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

In his State of the Union address, Obama calls on Congress to reject manufactured crises as a way of doing its budgetary business. But with fiscal flash points looming, the temptations are powerful.

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.

The budget process is a deliberative one, in which committees in both the House and Senate develop budgets, move them to the floor, and then reconcile their differences in a conference committee. Then appropriations committees in both chambers get to work to nail down the dollars and cents for the proposals outlined by the budget committee in a series of more than a dozen bills that fund government operations.

That machine has been out of order for longer than a decade. Specifically, the Senate has not passed a traditional budget since April 2009, short-circuiting, Republicans argue, Congress’s main way for hashing out big debates over the nation’s finances even if the whole government funding process is hobbled.

But if Washington could get back to moving a budget (which both chambers have agreed to do this year), the fiscal fighting could be packed back into a more orderly and, hopefully, productive process.

“Conversations are fine,” said Congressman Price, referring to the primacy of negotiations handled by the White House and congressional leadership in recent fiscal deals, “but nowhere in the rules of the House is the word ‘conversation’ used, I don't believe. There are processes that are in place that allow us to solve the challenges that we have in a deliberative way, in an open way, in a transparent way, and it is the processes of governing and legislating through the House and the Senate.”

It’s not a panacea, as Rep. Chris Van Hollen (D) of Maryland points out. “That process, of course, will produce all the disagreements that you've heard ... with respect to the right mix of, you know, spending cuts and revenue,” Congressman Van Hollen said. “And so again, the issue's whether we're going to be able to overcome those differences that have prevented us from moving forward in the past.”

In theory, that process would be better able to handle the long-term questions of federal taxing and spending by putting the entirety of Congress behind figuring out solutions to the nation’s problems instead of a few lawmakers and wonks from the White House and congressional leadership.

“Our focus on the question should be, what kind of economy do we want 10 years from now?” said Van Hollen, the top Democrat on the House Budget Committee, Tuesday. “What kind of commitments do we want to keep to our seniors and others – and make sure that the deficits in that year are not dragging down the economy.”

But between today and a sustained, orderly debate on the nation’s finances are those land mines: sequester, government funding, debt ceiling.

And Republicans simply don’t trust the president to play fair if they were to give up those points of leverage.

When Obama swore that none of his new State of the Union proposals would add a dime to the deficit, Rep. Kevin Brady (R) of Texas quipped, “I’m 5’5” and I’m going to dunk a basketball before that promise ever comes true.”

Even when Obama brings up his willingness to tackle fundamental GOP concerns such as Medicare’s fiscal future, Republicans say he is either not owning up to the fullness of the problem or unwilling to actually make necessary changes.

Referencing the president’s promise to adopt Medicare reforms up to those recommended by the Simpson-Bowles Commission, Rep. John Fleming (R) of Louisiana warned, “remember, that was his commission he put together, he absolutely ignored their findings, and even the pieces we’ve tried to send him he’s ignored. So why would he suddenly embrace it when he’s ignored it all along?”

Even so, there’s a weariness among members of both parties to keep the adrenaline pumping on fiscal issues. And maybe having given trips to the financial edge a try – dare one say – the next time or two might be different.

“There's an eerie similarity here, isn't there, to previous occurrences,” McConnell said on Tuesday. “Take no action, go right up to the deadline, and have an 11th-hour negotiation. Read my lips. I'm not interested in an 11th-hour negotiation.”