The Fiscal Suicide Pact

We must engineer a long-term realignment of entitlements and taxes to avoid falling off the fiscal cliff.

President Barack Obama pauses as he hosts a meeting on Nov. 16, 2012, in the Roosevelt Room of the White House with House Speaker John Boehner and Senate Majority Leader Harry Reid.
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It is the very irrationality of the fiscal cliff that was designed to force the executive and legislative branches to come to grips with an unsustainable budget deficit and to rise above partisanship to do what they should have done a long time ago.

We must also find a package of expenditure reductions to occur over the next decade, including a decrease in the growth of defense and nondiscretionary spending along with gradual increases in the retirement age for Social Security benefits, given the increase in longevity. Boehner is right to say that the president must be willing to reduce spending and shore up the entitlement programs that are the primary drivers of our debts and deficits.

Half of the $109 billion of cuts is from undiscriminated cuts in defense spending, which alarms the Republicans (and the people who defend us). We simply cannot be so reckless on complex issues at the heart of national defense.

[Read the U.S. News Debate: Is Going Over the 'Fiscal Cliff' Necessarily the Worst Outcome?]

A minimalist approach may forestall a recession now, but it will leave our future in jeopardy. We must chart a shorter-term middle course in which the deficit falls next year but not so fast that it cripples the economy, and we must also take a chokehold on the long-term deficits that we are facing. We must go from the agony of the doing to the peace of the done, but done it must be.

If we fail, we raise the prospect that our bonds would be vulnerable to a credit rating downgrade like the one they suffered during last year's stalemate over the debt ceiling.

This is the time for leadership. It does not serve the prospects of compromise that President Obama went public in a press conference earlier this month to state his determination to veto any legislation that extends the Bush tax cuts for the top 2 percent of American income earners. This is what prompted Boehner to state publicly that he was opposed to any increase in tax rates but would seek an approach that would result in more tax revenue by eliminating tax breaks and a lot of special interest loopholes as part of a broad-based tax reform. This is no way to negotiate. That should be done privately. If the president thought he was going to utilize a public platform to chastise and intimidate the Republicans, he was wrong. Once both leaders draw red lines in public as non-negotiable, then it makes the likelihood of a negotiated outcome less likely and the risk of going off the cliff increases dramatically.

[Take the U.S. News Poll: Is the GOP Defecting From Grover Norquist's Tax Pledge?]

Short term, we are going to have to raise the legal ceiling on national debt. But the longer-term solution is to have a grand bipartisan bargain on long-term tax and entitlement reform. This means both sides must be prepared to compromise. Last year the mood prevented such compromise.

Any long-term deal is problematic given the difficult relations among the key players. The Republican leaders, both in the House and the Senate, have lost confidence and trust in the president and have stated publicly that they do not believe President Obama is serious about getting our deficits down. As The Economist put it, "America taxes itself like a small-state economy and spends like a big-state one. Add in an ageing population, and it is going broke."

[See a collection of political cartoons on Congress.]

If we somehow survive a fall over the fiscal cliff, we must know that we will keep on falling and falling faster if we don't engineer a long-term realignment of entitlements and taxes. The long-term deal we should demand is one that will strengthen our country's economy, encourage business to invest, and raise our international standing (in contrast to more years of angry confrontation). Both sides will have to move beyond contentious electoral politics and assume a bipartisan spirit. The problem is that many on both sides seem to think they have the upper hand in the negotiation, and therefore, each assumes the other side will back down before it's too late. This is a very slippery slope.