Tuesday’s Wall Street Journal carried an article by Robert Rubin, former Treasury secretary, arguing that political and economic conditions after the election in November will be unusually favourable for a grand bargain that would get federal finances on a sustainable path.
Mr Rubin argues that the expiring of various tax cuts and implementation of automatic spending cuts, already enacted into law, will compel congressional and presidential action. He also argues that between now and congressional elections in 2014 is the ideal time to bite the bullet on unpopular tax and spending decisions.
With all due respect, I think Mr Rubin is engaging in wishful thinking. Rather than being a propitious time for cutting a deal on taxes and spending, it is almost a certainty the opposite will be the case. Here are some reasons.
First, nothing will happen before the election. Both sides believe the election will strengthen their hand and put them in a position to drive a better bargain. Both can’t be right, but until the election results are in neither side has any incentive to search for common ground.
Although theoretically some sort of backroom negotiating could begin, this is unlikely. Word inevitably would leak and there isn’t much to add to the work of last summer’s Joint Select Committee on Deficit Reduction, which ended in failure and set in motion next year’s sequester that will automatically cut $1.2tn in spending – $600bn each from defence and domestic accounts.
Second, there is no reason to think that the Republican position of opposing any tax increase will change after the election. Virtually every Republican now in Congress or likely to be elected has signed a pledge that they will not support higher taxes for any reason. Without some give on taxes, Democrats will not negotiate, believing a deal that only cuts spending is unfair and unworkable.
It is conceivable that should Mitt Romney defeat Barack Obama he might be willing to put taxes on the table. But he certainly would not do so until after he became president. Then he will need time to get his own people into the Treasury and other agencies before negotiating a budget deal with Democrats.
There is a higher chance of Mr Obama plunging into negotiations after the election. But at that point he will be a lame duck, which will limit his influence. And if Republicans hold the House of Representatives and pick up seats in the Senate, as most political forecasters expect, it will be in their interest to wait until the new Congress convenes in January before negotiating.
Third, lame duck sessions of Congress are notorious for their dysfunction since many members will have retired or been defeated. They are more interested in cleaning out their offices than doing serious legislative work. The most they will do is enact a temporary stay on the tax increases and spending cuts so that the next Congress and administration can deal with them.
Although it is tempting to believe conditions are ripe for a grand bargain on the budget, the unfortunate fact is that the elections for both Congress and the White House this year make it impossible to take advantage of the opportunity.