The National Debt

I scheduled our discussion of the national debt for this week in the hopes that we would have a deal from the "supercommittee" (officially known as the Joint Select Committee on Deficit Reduction) to discuss. Unfortunately, they were unable to come to any agreement. Instead, I'll talk a little about the readings and then discuss the implications of the lack of a deal.

This week's reading on the national debt is one of the most up to date that we've read so far. Although the chapter was written before the "debt ceiling crisis" of the summer, it asks many of the same questions that the supercommittee has tried to reconcile over the past few months. Most notably, how can we work to reduce our large deficit without stalling or preventing an economic recovery. Of course, the supercommittee is also concerned with the political ramifications of their actions. We have had two bipartisan committees tasked with reducing the national debt, the Bowles-Simpson National Commission on Fiscal Responsibility and Reform and the Rivlin-Domenici Debt Reduction Task Force. Both of these committees were bipartisan and offered recommendations for reducing the debt as models from which the supercommittee could work (even though the Bowles-Simpson commission failed to reach the supermajority among commission members necessary to fully endorse their plan). Even with these blueprints, the committee was unable to make a recommendation for action. As the chapter points out, Americans want to balance the budget while cutting taxes and increasing spending, an impossible task. Any cuts or tax-increases would run the risk of being politically unpopular less than a year before a major national election.

When the Supercommittee was formed as part of the debt ceiling deal this summer, a system of sequestration or automatic cuts to defense, Medicare (providers only), and Social Security was created as a consequence of the supercommittee failing to pass an additional $1.5 trillion in cuts. The good news is that these cuts will not occur until FY2013, so there is still time for Congress to reach an agreement. Policymakers on both sides are already attempting to over-ride sequestration for their preferred programs, but the Obama administration has vowed to veto any such attempts. It seems as though we have reached an impasse.

So, now that the supercommittee has failed, what can we expect? The Obama administration is hoping that the full Congress can pass extensions on the payroll tax cut and extended unemployment benefits before recessing in December. The Republicans are hoping to avoid raising taxes and to make the Bush tax cuts permanent while further cutting domestic spending and fundamentally altering entitlement programs (Medicaid, Medicare, Social Security). Democratic members of the legislature are hoping to preserve Medicare, Medicaid, and Social Security while letting the Bush tax cuts on the wealthiest members of society expire. Regardless of what happens, as we saw with the debt-ceiling debate, the appearance of a "do-nothing Congress" may be the most damaging aspect of these negotiations to the economy, our democracy, and the faith-and-credit of the US government.