Deficit Deal Only Gets Tougher After the Election

Posted July 26, 2010 at 6:43pm

If you listen to the pre-election hype that’s going on in advance of the November Congressional elections, you can’t help but get the sense that a deficit reduction deal next year is very possible.

[IMGCAP(1)]Frankly, that doesn’t make a great deal of sense.

Start with what Congress is likely to look like after the election. Polling indicates that the Democratic majorities in the House and Senate will decrease substantially or be replaced by a narrow Republican majority in one or both chambers. Therefore, unless the situation changes substantially in the months ahead or the actual election results are different from what the polls predict, in one way or another the voting margins for the majority party next year are likely to be much smaller than the ones that exist today. That’s not something that typically leads to bold decisions on controversial issues such as the deficit, spending cuts and revenue increases.

Then move to what over the past two years has become standard fare in Washington: the politics of obstruction. The subtext for the many filibusters, nomination and bill holds, and other types of parliamentary delays is that this will all be over next year when, after the presumed post-election changes, members of both parties will hold hands and sing the legislative equivalent of “Kumbaya.”

That also doesn’t make a great deal of sense.

Indeed, the opposite — more obstruction and delays — seems far more likely. If there are substantial Republican gains in both houses, the GOP take-no-prisoners strategy of making it as difficult as possible for the legislative process to move forward will appear to be vindicated. That will make it hard for party leaders to convince their more militant members that moving in another direction is the correct thing to do.

Even more important, however, is that the GOP is likely to see a cooperative stance over the next two years as a way of giving the White House victories it wouldn’t otherwise get. That doesn’t make much political sense when the next election will be the one where the president’s performance is judged directly by voters. This is especially true when it comes to dealing with the deficit because it’s one of the issues on which the Republicans have most criticized the White House. Cooperation that leads to a budget deal will eliminate that issue; obstruction and no deal will keep it alive through November 2012.

Much the same will be true if there’s a Democratic minority in one or both houses. Is it really likely that Democrats will want to make legislative life easier for the new Republican majority if they lose control of the House and/or Senate? Having seen that there is far less voter retribution than might be expected from constant filibusters and the like, will it really be a surprise if Democrats adopt many of the same obstructive tactics on budget-related issues that Republicans have used the past two years?

Much of the hope and expectation for a budget deal next year seems to rely on the deficit reduction commission developing a plan that somehow makes likely what up to now has been politically impossible. As desirable as that might be, it’s hard to see how that will happen given what the commission, or for that matter anyone dealing with the deficit, will have to recommend. It’s also hard to see a newly elected Congress feeling bound by revenue and spending changes that, regardless of which party was in control, Capitol Hill has been reluctant to support when the options were openly discussed.

This is particularly the case because, although poll after poll over the past two years has shown widespread unhappiness with the deficit in general, other than foreign aid few of the specific changes needed to make substantial progress appear to be acceptable to a majority of Americans. It’s hard to see how even a unanimous recommendation from the commission will change that significantly.

Add to this one more critical factor next year: the economy. As the mid-session review of the budget released Friday by the Office of Management and Budget and last week’s Congressional testimony by Federal Reserve Chairman Ben Bernanke indicates, substantial improvements in the unemployment rate are still expected to take place over a number of years. That will make the spending and revenue changes needed to reduce the deficit significantly less economically justified and the politics of the deficit even more difficult.

The mid-session review shows that, under baseline assumptions, the deficit will fall by about $500 billion and from 9.2 percent to 5.6 percent of gross domestic product next year, that is from fiscal 2011 to 2012. That would be the largest nominal reduction in U.S. history and the biggest change as a percent of GDP since 1947. Given the politics of next year’s budget debate and the small probability that a deal can or will be possible, that’s about the most that should be expected.

Stan Collender is a partner at Qorvis Communications and founder of the blog Capital Gains and Games. He is also the author of “The Guide to the Federal Budget.”