We all know Albert Einstein’s famous quote: “Insanity is doing the same thing over and over again and expecting different results.” Well, according to Einstein, our current political process is insane. A few months ago, as people were trying to enjoy the summer, our political leaders were engaged in a debacle of Hollywood proportions, dithering over raising the debt ceiling and reducing the deficit. Both parties publicly agreed that reducing spending was important and needed to be done. But a real and meaningful deal couldn’t be reached. There was an ideological divide and the ideological divide was over taxes. This divide could not be crossed.
The world watched the U.S. get closer and closer to being unable to pay all of its debts when they became due. The markets reacted badly. Standard and Poors downgraded the U.S. In the end, a stop-gap plan was agreed upon and a super committee was formed to develop a long-term deficit reduction plan.
Let the insanity begin.
The super committee is in its nascent stages; yet, it seems as if we all know where the deficit reduction debate is headed – back to the summer. President Obama vowed to veto any super committee plan that did not include tax increases on the “wealthiest Americans” and “biggest corporations.” Speaker of the House Boehner told the Economic Club of Washington that “tax increases destroy jobs. And the [super] committee is a jobs committee.” And, all six Republicans on the super committee signed a pledge to oppose any and all tax increases.
So, over the course of the fall, unless sanity intervenes, we will witness our political leaders doing the same thing they did over the summer – pointing fingers and trying to win political points with their eyes on the 2012 elections as they disagree on whether taxes should be increased. It is official. Our political process is insane.
What makes this truly insane is the fact that the resolution is staring us in the face. For instance, the Bowles Simpson plan proposed, among other things, a reduction of marginal rates and reforms to the tax code to eliminate certain deductions and loopholes. Democrats and Republicans could get their minds around this type of common sense and rational approach to taxation. It shouldn’t be that hard. But it is. And, it is because it is political.
The debate is not truly about taxes. If it were, it would be an honest debate. Reasonable people can argue over whether the Bush tax cuts should expire. One side would argue that increased revenues help reduce the deficit and the other side would argue that an increase in taxes stifles private spending and growth. This is an honest debate. However, when one side wants to increase taxes to make sure all millionaires pay a higher percentage in taxes than everyone else when the vast majority of millionaires already do and the other side says they will never agree to any tax increases no matter what, we know we are watching political theater and not an economic debate.
We need our political leaders to lead first and run for office second.
While politicians focus on the 2012 election and keeping their jobs, 25 million Americans don’t have a job. The U.S. balance sheet and operations need to be restructured and we need leaders from both parties to come together and do what is best for our country. The voters know that a compromise can be reached by reasonable people. But voters should be worried that insanity has trumped reasonableness.
Jonathan Henes is a restructuring partner at Kirkland & Ellis.