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Fiscal Doomsday Ahead: Will Congress Dodge It?

August 28, 2013

October 1 is the new fiscal cliff, the next budget doomsday – and the deadline that Congress and President Obama must try to avoid.

It looked for awhile as if lawmakers and the president had put the worst of their budget differences behind them. They cut a last-minute deal just before last New Year to avoid a potentially catastrophic tsunami of massive spending cuts and tax increases, followed by a temporary extension on the $16.7 trillion debt ceiling.

But Obama and Congress never truly buried the hatchet – and they’re starting to dig it up right now. Here’s what happens in 35 days:

  • Fiscal 2014 officially starts – and Congress has not yet agreed to a budget framework or put any spending bills on the president’s desk to keep government agencies and programs operating.
  • The second annual installment of the sequester kicks in with $1.2 trillion in automatic cuts to defense and domestic programs.
  • Enrollment in the Obamacare health insurance exchanges is scheduled to begin. Republicans hope to delay – if not defund – the exchanges as part of a deal on the debt ceiling.
  • The government will be down to its last two weeks of financial maneuvering before finally bumping up against the current $16.7 trillion debt ceiling and risking default on its borrowing and obligations.

All four of these factors are conspiring to produce a highly combustible autumn in Washington.  The White House claims it will not negotiate over a debt ceiling increase, while GOP lawmakers are hashing out whether to extract as many spending cuts as possible, potentially to programs such as Medicare and Medicaid, or to double down on blocking Obamacare.

It’s always possible, of course, to push off these deadlines with continuing resolutions and patchwork arrangements, something that’s been done before. But what’s different now is that the terms of agreement aren’t readily obvious. And with just 34 days remaining before the deadline, the two sides have starkly different agendas and political goals.

‘OFF THE CHARTS’
“We really are off the charts on all this stuff,” said Joseph Minarik, a former Democratic congressional and Clinton White House budget expert. “It does seem as though we’re even further away from a basic consensus about the need for government to function than many would consider proper.”“Neither side has a real clue about how the deep divide on the budget is going to be resolved this fall,” said Larry Sabato, a University of Virginia political scientist.

“Congressional Republicans are in much greater peril than President Obama on the budget issues. A shutdown or deadlock will, as usual, hurt the GOP more,” he added. “But on Obamacare, its namesake owns it, top to bottom. There is no way for the president to wriggle out of responsibility for the pieces that fail, or appear to fail.”

After a relatively quiet August recess, when virtually no progress has been reported, Democratic and Republican leaders have begun staking out stark positions.  Treasury Secretary Jack Lew said Tuesday that absolutely no bargaining will occur over a debt ceiling increase. Lew stressed that expanding the government’s borrowing authority is essential to make good on obligations that have already been incurred
The administration is looking for a separate budget deal to ensure more spending to help the middle class, financed with higher taxes from reforming the corporate tax code – an offer that the GOP quickly rejected.

Obama also claimed – ahead of the 50th anniversary of the March on Washington – that Martin Luther King, Jr., would have endorsed Obamacare if he were alive today. “He would like that,” Obama told radio host Tom Joyner. “I think he understood that health care, health security is not a privilege; it’s something that … everybody should have access to.”

The remarks were an attempt at messaging to the public, rather than working with Republicans on an increasingly uncertain solution.

AND ON THE OTHER SIDE … House Speaker John Boehner (R-OH), who plans to use the debt ceiling as , leverage with the White House, told colleagues in a conference call last week he intends to keep the government operating past the start of the new fiscal year by passing a “short-term continuing resolution,” with the sequester cuts to handle the budget.

Boehner said Monday that a debt ceiling increase would be tied to slashing long-term entitlement spending such as Social Security, Medicare and Medicaid, stressing, “It’s  time to deal with the mandatory side.”

Our goal is to stop Obamacare. Our goal here is to cut spending,” Boehner said, according to the Idaho Statesman. “I wish I could tell you it was going to be pretty and polite, and it would all be finished a month before we’d ever get to the debt ceiling. Sorry, it just doesn’t work that way.”

Boehner, however, lacks control of his caucus, some of whom sympathize with the strategy of Sen. Ted Cruz (R-TX) to pass a continuing resolution to defund Obamacare – even if that means certain defeat in the Democratic-controlled Senate and a government shutdown. Those conservatives believe that voters will reward them for risking the economy to stop the 2010 health-care reformlaw from moving forward.

“I’m convinced there’s a new paradigm in politics that has Washington very uncomfortable,” Cruz told CNN on Sunday. “That new paradigm is the rise of the grassroots, the ability of grassroots activists to demand their elected officials do the right thing… I believe if we see a grassroots tsunami, that is going to cause Republicans and Democrats to listen to the people.”

The strategy’s downside is that the potential economic blowback could haunt the GOP in the 2014 and 2016 elections. Without a debt ceiling increase, a first-ever default on U.S. debt could destroy the stock market, cause a hiring freeze, and turn a modest recovery into a debilitating recession, say many economists and policy experts.On the upside, it assumes that the launch of Obamacare exchanges will be rocky. This amps up pressure on the Obama administration to launch the health insurance exchanges with few headaches. The exchanges must enroll 2.7 million young Americans to be financially viable – not easy, given the generally higher rates that younger people will have to pay for their new coverage compared to older Americans.

“It’s probably setting too high a bar to assume everything is going to go smoothly,” said J.D. Foster, deputy chief economist at the U.S. Chamber of Commerce. “The question is, How bad will the disruptions be? How bad will the misfires be, in terms of software, prices and so forth?”

One big wildcard in the deliberations this fall, according to Foster, is whether Obama decides to attack Syria in retaliation for the Assad government’s use of chemical weapons – and  how U.S. lawmakers and the public respond. “If the president gets more involved in Syria and that doesn’t go well, that feeds back onto the political environment and how other actions he takes are perceived,” Foster said. “On the other hand, if it goes very well – it’s a positive.”

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