Smarter

"There is a smarter way to do this...without harming the economy", said President Obama yesterday morning. He's got it right, this time.

The President was commenting on the impending "sequester", the blunt, large and inappropriate cuts to federal government spending scheduled, through legislation, for March 1. It is clear that the self-imposed sequester cuts, which neither political party actually wants, are too much too soon for a fragile economic recovery, and, in any case, are heavily, and wrongly, focused on discretionary, especially defence, expenditures, rather than the long-term deficit culprit - entitlement spending (medicare, medicaid, and social security). So, yes, Mr. Obama, there is a smarter way to do this.

But, that smarter way has been around for some time now. Both the President and Congress have, nonetheless, chosen to ignore it, and to argue endlessly instead. Back in 2010, President Obama ordered a commission to be formed with the goal of proposing measures to achieve long-term fiscal balance. In charge were Mr. Simpson, a former Republican senator from Wyoming, and Mr. Bowles, a chief of staff to President Clinton. This Republican and this Democrat, and their 16-other-members, bi-partisan Commission, produced the 2010 Simpson-Bowles Report, focusing on a combination of federal government expenditure cuts (of both a discretionary and mandatory nature) and reform of the "complicated, costly, anti-growth, anti-competitive, unfair" tax code. The existing federal tax structure in the United States was, they noted, a morass of tax breaks, amassed over decades of attempts at social engineering, and effectively just another form of spending - totalling $1 trillion. Reform must, the report emphasized, both maintain or improve tax progressivity and promote economic growth, producing a more "efficient, effective, and globally competitive" structure. Greater tax revenues, and significant, carefully-targeted expenditure cuts, would, over the coming decade, restore fiscal balance.

This was an excellent blueprint. However, initiated by the President, it was then studiously ignored by the President, who proceeded to advance his own hybrid plan. The Republicans did likewise. Simpson-Bowles 2010 didn't even receive sufficient support to advance to the floor of Congress. Gridlock ensued.

Now, with two more years of trillion-dollar annual deficits, Mr. Obama re-elected, and the sequester looming, Mr Simpson and Mr. Bowles are trying again, except this time they are sterner, and the numbers are bigger. Details of their updated plan will be released in "coming weeks", but the thrust of the new proposals, again on both the revenue and spending sides of the budget, is to extract $2.4 trillion from debt over the next decade, lowering the publicly-held debt/GDP ratio to 70% (compared to 90% if nothing is done) by 2022.

This seems an entirely reasonable, if modest, goal. But the political headwinds in Washington blow ever stronger; Democrats, proposing more tax hikes on the rich, and Republicans, saying more tax revenue is off the table, continue to dig their positions deeper. In the interim, with Congress away this week on a "break", the March 1 sequester cuts look virtually certain. The climate of economic uncertainty, and sluggish growth at best, will persist.