The Only Solution for the Budget Committee: How to Muddle Through to 2015

The latest incarnation of the Budget Committee will face the classic case of an unstoppable force meeting an immovable object.

All the pious platitudes of working together to find a solution to the budget/shutdown/debt-ceiling impasse are based upon the false premise that Democrats have very much further to move, or that Republicans will move at all.

Regarding the Democrats, one hopes that they have learned by now that whatever movement they do make is banked and new Republican demands begin from that point. Republicans, on the other hand, will not raise taxes.

Republicans serve ideological masters, Democrats serve constituencies. None of the Democrats' constituencies fare well under Republican ideology, and nothing that serves Democrats' constituencies satisfies Republican ideology. Unstoppable force, meet immovable object.

Perhaps the Committee will do us all a favor, therefore, and just go to the only solution that could have enough political support to pass. This is not good policy; it is just less-bad than current policy and much less-bad than another near financial crisis:

  • Permit U.S. companies to repatriate overseas profits at a 10 percent tax rate, this year only. That would generate 150 Billion in revenue. As it is a lower tax than the 35 percent corporate rate, the Republicans would get credit for lowering taxes.
  • Starting with the Republican budget number for this year, divvy up the revenues in the following fashion: add 40 Billion to defense and veterans; 40 Billion to discretionary spending;40 Billion to infrastructure; and use30 Billion to pay down the debt. Republicans will balk at the spending increases, but they are all paid for with a tax cut for their corporate paymasters, and the30 Billion to pay down the debt provides solace.
  • Raise the debt-ceiling through March 2015, i.e., through the next elections and with enough breathing room for the new Congress to get settled.

There should be strong political forces this proposal could muster. The Chamber of Commerce will love both the repatriation and the infrastructure spending. Even the Koch boys may go for it. Labor will like the discretionary spending increases, the defense increases and the infrastructure. Neocons will love the defense department increases. Wall Street will like the threat of another debt-ceiling showdown pushed off nearly a year-and-a-half, and the increased economic activity.

The Tea Party could get off on the "buying down the debt" piece, small though it may be; moreover, with the Chamber and Labor and Wall Street pushing for it, and the debt being reduced, Tea Party types would be left demanding a greater fraction of the revenues going to buy down the debt, not exactly a call-to-arms. That would also destroy the consensus among the other groups, and guarantee another shutdown.

Hence, one suspects a concerted effort by all-of-the-above to force the Tea Party obstructionists back under their rocks. Everyone, moreover, except the Tea Party does not want another shutdown/default crisis. If they fight it again, and lose, as they certainly will, their power is further diminished to the point where they may not even be able to block the immigration bill from coming to the floor later.

Yes, I know, the repatriation part sticks in one's throat. Increasing defense spending is going in the wrong direction. Who believes, however, that it is not worth $150 Billion to break the logjam that we cannot otherwise afford, or that it is worse policy than we just suffered?

With this admittedly sorry excuse for economic policy, we can muddle through to 2015. If the '14 elections provide a relief from the insane character of this divided government, then some real economic policy can be developed.

If the country saddles itself with this crowd again, we have no one to blame but ourselves.