Republicans blame Senate Democrats for abandoning the budget process altogether. In 2010, the Democratic-controlled House and Senate did not adopt a fiscal 2011 budget resolution. And Senate Democrats have not done so since, arguing that the Budget Control Act of 2011, which resolved the debt-ceiling standoff, sets discretionary spending levels for several years. “The Budget Control Act is a budget, for all intents and purposes—which is exactly why it sets the appropriations levels and gives members the tools (budget points of order) to enforce them,” argues one Senate Democratic aide who asked to speak anonymously on a sensitive subject. Republicans counter that annual budget legislation enables the public to at least see the two parties’ priorities and visions for governing.
On the other side, Jim Manley, a former aide to Senate Majority Leader Harry Reid, D-Nev., says that Republicans’ efforts to “walk back” from agreements—such as the Budget Control Act of 2011—have thrown a wrench into the process. The 2013 fiscal blueprint offered by House Budget Committee Chairman Paul Ryan, R-Wis., which the House passed last March, set domestic discretionary spending at nearly $20 billion below the $1.047 trillion agreed to in the 2011 deal, Manley notes. “If House Republicans can’t even stick to agreements they’ve previously made, how can you get anything done in this day and age?”
To avert the fiscal cliff, both sides made (very) modest compromises. Obama settled for marginal tax-rate hikes on only those families that earn more than $450,000 per year, which will bring in just $600 billion over a decade—half of the revenue he wanted. And now that those rates are permanent, he won’t have an influx of cash to shore up troubled entitlement programs such as Social Security. “I don’t see how what just happened makes a grand bargain any easier,” says William Galston, a scholar at the Brookings Institution and a former aide to President Clinton. “Unfortunately, I can see a number of respects in which it will make it more difficult.”
The only other source of revenue is broad-based tax reform, but the parties are unlikely to find common cause there. Democrats envision streamlining the tax code to raise more money for federal coffers by removing special breaks, such as the “carried interest” provision that benefits senior managers of private-equity firms. Republicans want a revenue-neutral overhaul of the tax code in which they put federal income gained by nixing tax credits—say, for NASCAR race tracks—toward lowering corporate rates.
But before lawmakers can even contemplate broad-based tax reform, they’ll have to get through a spate of mini-showdowns. Of the three budget confrontations looming in the coming weeks, the fight over the debt limit poses the biggest threat to the economy. Although the country hit the legal borrowing limit on Dec. 31, the Treasury Department can pay the government’s bills for several more weeks with accounting gimmickry. Those tricks won’t last much past mid-February, and they’ll certainly be used up by March 1. If Washington hasn’t raised the debt limit by then, a default could lead to a downgrade of the country’s credit rating and throw financial markets into chaos.
Raising it, however, will be no simple matter. Republicans want to use the threat of default as leverage to force spending cuts. “A temporary disruption because we have to furlough the workers at the Department of Education or close down some national parks or not cut the grass on the Mall—that’s not optimal; that’s disruptive. But it’s a hell of a lot better than the path that we’re on,” Sen. Pat Toomey, R-Pa., told MSNBC earlier this month. “We absolutely have to have this fight over the debt limit,” he said. Meanwhile, by promising not to negotiate over the limit, Obama is taking a tough stance; he says the GOP is putting the full faith and credit of the United States on the line.
At the same time lawmakers are haggling over the debt ceiling, the deferred $85 billion sequester is set to kick in on March 1—unless Congress delays it yet again. Many lawmakers in both parties dislike the sequester, which divides the cuts evenly between defense and domestic discretionary programs. But keeping the threat alive may represent the GOP’s best hope of further fiscal austerity, especially if Republicans can’t get Obama to trade a debt-ceiling hike for cuts.
Finally, a third budget battle is approaching over the need for yet another stopgap measure to fund the government. In September, Congress passed a six-month continuing resolution for all fiscal 2013 appropriations bills, putting off final funding decisions for the full fiscal year. If Congress fails to pass the legislation by March 27, agencies will shut down. Republicans are likeliest to cave here: They still remember the two shutdowns of the 1990s, for which voters blamed Speaker Newt Gingrich, not President Clinton. Tellingly, the latest short-term funding measure passed Congress in September with relatively little drama.