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