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What kind of safety net is the United Statesprepared to pay for? What kind of government intervention in the private sector is appropriate after the biggest recession since the Great Depression? What kind of tax burden should be shared, especially by the wealthiest Americans? Those questions lie at the heart of each of the painful clashes over the budget and deficit between Republicans and Democrats this year.
A year and a day after President Barack Obama signed the giant Recovery Act into law - pumping more than
After spending as much stimulus money as his predecessor spent on the wars in Afghanistan and Iraq, it was time to talk about cuts. Not immediate cuts perhaps; at least not in an economy still struggling to sustain job growth. But still ambitious ones, aiming to reduce the deficit from eleven to three percent of GDP within five years.
Obama's signature created a fiscal responsibility commission, which was in many ways a sign of widespread agreement in Washington. Originally a Republican idea, it was embraced by a Democratic president and consisted of equal numbers of elected officials from both parties. Everyone agreed about the scale of the problem, if not the timeline for action and the future balance between taxes and spending.
Yet the commission was dead on arrival, a little more than a year ago. Seven Republican senators who proposed the panel voted against its creation, spooked by the idea that it might suggest raising taxes. Another 23 Democrats joined them to oppose it before anyone was named to work on any recommendations.
Instead, a year later, the budget debate turned so ugly that both sides were ready to shut down the US government. While shutdown was averted by a matter of hours, attention rapidly turned to the previously unthinkable question of whether the US might default on its debt if
Such budget battles might seem bizarre to international observers, who might reasonably expect their own governments to collapse in the face of such financial chaos. But in the American system, the power of the purse-strings lies firmly with the
But you would be better off understanding that the messy, petty and often reckless arguments about the federal government budget and long-term deficits are part of a much bigger, more fundamental debate, which will remain unsettling and unresolved until at least the 2102 presidential election.
For this debate - which will likely dominate the presidential campaign - is about nothing less than the size, scope and role of government. To conservatives, President Obama represents a European-style socialist expansion of government that threatens to crush free enterprise and bankrupt the public finances. To progressives, Obama represents a timid, centrist sell-out to business interests, who blew his chance to restructure Wall Street and health care. Stuck somewhere in the middle is a
The important questions at the heart of the budget debate can only be answered by voters next year, who will be facing an imminent tax rise across the board just one month after they vote. This is because the
Allowing those tax cuts to expire would solve three-fourths of Washington's deficits in the next five years. After that, deficits would rise with an aging population, requiring long-term action especially to limit the sharply rising costs of health care for older Americans, known as
Inside the West Wing, the budget debates are seen not just as a contest between Republicans and Democrats, but among Republicans themselves. With a huge influx of new House members, many of whom were backed by the
That is not to say the
At a time of dramatic political change, and with another election campaign already gearing up, the challenge of dealing with the deficit is even greater than normal. Combined with a rapidly evolving media environment, whose news cycles have shortened dramatically, the debt debate is playing out in unpredictable ways. "This is a chess match," said another senior Obama adviser. "The question is, how do you end up in a place that is acceptable? You certainly don't get there if you view every day as the pivotal moment in the chess match. You don't always make the typical move."
Watching the world's biggest economy reshape itself in a series of threatened crises and chess moves is undoubtedly unsettling to its trading partners. When President Obama travels to Britain in May, the debt ceiling debate - and the risk of default - is likely to be unresolved. At the same time, Britain's experience of austerity will provide a sharp contrast: a government dealing with debt in an economy that appears to be slowing down. The British trade-off between debt and growth may make sense in Britain. But in the US, the politics and the culture play out differently. As British Prime Minister David Cameron has pointed out, the dollar is the world's reserve currency, allowing the US president far more latitude with international borrowing.
America's debts are nothing new. The revolutionary war against Britain was financed by several rounds of debt, which was later consolidated by Alexander Hamilton, the first Treasury secretary, in a bailout of the states that was no less controversial than the recent bailout of Wall Street. America's tolerance of public debt owes something to the self-confidence that comes with a long history of economic expansion.
Still, some attitudes towards debt are shared across the
When he created his fiscal responsibility commission in the
Richard Wolffe is the author of Revival: The Struggle for Survival Inside the Obama White House21st Century US History Books), a political analyst for MSNBC television, and contributor to The Daily Beast.
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