What does the failure of the Congressional joint committee to find a budget compromise mean for America?

In the short-term, the failure of the Congressional joint committee to reach a budget compromise by the committee’s deadline of November 23 won’t mean very much. Since there will be no long-term budget plan in place for Congress to adopt by its agreed deadline one month later, mandatory sequestration of $500 billion in defense spending and another $500 billion in non-defense spending is supposed to kick-in starting in 2013.

On the one hand, I think that sequestration might be a good thing for America, forcing upon us hard budget choices that we don’t want to make. But on the other hand, many of our elected representatives are thinking and hoping that they can somehow un-do the deal, avoid the sequestration, and keep on deficit spending, borrowing the budget shortfall, and running up the national debt as usual. President Obama has said he will oppose their efforts to avoid the sequestration that was enacted into law as a prod to try to get the budget under control.

The other thing that will happen if there’s no budget deal is that the so-called Bush tax cuts will all expire at the end of 2012. Starting in 2013 taxes will rise to where they were during the Clinton administration, and the top rate for the highest income taxpayers will increase from 35% back up to 39.6%, the top rate on long-term capital gains will increase from 15% back up to 20%, and dividends paid to stockholders will again be taxed as ordinary income instead of as capital gains. The Republican Congresses that enacted the Bush tax cuts wisely recognized that it would be irresponsible to make them permanent, and so made them sunset at the end of 2010, which President Obama agreed to extend through 2012 in his last budget compromise.

This resulting tax increase in 2013 could turn out to be a good thing for the country, too, providing much needed tax revenue to reduce the budget deficit and the increases in the national debt. President Obama and most congressional Democrats want to keep the Bush tax cuts in place only for lower and middle-income taxpayers, who they roughly describe as those earning $250,000 or less. But they want taxes to go up for high income taxpayers.

Republicans so far have been unwilling to support keeping the Bush tax cuts only for lower and middle income taxpayers. They insist they will only support a budget plan that retains the Bush tax cuts for all taxpayers, including those with very high incomes. Hence, the deadlock.

Sequestration of government spending, and a tax increase on all taxpayers, because of the budget deadlock could turn out to be okay for the country, which needs both lower government spending and more tax revenue to reduce ever-increasing budget deficits. But the long-term message of the budget deadlock is more alarming. It means that we are incapable of governing ourselves through our elected representatives.

The premise of the American experiment has always been that we are capable of governing ourselves through our elected representatives, without kings or dictators, without ideology or coercion. That democratic idea has been copied and imitated by democracies around the world. But the inability of our elected representatives to address and respond to our current budget crisis suggests that maybe our generation of Americans really is not capable of self-government after all.

Is it just us, another instance of American exceptionalism? The budget crisis in western Europe suggests otherwise. It seems like citizens of democracies if given a choice will prefer politicians who promise both low taxes and high benefits, including Social Security, Medicare, and prescription drug coverage, all indexed for inflation. We prefer the empty promise of low taxes and high benefits to the bad news that we actually have to pay somehow for what we want.

So for the next few years, I’m not worried. We’ll muddle through. But contemplating the long-term future of the republic, I find myself increasingly alarmed about our demonstrable inability at self-government.