Reports Thursday indicated that Republicans and Democrats in Washington were close to negotiating a compromise on raising the nation's debt ceiling, and that a deal could be struck as soon as Saturday.
You know what that means: Hold on to your wallets.
If history is a guide, these kinds of fiscal agreements usually consist of phony spending cuts and some kind of tax increase, allowing both sides to claim they "won." Of course, that's a big reason why the nation is in the financial mess it is — $14 trillion in debt with a $1.5 trillion budget deficit, with both trending upward.
Bumping against the debt limit presents a ripe opportunity to reverse that course, avert an economic catastrophe in the near future and put America on a sound financial track for at least a generation.
Republicans want only huge reductions in spending. Democrats argue for a two-fisted approach that combines smaller cuts in spending with increases in revenues. What's worrisome is that both sides will agree on a figure — say, $2 trillion — and then cook the numbers to fit it.
In the past, that has involved delaying most spending cuts until the "out years" of budgets, five or 10 years down the road, that future Congresses never adhere to. Yet, the savings are counted up front.
Meanwhile, new taxes are implemented immediately, giving Washington fresh revenues to spend. Accounting gimmicks are used to sculpt this goop into something resembling a $2 trillion debt-reduction program that will hold its shape on the 2012 campaign trail. That will allow politicians seeking re-election to trumpet their commitment to fiscal security without having to actually make the fundamental changes necessary to achieve it.
So be skeptical if the parties announce "cuts" in Medicare and Medicaid. Those entitlement programs have been marked for excisions many times over the years, yet they have continued to consume greater shares of the federal budget. The only way to guarantee that their costs will be reigned in is if they, and other entitlements, are fundamentally reformed. And the idea of reform is anathema to most status-quo Democrats (and many politically skittish Republicans).
Beware, too, "targeted" tax increases on certain income groups, which are designed to convince most Americans that their bosses or neighbors are paying the freight (sorry, their "fair share"). It shouldn't be surprising anymore how often the definition of "wealthy" extends much lower on the pay scale than initially advertised.
Again, instead of manipulating marginal tax rates upward to achieve some kind of political satisfaction, this is an issue that demands comprehensive reform. Democrats are right to call for an end to tax breaks and loopholes for "Big Oil," but they shouldn't stop there. Republicans should join them in clearing the tax code of its thick underbrush of all tax goodies, which reward and punish groups based on political favoritism and misallocate capital in the marketplace.
Coupling that with lower and flatter rates would raise revenues without punishing success and would encourage economic growth.
As we have stated before, the size of government shouldn't be measured solely by a spreadsheet. Even achieving genuine short-term reductions in the bottom line today (such as by cutting the defense budget, another necessary step) won't prevent the untouched structural problems from creating profligate spending in the near future.
REPRINTED FROM THE PANAMA CITY NEWS HERALD.