What happened!? Just two weeks ago we were celebrating the willingness of the political class -- or at least an influential subset of it -- to finally get realistic and confront the nation's fiscal challenges.
The remarkable success of President Obama's fiscal commission came as a welcome surprise. The panel came up with an outstanding budget reform proposal that could put the U.S. budget on track and reassure credit markets.
And in highly uncharacteristic fashion, a diverse group of political leaders from Republican Sen. Tom Coburn to Democratic Sen. Dick Durbin chose to embrace the plan rather than use it to score political points.
It felt like we had climbed out of the rabbit hole, and responsible governing and leadership had returned.
And then with whipsaw speed, the White House and members of Congress came up with a stinker of a compromise tax cut plan. In typical Washington fashion, it included lots of goodies. The result was new spending; tax cuts for businesses; tax cuts for the rich; tax cuts for the middle class; tax cuts for the poor ... even tax cuts for the dead.
And it comes at a massive cost.
The Republican side of the group that struck this deal wanted to ensure that tax rates not rise while the economy is still weak (or ever, for that matter).
A temporary tax cut extension should have been accompanied by a mechanism to develop fundamental tax reform over the coming 12 months focusing on economic growth -- and not adding to the debt.
Instead, they merely extended all of the Bush tax cuts for two years, and added in a few extras for good measure, with every intention of extending them all again two years from now. (Related commentary: Will Dems fall for temporary tax gambit again?)
Did they offset the costs by suggesting spending cuts or future tax reforms? Nope.
On the other side, the White House wanted to put in place another round of stimulus (as well as find a vehicle for a slew of other measures they wanted to get through Congress).
They should have crafted a targeted and effective stimulus package -- focusing on the major weaknesses in the economy such as housing and the cash-strapped states -- with a plan to pay for the borrowing.
But did they come up with a particularly effective stimulus package: Should we expect a good return on the massive cost? Nope.
Tax cutters and would-be stimulators may try to call the deal a victory. But as for the rest of us, we get to look our children in the eye and explain how our nation just added another $1 trillion to their tab.
What has to happen now: We have a number of challenges in this country, including ensuring that the recovery sticks and controlling our national debt (which, in fact, is a necessary component of helping the recovery hold).
Yes, we should keep the overall tax burden low, but only by cutting spending, not by running up the debt.
And yes, we should put in place a well crafted stimulus package, based on good economics rather than convenient politics, that is both paid for over time and linked to a broader budget plan.
Stimulus should not be an excuse to throw in every last initiative on the wish list and pretend it is good for the economy.
Going forward, the first step will be creating a new budget framework, such as the one the Peterson-Pew Commission (which I served on) recommended.
The starting point for this plan would be to identify a particular fiscal goal, such as bringing the debt back down to 60% of GDP by the end of the decade. Then, if Congress doesn't pass a plan to meet that goal, automatic spending caps and revenue increases would kick in.
From this point forward, policymakers should not add a single dollar to the debt without combining it with this kind of a responsible budget framework. It doesn't matter what the issue is -- the budget, the debt ceiling, or any new spending and tax bills. No more blind debt.
And then over the next year, lawmakers and the president must come up with the specific spending changes and tax reforms to fill in the plan.
If they choose instead to continue borrowing hand over fist and using the weak economy as an excuse not to offset any costs or enact a debt reduction plan, no one should be surprised when credit markets cry "enough!" And that would bring about a very unhappy ending to the borrowing binge that it appears we are still on.
