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Just before Thanksgiving, congressional leaders admitted that there would be no deal to reduce the US budget deficit by $1.2 trillion over ten years.  Although this is not a surprise, it has significant ramifications for our nation.  In this first Perspective, I seek to place this entire discussion into a broader understanding.

• First, a comment about the role of President Obama.  It is manifestly clear that the president chose to remain quite disengaged from this entire process of debt reduction by the supercommittee.  His campaign leaders and his White House staff have declared that the president believes that the Republicans will never agree to raise taxes on the wealthy to balance any spending cuts, so he will let the voters decide next November.  He will campaign by contrasting his ?balanced? approach to putting the nation on a solid footing to the Republicans? antitax reliance on spending cuts, especially for Social Security and Medicare.  His strategy of not engaging Congress and of remaining aloof from the discussion is dangerous?for him politically and, perhaps more importantly, for the nation.  He is failing to lead on a serious threat to the nation?s future, the mounting federal debt.  The historian, Robert Dallek, argues that Obama is borrowing from the strategy adopted by Harry Truman, in 1948:  Truman blamed a ?do-nothing? Congress for the nation?s ills, and thereby defied all expectations and won re-election.  But I am not certain this will work.  There is one haunting reality that the president cannot ignore?and I believe the voters will not ignore either:  President Obama appointed the Simpson-Bowles commission, which studied the debt situation of the US extensively and proposed a completely bi-partisan approach to reducing the federal deficit?and the President of the United States, who appointed the commission and empowered them to arrive at a solution, completely ignored their recommendations.  The Simpson-Bowles commission was a sterling example of bi-partisanship.  Indeed, Warren Buffett declared that ?I think what happened with Simpson-Bowles was an absolute tragedy.  They work like the devil for 10 months. . . . They compromise.  They bring people as far apart as [Democratic Senator Dick] Durbin and [Republican Senator Tom] Coburn to get them to sign on and then they?re totally ignored.  I think that?s a travesty.?  In fact, columnist Tom Friedman has gone so far as to advocate that Obama declare that he made a mistake in spurning his own deficit reduction commission and that he is now adopting Simpson-Bowles ?as his long-term fiscal plan to be phased in after a near-term stimulus.?  Now this ?near-term stimulus? will be controversial, but when you have a liberal columnist like Friedman advocating the Simpson-Bowles commission?s solution, you take notice!  The heart of Simpson-Bowles is substantial tax reform and revenue increases, a gasoline tax, deep defense cuts and cutbacks to both Social Security and Medicare.  The so-called deficit plan Obama proposed in September was watered-down and no one took it seriously.  As Charles Krauthammer has correctly argued, ?raising revenue through tax reform [as in Simpson-Bowles] is better that simply raising rates, which Democrats insist upon with near religious fervor.  It is more economically efficient because it eliminates credits, carve-outs and deductions that grossly misallocate capital.?  Simply raising the tax rates is a perverse way to solve our problems:  (1)  Raising rates needlessly slows economic growth, by penalizing work and by retaining inefficiency-inducing loopholes.  (2)  Obama?s coveted repeal of the Bush tax cuts could yield the Treasury, at the very most, $80 billion a year, offsetting 2 cents on the dollar of government spending ($3.6 trillion).  (3)  Hiking tax rates ignores the real drivers of debt, which, as Obama himself has acknowledged, are entitlements.  In fact, the president seems so out of touch with reality that last February he presented to Congress a budget that would have actually increased spending!!  It was voted down by the Senate in a 97 to 0 vote.  In contrast, the Republicans in the House passed a budget that cut $5.8 trillion of spending over 10 years.  To no one?s surprise, the Senate did not accept the House budget.  Tom Friedman is correct:  We have a well-thought through proposal?Simpson-Bowles?on the table.  Let that be the starting point!  It is bi-partisan and it accomplishes real tax reform, with concomitant revenue increases, and significantly reduces entitlement costs, which is the real problem with the deficit.  Why will the president not lead on this?  He is hoping that the voters will side with him next November.  He is hoping that the voters will reject Simpson-Bowles and permit him and his party another four years of ignoring the need for meaningful tax reform and meaningful, substantive changes in our entitlement programs.  Obama is not leading?and the nation will suffer more because of that.

• Second, what is often overlooked is that the deficit-raising deal Obama struck with Congress last summer has automatic adjustments built into the agreement.  By law, the supercomittee?s failure triggers new caps on spending, cutting $1.2 trillion from the military, education, health care and other priorities over 10 years beginning next fall.  The combined impact of higher tax rates and less spending would reverse the growth of annual deficits beginning in 2013, reducing by more than half the current $1.3 trillion gap between annual revenue and spending.  This was part of the deal from last summer and it is automatic?unless Congress passes new legislation undoing this deal, which is a real possibility.  In addition, there are several other key congressional decisions that loom in the near future:  Congress must decide whether it will extend a payroll tax break for workers and continue supplemental benefits for the long-term unemployed, both of which are scheduled to expire at the end of the 2011 year.  The tax break reduces the amount that workers must pay for Social Security; the extended benefits provide support for 3.5 million Americans who have been out of a job for longer than 26 weeks.  In addition, Congress must decide by the end of next year the future of the Bush tax cuts.  All of these decisions are of course wrapped around the poisonous political culture of Washington, D.C.  Insightfully, columnist David Brooks observes that both political parties have ?developed minority mentalities.?  By this he means that their ?main fear is that they will lose their identity and cohesion if their members compromise with the larger world.  They erect clear and rigid boundaries separating themselves from their enemies.  In a hostile world, they erect rules and pledges and become hypervigilant about deviationism.  They are more interested in protecting their special interests than converting outsiders.  They slowly encase themselves in an epistemic cocoon.?  The result in an era of stagnation.  Each party is too weak to push its own agenda and ?too encased by its own cocoon to agree to a hybrid.?  In short, America today lacks decisive leadership?both the executive and legislative branches.  This dismal failure of leadership is costing our nation dearly?and we are slipping quickly into a loss of influence and power around the world.  Our children and our grandchildren will pay dearly for this vacuum of leadership at all levels of government.  Perhaps we are simply getting the leaders we deserve!

See David Brooks in the New York Times (22 November 2011); Binyamin Appelbaum and Annie Lowery in the New York Times (22 November 2011); Charles Krauthammer in the Washington Post (24 November 2011); Tom Friedman in the New York Times (23 November 2011); and Jackie Calmes in the New York Times (22 November 2011). PRINT PFD