen. Mark Kirk (R., Ill.) told reporters last month: “The 51 votes are actually on our side of the issue, not theirs.”

So is the public. In a recent Bloomberg poll of U.S. adults, 55 percent said that spending cuts, combined with tax cuts, would be the best way to grow the economy, while 61 percent said they would not be willing to pay higher taxes to reduce the deficit. Just 36 percent were willing to pay more.

The public’s preferences find support in economic data. Alberto Alesina, a Harvard economist who has analyzed the ways in which various countries responded to large fiscal crises, concludes that spending cuts are “much more effective” than tax increases in stabilizing the debt without harming the economy. “In fact, in several episodes, spending cuts adopted to reduce deficits have been associated with economic expansions rather than recessions,” Alesina writes. These findings were echoed in a report from Goldman Sachs analysts Ben Broadbent and Kevin Day, which examined “every major fiscal correction in the OECD since 1975.”

Still, Democratic leaders have insisted that “revenues” make up a significant portion of a deal to reduce the deficit. One GOP aide familiar with the Biden negotiations says Democrats unveiled a “page-full of proposed tax hikes” during a meeting last week. On Monday, the White House announced it was seeking $600 billion in new revenue as part of a deal.

Republicans, meanwhile, have warned that the Democrats’ refusal to accept the political reality on taxes could jeopardize the prospects for a deal. “The president has to make a decision,” Senator Kyl said on Fox News Sunday. “Which is more important to him, solving this problem and reducing spending somewhat, or making sure that we raise taxes on the American economy? If that’s his ideological bent here and under all circumstances that’s what he is going to insist on, we’ve got a big problem.”

“It looks like the president remains committed to higher spending and higher taxes,” Sessions says. “If that’s so, even after this past shellacking in the election, I think there’s a danger of no agreement getting reached. If they believe what they are saying [about the risk of default], the burden now is clearly on President Obama to make this work.”

A senior Republican aide describes the situation this way: “Our fiscal house is on fire. We need lots of water to put it out. Unfortunately, the Democratic party is historically and ideologically opposed to water.”

On the Republican side, however, there remains some disagreement over the definition of “tax increase.” The ongoing feud between Grover Norquist, president of Americans for Tax Reform, and Sen. Tom Coburn (R., Okla.) has been taken up by the rest of the party and conservatives in general. At issue is whether or not eliminating tax credits, like those given to ethanol producers, constitutes a “tax increase” — and a violation of Norquist’s “Taxpayer Protection Pledge,” which most Republicans have taken — unless accompanied by a tax cut to offset the additional revenue.

Sessions voted for Coburn’s amendment to end ethanol subsidies because he views the ethanol tax credit as “so absurd it ought to be eliminated.” However, he doesn’t feel the same about all tax credits. “It’s not logical to say that the elimination of a legitimate tax deduction is not a tax increase of some kind,” he says, but acknowledges “some gray area” on the issue.

“What we need to do first before we start talking about extracting more money from the American citizen is to demonstrate a firm, effective commitment to getting spending under control,” he says. “What good does it do to raise revenue if we then go spend it?”

— Andrew Stiles is a 2011 Franklin fellow.



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