fiscal cliff

Congress has come to a fork in the country’s fiscal road

Posted on by j.giglio

Here’s a safe prediction for 2013: The folks in D.C. will continue the policies of extend and pretend, endlessly kicking the can into the high grass, lurching from crisis to crisis and showdown to showdown without addressing the causes of our fiscal woes, as pundits complain about how uncertainty is undermining economic recovery.

The New Year could have begun with America falling off the “fiscal cliff’ if lawmakers had not reached an agreement at the last possible moment. But the deal left unresolved the issue of raising the current debt ceiling of $16.394 trillion. House Republicans would not agree to raise it without drastic spending cuts to get the national debt and deficits under control.

Those same House Republicans then gathered at their annual legislative retreat, where they decided to retreat from their resolute debt ceiling position and agreed to allow government borrowing to continue until May 19, long enough for the House and the Senate to pass a budget for the next fiscal year.

The House bill does not raise the federal debt ceiling; it simply allows the government to borrow as necessary to meet its obligations until May 19 and requires that the House and Senate pass a budget by April 15. If either body fails to meet the budget deadline, lawmakers’ salaries would be held in escrow until their chamber passes a budget.

The legislation is a strategic move by House Republicans to avoid a fight over the debt ceiling and shift the political debate to areas where they believe they have greater political leverage. The goal is to draw the Democratic Senate into taking action to cut deficits by requiring the Senate to pass a budget  resolution for the first time since 2009. Yes, the Senate Budget Committee has failed to produce a budget, which it is required to do by law, in each of the last three years , during which time the nation has added more than $1 trillion annually to the deficit.

The next real showdown will come over sequestration, $110 billion in automatic spending cuts that would take effect March 1. The sequester calls for roughly $55 billion each in ·budget cuts to defense and non-defense spending. These forced spending cuts were delayed until March as part of the American Taxpayer Relief Act of 2012, the New Year’s deal that avoided the full-on “fiscal cliff.”

Pentagon advocates warn that the cuts will hit the defense budget hardest. But when you spend over $700 billion annually on defense, what you need most isn’t allies but an enemy.

Meanwhile, the government’s ability to fund itself (the continuing resolution) runs out March 27. Republicans have made it clear that they are willing to let the government shut down to force deep spending cuts and/or changes to Medicare and Social Security that would address the long-term deficit Issue.

It is against this backdrop that Congress and the White House will take up the deficit issue next month. Once again they are putting off the difficult decisions needed to get the country’s fiscal house in order, deal with persistent unemployment, and stagnant and declining wages.

The most fun you can have with the budget deficit is to lay bets on the mythic narratives each party will spin, explaining why they kicked the can down the road once again. This brings to mind a quote from Woody Allen: “More than any other time in history, mankind faces a crossroad. One path leads to despair and utter hopelessness, the other to total extinction. Let us pray we have the wisdom to choose correctly.”

originally published: February 2, 2013

The existential polarization of America

Posted on by j.giglio

America is in the midst of an existential crisis, unable to agree on what it wants to be. Washington is more divided than ever before, pulled apart by two different visions of the role government should play. One rests on a deep skepticism and the other embodies faith in government’s power to serve society.

Until this conflict is resolved, America will remain a divided society. It’s a recipe for disaster, making it difficult to address pressing economic and fiscal issues.

This, as Bush 43 used to say, requires “some ‘splaining.”

Sure, a bill passed late on New Year’s Day averted widespread tax increases and delayed spending cuts that threatened to take a bite out of the economy. But critical issues, including deficit reduction and growing the economy, remain unresolved.

The fiscal cliff deal didn’t solve anything. In the short term, America is struggling with a weak economy and we have a long-term problem with out-of-control debt that is growing faster than GDP.

The White House will tangle anew with congressional Republicans over a confluence of three looming fiscal deadlines: raising the $16.4 trillion federal borrowing limit, averting automatic March 1 spending cuts to defense and domestic programs, and renewing the congressional resolution that has been keeping the government operating and expires on March 27.

Actually, the government could exhaust its ability to pay its bills by mid-February, forcing it to use a series of accounting gimmicks that, if used in the private sector, result in jail time. One includes delaying tax refunds. Happy Valentine’s Day, America.

After the 2011 fight over raising the debt limit, the credit rating agency Standard & Poor’s downgraded the U.S. government’s blue-chip AAA bond rating because it feared that America’s dysfunctional political system could not deliver a credible plan to reduce the federal debt. Standard & Poor’s cited an overabundance of “political brinksmanship” and warned that “the differences between political parties have proven … extraordinarily difficult to bridge.”

The newest round of budget battles could make the fiscal cliff deal look like a morning in Sunday school. In the House, the Republicans are a divided party with 25 percent of their members committed to the Tea Party and its implacable opposition to any tax increases. They won’t agree to raise the debt limit without equivalent offsetting spending cuts that Democrats are sure to resist. The Democrats are loath to rein in pension and health care entitlements that most economists agree are unsustainable.

The fiscal cliff fight revealed the weakness of our political system in a way that has seldom been done before. There is no consensus on what’s driving this unprecedented polarization.

Some point to everything from the growing role of money in politics, to changes in the way news is covered in the Internet age, to partisan gerrymandering. For example, repeated redrawing of districts by both parties has created conservative districts that are far more conservative and liberal districts that are far more liberal, with the resulting chasm between the two. Indeed the number of swing House seats has dropped dramatically in the last two decades.

But it is useless to focus on any single cause because many factors are now at play, all reinforcing one another, threatening the country’s ability to solve critical pressing issues.

As far back as the 18th century, the Founding Fathers, with their distrust of centralized government power, designed a system that makes paralysis the normal state of affairs. Each house of Congress must separately pass a bill before the President can sign it into law.

The dark truth is that unless the political class in Washington can arrive at a reasonable compromise, we are just marking time until the next fiscal crisis. And it will undoubtedly be one in which working men and women will draw the short straw.

originally published: January 19, 2013