Suddenly Washington is filled with proposals for 'debt triggers,' policy devices that would force spending cuts if arbitrary targets aren't met in the future. Everybody's either got one or wants one: the President, the Republicans, the Gang of Six, and all the usual suspects from the austerity crowd.
Let's not dance around the harsh truth, even though that's exactly what these gimmicks are designed to do: "Triggers" are economic IEDs, set to to explode when their builders have left the scene and can't be blamed for the damage.
For those who might be offended by the analogy, remember: the word trigger is best known as the term for the mechanism that fires a gun, or for the device that sets off a bomb. And in management slang, an executive who can't "pull the trigger" is one who can't make tough decisions. That makes it pretty ironic that these 'debt triggers' are all devices intended to make it seem as if tough decisions are making themselves. They're supposed to absolve our leaders of blame for the consequences of their actions.
Politicians all over the world must be asking themselves, where can I get one of those?
Happiness is a warm trigger
Here's the basic idea: Each of these triggers sets arbitrary future limits on government spending, and would force spending cuts if Congress can't reach those limits voluntarily. Overriding them would require a substantial Congressional majority. And each of them would hurt lower-income and middle class Americans if it 'went off,' while leaving the wealthy unscathed.
Whether you're looking at the President's trigger or somebody else's, here's what you won't see: You won't see automatic increases to the highest marginal tax rates, because we can no longer afford to have billionaires paying historically low tax rates. Know what else you won't see? A jobs trigger. Nobody in Washington is telling the American people that 8% or 9% unemployment is both unconscionable and economically unsustainable. Nobody's suggesting that if Congress can't find the political will to create jobs, a "trigger" will be fired that forces job creation through stimulus spending.
Apparently the unemployed aren't using the right lobbyists.
The Corker/McKaskill proposal, "SAVEGO," the President's deficit proposal - they all use the same basic design. Some are more extreme than others, but the President made it a lot harder to argue against this flawed concept when he came up with a trigger of his own. Now his opponents can claim with some credibility that they're just haggling over the details.
The President's plan
The White House calls the President's proposal a "Debt Failsafe trigger," a name that resonates of nuclear weaponry as well as small arms. That's appropriate, since each of these "triggers" bears a certain similarity to the "Doomsday Machine" in Dr. Strangelove. The "Doomsday Machine" was designed to destroy the world if a nuclear bomb went off ... but its deterrent effect only worked if people knew there was a Doomsday Machine.
We'll get back to that.
Here's what the President's proposing:
"The President's framework would require that, by the second half of the decade, our nation's debt is on a declining path as a share of our economy. To enforce this requirement, the President is calling on Congress to enact A Debt Failsafe that will trigger across-the-board spending reductions (both in direct spending and spending through the tax code) if, by 2014, the projected ratio of debt-to-GDP is not stabilized and declining toward the end of the decade."
Thankfully, the President's proposal doesn't include Social Security or Medicare - but they immediate become the bargaining chips for the negotiations that follow, with some "scalpel"-like benefit cuts likely to be placed on the table.
What does "spending through the tax code" mean? Deductions. "A Debt Failsafe" (capital "A," capital "D," capital "F") would force reductions in tax exemptions, but wouldn't force increases in tax rates. In real-world terms, that means that hedge fund managers might still enjoy a 15% marginal tax rate and billionaires could still be taxed at the same rate as middle-class Americans, but we would probably lose most of the deductions that are keeping middle-class families from drowning.
Middle class triggers
Which deductions would be under the gun when the trigger goes off? The mortgage interest tax credit: Gone. The employer health benefit exemption: Gone. The child tax credit: Gone. Now, there are some very good theoretical reasons why some of these exemptions should be reduced or eliminated. But people who want to enact these changes tend to forget something very important: We don't live in a theoretical world.
In the world where most people live, most homeowners have just seen the biggest piece of their financial security - their house - evaporate. With one home in four underwater, homeowners are struggling to make mortgage payments, and many millions of them are failing. Eliminating the mortgage interest credit would have the real-life impact of jacking up their mortgage payments by the percentage they pay in income taxes. Fifteen percent, thirty-five percent ... whatever the tax bracket, this change alone would be economically devastating for most of the middle class.
Last year's health reform bill didn't do enough to reduce the runaway rate of health costs. Employees are already paying a higher percentage of their health insurance premium, and premiums continue to soar. They're paying more in out-of-pocket expenses, too. Removing the employer tax credit would mean a sudden, huge leap in these costs, with economic effects that could also be devastating.
A $1,000 child tax credit may not seem like much to Washington lawmakers, but that's pretty important for a lot of families too. (It was for us, and my son had the poor fiscal judgment to be born in January.)
Let's talk about that 2014 start date, too. At the current rate of job growth, we won't approach a reasonable rate of employment until 2016. two years after the trigger is pulled (excuse me - I meant, before it pulls itself. No accountability, remember?). That would initiate job-destroying cuts before we're likely to have regained the jobs we lost in 2008. That doesn't make sense.
And speaking of 2008 - No less an expert than JPMorgan Chase's CEO, Jamie Dimon, tells us that he explained to his daughter that a financial crisis is "something that happens every five to seven years," and that while "we" should be more "careful," nobody should be surprised when they happen. If he's right, we can expect our next crisis sometime between 2013 and 2015. And he probably is right, since he's working hard to prevent any of the measures that might stop that crisis.
So we'll still be recovering from our last crisis in 2014, and we may very well be entering another crisis. Yet the President's proposal would set arbitrary rules that prevent the government from responding to that crisis.
Forget what I said about Dr. Strangelove. This is starting to feel more like Saw.
Oh, and Dimon's comment reminds me: Here are a few more items we can add to that list of 'triggers' we'll never see - a trigger that imposes a financial speculation tax if Wall Street gambling leads to another crisis, a trigger that breaks up the big banks the next time they need a bailout, and a trigger that convenes a grand jury every time there's evidence of bank fraud.
When the next crisis comes, the government won't have any weapons to fight it.
Bad to worse
You know what's the most discouraging thing about the President's A Debt Failsafe trigger? The others are so much worse. One that's getting a lot of publicity is the "SAVEGO" plan offered by the "Bipartisan Policy Center." If you haven't heard of it, the main thing to remember is that "bipartisan" is Washington code for "some Republicans and some conservative Democrats." The SAVEGO proposal was written with the help of Alice Rivlin, the former Clinton Budget Director with a long history of advocating cuts to Social Security and Medicare (while studiously avoiding any mention of solutions that are more practical and fair, such as lifting the payroll tax cap).
What could go wrong?
SAVEGO resembles the President's plan, but it would also include mandatory cuts to Social Security and Medicare. Like most such plans, it ignores the fact that Social Security is forbidden by law from contributing to the deficit. And like most such plans, it offers no solutions to the nation's devastating health care cost problem, which is the source of Medicare's funding problems (and virtually all of our future deficits). Its arbitrary caps would merely transfer those crippling costs onto seniors instead - a move that would lead not only to financial ruin for many of the nation's elderly, but according to reliable studies would also lead to increased disability and death.
The "bipartisan" proposal from Sens. Claire McCaskill (Dem.) and Bob Corker (Rep.) would also includs Social Security and Medicare, and would artificially force spending down to catastrophically low numbers. That's undoubtedly a ploy, intended to be the starting point for negotiations that would reduce them from "catastrophic" to merely "massively destructive." (That's how they roll in Washington nowadays.)
McCaskill and Corker wanted a catchy acronym for their bill, so they're calling it the "Commitment to American Prosperity (CAP) Act." (Because it "caps" spending - get it?) A more accurate name for it would be the "Commitment to Reduce American Prosperity Act," since it would impose severe financial hardship and lead to job-killing budget cuts.
That would make the acronym more accurate, too.
Of course, any of these triggers could be overridden, but it would take a two-thirds majority in Congress to do it. That means that in practice, these triggers would give Congressional minorities another way to hold the government hostage and demand outrageous concessions when critical expenditures are threatened. This year we've seen Republicans use Congress' current ransom-generation tool, the debt ceiling, so effectively that they demanded $32 billion in spending cuts and got $33 billion - and they're not done yet.
That's what makes it particularly ironic to see Sen. Bob Corker, who so slavishly served the banking industry during last year's financial reform debate, threatening to use the debt ceiling to paralyze government again if his proposal isn't adopted. In the old days people took hostages to get their demands met. Corker's threatening to take hostages unless he's given another way to take hostages.
Bond markets, those invisible forces that debt reduction is designed to propitiate, could never be confident that debt triggers will actually reduce government debt. Sure, that's the likeliest outcome. But triggers could also be used to demand all sorts of unexpected things from government - including more spending. Instead of reducing economic uncertainty, debt triggers could make things more unpredictable than ever. That would make markets very nervous, not reassure them. Remember Dr. Strangelove: the device only works if people know it will go off.
Congressional hijackers already have the debt ceiling. The debt trigger would become their Doomsday Machine.
The Triggerman's real agenda
When you strip away the verbiage, all of these triggers would have the same basic outcome: They would cut government spending without asking the wealthy to pay more in taxes. They would top that bargain off by hitting the middle class with tax increases , and the poor with drastic service cuts.
When that next recession arrives on schedule (let's call them "Dimon recessions"), there will be even greater financial hardship on the middle class, along with more unemployment and increased poverty. That's exactly what happened because of the last recession, and the next one won't be any different. Any one of these triggers would prevent the government from responding effectively to any future crisis.
SAVEGO and Corker/McCaskill would also inflict deep financial damage on the middle-class elderly - and the President's proposal seems primed to make that part of the final bargain. In other words, every one of these "triggers" would impose some version of the same unpopular austerity economics program outlined in the Alan Simpson/Erskine Bowles proposal.
But politicians can read polls, and they know that those proposals are extremely unpopular. So they've stopped offering them directly and are hiding behind the "trigger" mechanism instead. We are already seeing evidence that the austerity economics program is hurting the British economy in pretty much the same way that we would expect it to hurt ours. From the New York Times:
"Retail sales plunged 3.5 percent in March, the sharpest monthly downturn in Britain in 15 years. And a new report ... forecasts that real household income will fall by 2 percent this year. That would make Britain's income squeeze the worst for two consecutive years since the 1930s."
When politicians hide that kind of agenda behind a Rube Goldberg device like the trigger, they're just compounding bad judgment with political cowardice. No wonder they're are all anybody can talk about in Washington this week.
Hello, world! It's April in the District of Columbia. Spring is in the air, the cherry blossoms are in bloom, and the whole town has gone trigger happy.