The dysfunctionality of Washington, summed up in two sentences

As the AP reported on Sunday, one of the big-ticket issues that post-midterm Washington will have to deal with is the expiration of the Bush-era tax cuts, which is set to happen at the start of 2011 if no action is taken. For both political parties, this is a problem -- Barack Obama famously promised that he would not increase taxes on households making less than $250,000 in annual income, while Republicans insist that all cuts should be made permanent.

This whole debate is really a bit nonsensical, as The Economist reported in September:

The irony in this drama is that the money at stake is, in the larger scheme, trivial. Raising taxes on the top 2% of households, as Mr Obama proposes, would bring in $34 billion next year: enough to cover nine days’ worth of the deficit. Indeed, the problem with the tax debate is not that Democrats and Republicans disagree, but that they mostly agree. Democrats think 98% of Americans should not pay higher taxes; the Republicans say 100% should not.

Having said that, there is a certain symbolic weight to all of this. A full Republican victory would set a precedent of keeping taxes low, thereby forcing the government to try and cut back spending in order to tame the deficit (more on that in a minute). A compromise deal which allowed for taxes to go back up for, say, households making more than $500,000/year, might make future taxation policy more flexible.

An important issue, then. So how do Washington insiders see this playing out? From the AP article:

"The most likely outcome is a one-year extension of everything," said Democratic lobbyist Steve Elmendorf. "The second most likely outcome is nothing happens."

So either the issue is put off, or no deal is reached. This is the reality of politics in Washington, and it's quite sad. At a time when strong leadership of any kind - Democrat, Republican, whatever - is so sorely needed, Congress and the President have failed in successfully and comprehensively tackling any important issue of the day, and seem intent on going on in this way.

This is why there is so much anger directed at Washington. It may often be misguided, hyperbolic, and cruel, but the anger is there for a reason.

But it won't be long before everyone will be forced to step up and take action. From The Economist:

Around 2015, spending will start a multi-year climb. To attribute that entirely to Mr Obama would be disingenuous. His health-care plan does contribute to it, but rising interest on the national debt and built-in health and demographic pressures are more important.

In other words, despite Republican promises to roll back spending to pre-recession levels, the deficit will almost surely rise because of issues that are beyond their control.  If they dig their heels in on tax cuts now, they are ensuring that future measures to cut back the deficit will have to be much more extreme.

But Democrats have to shoulder a fair share of the blame for this fiscal mess.  Obama's signature health-care plan was such a disappointment on so many fronts, and it will eventually become a serious financial burden, as the article goes on to explain:

Mr Obama took an American approach to health care, dismissing both a Canadian single-payer option and a broad federal safety-net plan to win support. One result is that 7% of Americans will remain uninsured, still the third-highest percentage in the OECD, after Mexico and Turkey. “This is way to the right of what [Richard] Nixon proposed,” says Jonathan Gruber, a health expert at the Massachusetts Institute of Technology. American resistance to Canadian-style rationing is also why the reform provides so few serious cost controls. A recent study by the actuary of the federal agency that oversees Medicare and Medicaid found that the reform will do little to slow the growth in public and private health spending.

So much political capital spent on a bill that does not achieve any of its stated goals, and a deficit that will continue to climb even if the economy improves (this expectation is built into the projections). There will come a time when Washington will no longer be able to kick its problems down the road.