The Grand Bargain

By John Lumbard.

  In the weeks before the 2008 elections Barack Obama mused that the nation needs to strike a “grand bargain” if it’s going to balance the federal budget.  You won’t give up your benefits and tax breaks unless I give up mine, and the same can be said about billionaires, farmers, ethanol blenders, Medicare recipients, and corporations (such as GE) that pay little in taxes because they know how to work the tax system. 

Republicans are trying to go at this piecemeal, and it’s a mistake.  Any voter who accepts a tax increase or gives up a subsidy in the first rounds of this grand negotiation will have to fight off  further cuts in later rounds—regardless of their pleas that they already gave blood at the office.  That’s an abstract concept until you’re the guy whose ox is being gored.  Challenge brings great clarity of thought and determination.

The only good way to do this is to put all the combatants into a room and lock the doors until they come to an agreement that balances the budget for the long term.  That’s why we’ve been pushing for a balanced-budget amendment to the Constitution;  it’s a lot easier to get everyone to agree that we must all share the pain than it is to get selected voters to agree that they must step forward and volunteer to accept some pain.    Pass the amendment first, and postpone the fight about the details until later.

A balanced-budget amendment would also reassure our foreign creditors, so that they won’t drive up the interest rates we pay on the federal debt.  Higher interest rates could easily add an expense the size of Medicare or the defense budget if we allow confidence to ebb.  And a Constitutional amendment won’t just balance the budget today;  it will help keep our wayward Congress in line in 2040, when the fiscal strains are at their greatest because all the Baby Boomers have finally retired from their jobs at Wal Mart.  It will be there for the real-estate bubble of 2100, and the giddy, free-spending years of 2250.

Senate Joint Resolution 3 (Senator Hatch and 30 co-sponsors), S. J. Res. 4 (Senators Shelby, Udall, and 3 others), and S.J. Res. 5 (Senator Mike Lee and 17 co-sponsors, including Senators Ayotte, DeMint, and Rubio) all call for a balanced-budget amendment with a limitation on federal spending as a % of GDP. 

That looks like a majority, but it’s not.  Several Senators have co-sponsored two of the bills, and in fact Mark Udall is the only Democrat who has signed on as a co-sponsor to any of them.  Write to your Senators right now ( and encourage them to make this happen.  If the Senate passes any form of the legislation the House will follow soon behind.

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