Obama urges a budget without brinkmanship. But can Congress stop the insanity?

President Obama presented Congress with a plea for sanity during his State of the Union address Tuesday night.

“Let’s set party interests aside and work to pass a budget that replaces reckless cuts with smart savings and wise investments in our future,” Mr. Obama said. “And let’s do it without the brinkmanship that stresses consumers and scares off investors. The greatest nation on Earth cannot keep conducting its business by drifting from one manufactured crisis to the next.”

The problem? Everyone in Washington – Republican and Democrat – agrees that the 11th-hour, shrouded-in-secrecy fashion in which Washington handles its financial matters is profoundly insane. Yet none are willing to give up their own points of fiscal leverage to allow the rational, top-to-bottom review of the nation’s taxing and spending policies that everyone says the town needs.

First, a quick review of impending fiscal flash points. Some $85 billion in spending reductions (known in D.C. as the “sequester”) that will hit nearly every function of government outside federal health-care programs, Social Security, and military personnel, land on March 1.

At the end of that month, funding runs out for the federal government’s general operations (via a “continuing resolution” in D.C. speak). And the nation must raise its borrowing authority (aka the “debt limit”) sometime during the summer.

But the first installment, the sequester, is a good example of Washington making lots of noise about rationality while a given fiscal fuse burns.

Congressional Budget Office Director Doug Elmendorf recently testified that those cuts would reduce gross domestic product (GDP) by more than half a percentage point in 2013 and cost some 750,000 jobs. In an economy crawling along at about 2 percent annual growth in GDP and some 150,000 jobs created per month, that’s a big deal.

But just as the newly reelected president was able use the countdown to across-the-board tax increases with the fiscal cliff to extract tax increases from a recalcitrant GOP, Republicans are patiently waiting for Democrats to make their day as spending cuts loom.

“We don’t believe across-the-board spending cuts are a wise way to control spending in this town,” said Rep. Tom Price (R) of Georgia, a leading House conservative, “but if it’s the only way it will happen then that’s the way it will have to happen.”

While Democrats are reportedly constructing a sequester offset of alternative cuts, they will almost certainly include well-worn Democratic hobbyhorses, like ending special tax preferences for hedge fund managers and the oil industry, that are nonstarters for the GOP.

“The majority is going to offer a proposal. I anticipate that we will have an alternative proposal. That, however, doesn't lead to a solution. It just leads to a couple of votes,” said Senate minority leader Mitch McConnell (R) of Kentucky on Tuesday.

Repeat that same steely standoff once more with the potential of a government shutdown and once again with the fear of a default on the nation’s debt and, voila, Washington could conceivably do more damage to the economy in 2013 than it did in the summer of 2011, when a debt ceiling showdown alone tanked US markets, crashed consumer confidence, and punished economic activity.

How could Washington break the madness? By doing what the president endorsed at the State of the Union (and what House Republicans have long ripped Senate Democrats for avoiding): passing a budget and sticking to the budget path.

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