Last month, during the lame duck session of the 111th Congress, it seemed quite amazing that Republicans and Democrats actually reached agreement on a negotiated tax package so that a consensus bill was written, passed and signed into law by President Obama before Christmas. Of course, there was considerable acrimony from right and left wingers about the impropriety of the bill, but the critical factor which produced this sudden bi-partisan effort was public pressure.
It seems the American public would not tolerate any more partisan bickering—the levels of anxiety and annoyance that these tax issues were unresolved at such a late date, especially given the current state of the economy, were palpable.
Talk about strange bedfellows… Republican Senator Mitch McConnell and President Barack Obama are two of the most unlikely leaders to reach an agreement. Just one month previously, Senator McConnell said his primary goal was to make President Obama a one-term president. In fact, this nearly $1 trillion stimulus package may go a long way toward helping the President get re-elected. If the economy stages a greater recovery by 2012, the public may show greater support for the sitting President.
Nevertheless, the passage of this bill sets the stage for business to move forward in 2011 and 2012. Immediate concerns about tax rates are laid to rest. Business planning over the next two years can proceed. The unemployed will continue to receive benefits and reduced payroll taxes may support employment growth and increased consumer spending. We will see.
With the new 112th Congress, the political debate will center on the federal budget and the will to impose spending cuts and/or tax increases to chart a course for deficit reduction. What combination will result, the specifics will emerge when the public demands that a package be delivered. Both Democrats and Republicans will claim credit for what they like, and blame the other party for what they don’t.
With Republicans in the majority in the House and Democrats in the majority in the Senate, little progress will be made on any further initiatives unless or until the public expectations become clearer and stronger. And that may be what the public wanted from the elections of 2010…no more major changes in our economy while the economy is still anemic.
As Otto Von Bismarck said, “Politics is the art of the possible.” Consensus, compromise, and agreement can be reached when the public supports a change or an action.
Another pair of strange bedfellows was Bill Clinton and Newt Gingrich. They were found together agreeing to balance the budget in 1997, and producing the first balanced budget in 30 years.
We will see what agreements Speaker Boehner and President Obama will produce in the next session. We clearly need to make progress on the federal deficit. But, before we can be confident about our ability to bring down the deficit, we need to boost employment and the economy. That takes time and public support.
As the debate unfolds, the pathway will become clearer. I heard Hugh McColl speak about taxes this last fall. He said he didn’t think the actual tax rates were a critical factor for economic recovery as much as the need for certainty about tax rates to move forward for business planning purposes.
Global pressures will also play on public pressure. Interest rates, inflation rates and the value of the dollar will all impact our will and ambition to address the deficit. With nearly 40 percent of our federal budget being borrowed, any increase in interest rates will have a profound impact on our ability to reduce the deficit.
We also need growth on Main Street for jobs to be created. We need time for businesses to adapt and be reinvigorated. We need economic growth. With the future a little more clear, let’s get busy and move forward! And let’s continue to put pressure on our elected officials to do the same!!