by Alex M. Parker

May 23, 2011

Parties still far apart on federal spending, revenues

Last Monday, the U.S. Treasury Department announced that the government hit the debt ceiling, the $14.3 trillion limit on how much Congress can borrow. For now, there won't be any repercussions. By moving funds from various federal investments, Treasury can keep the government running for another few months. But that will only buy so much time and in early August, unless Congress acts to raise the limit, the U.S. is expected to reach a point where it may not be able to pay interest on its debt and other legal obligations, and could go into default, with potentially disastrous consequences for the economy.

Political observers are sure of two things: The debt ceiling will eventually be raised, and the legislation to raise it will be attached to some type of debt-reducing measure. Beyond that, the ongoing negotiations between Republicans and Democrats to hammer out a deal and move forward on the issue are as unpredictable as ever. The threat of a national default, which could send the economy into a tailspin, is too strong a consequence to ignore. But as Republicans harden their opposition to tax hikes and demand trillions of dollars in spending cuts, it is becoming more and more clear that the two sides have a wide gulf to bridge.

This is the second, and not likely the last, Congressional showdown over deficit spending this year. The first showdown, over the 2011 budget prevented a government shutdown and slashed $38 billion from current annual spending levels. While it was one of the biggest spending cuts in history, it still represented only a small portion of the $1.5 trillion deficit for 2011. Lawmakers have already begun to draw up appropriations bills for the 2012 budget, but before they get to that they'll likely have to raise the current $14.3 trillion limit.. It's not a decision about whether or not to spend more -- the money has already been appropriated by Congress -- but a legal requirement, which in the past has allowed for political posturing and positioning for both parties. Unlike yearly budget debates, which tend to get bogged down in wrangling over paltry discretionary spending, a debt ceiling compromise will more likely look at America's long-term debt, and could include more far-seeking changes than annual budget squabbling.

So far, the script has been familiar to those who followed the negotiations over the 2011 budget. Lines have been drawn and ultimatums issued, and politicians have mixed harsh rhetoric with closed-door meetings in the hopes of striking a deal. According to the Treasury Department, Congress will have until at least August 2 to raise the debt ceiling, although some fear that the market more likely the market may begin to react to the possibility of a default even before that limits is actually reached.

Republicans have long opposed increasing taxes, and they've renewed their emphasis on a spending cuts-only solution as the debt ceiling debate has increased. "It's a line in the sand," House Majority Leader Eric Cantor told reporters following a party meeting last Wednesday. And during his speech to the Economic Club of New York last week, House Speaker John Boehner said that "with the exception of tax hikes -- which will destroy jobs -- everything is on the table." Boehner said that any debt ceiling increase must come with an equivalent amount of cuts, which could be as much as $2 trillion, although he did not specify how these cuts would be spread out over time. Those cuts would include changes to entitlements, which seemed to indicate that Paul Ryan's proposal to convert Medicare into a voucher-based system was back in the mix after early indications that the GOP had abandoned it.

Even as Boehner spoke, some in his caucus were working up demands for even bigger cuts. The Republican Study Committee, a conservative voting block among House Republicans, is circulating a letter among its members calling for the government to slash the deficit in half within a year, institute hard spending caps for annual budgets, and begin to push for a balanced budget amendment to the Constitution. On Wednesday, House Appropriations Chairman Hal Rogers called for an additional $30 billion in cuts to domestic annual discretionary spending as part of the 2012 budget, on top of the cuts which were already made in the 2011 budget bill.

In contrast, the Democrats have done their best to avoid boxing themselves in on the debt fight. After a meeting with the 53 Senate Democrats and President Obama Wednesday afternoon, Senate Majority Leader Harry Reid said that the president urged the party to remain united, but flexible. While few Democrats have ruled out spending cuts, many are saying that they must come with measures to increase revenues, either through higher taxes or by eliminating tax loopholes and credits. Sen. Kent Conrad , the chairman of the Senate Budget Committee , talked about a equal split between cuts and revenue during a caucus meeting with fellow Senate Democrats on Tuesday. Hoping that public anger over gas prices will give them an edge on the issue, Democrats are also pushing for the elimination of $4 billion in oil and gas subsidies as a first step towards common ground.

Finding a deal that keeps both sides happy without finding a way to increase revenues may prove impossible. As the official negotiations continue, many in Washington are keeping on eye on the so-called gang of six negotiations in the Senate, a bipartisan group of senators looking to craft legislation based on the recommendations from last year's presidential fiscal commission, which has not yet seen an up or down vote in Congress. The commission, which recommended raising revenues through making deep changes to entitlement programs and eliminating most tax credits, is seen as a possible way to build consensus around the idea of tax hikes. "Revenue is on the table," said one Senate aide close to the negotiations. If the group is able to find common ground based on the fiscal commission's recommendations -- which include corporate tax reform to raise revenues, along with reforms to entitlement programs -- then it may be a strong foundation to build a deal to raise the debt limit and make substantial budget reforms.

 

 

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