Nevertheless, some Republicans seem prepared for a shutdown. Writing this week in Human Events (headline: “Picking Fights Republicans Can Win”), Gingrich plays the strategist. He counsels that while GOP lawmakers shouldn’t draw a line in the sand over the debt ceiling—they’d ultimately have to capitulate—they could stand pat on the sequester and a continuing resolution. By “threatening to selectively close, eliminate, or shrink various parts of government,” Republicans could get the cuts they want, he writes.
A TIDE OF RED INK
Without action to rein in annual deficits, the federal debt will continue to climb as aging baby boomers drive up safety-net costs. Medicare, Medicaid, and Social Security eat up about 10 percent of gross national product. If something is not done to slow their explosive growth, they will surge to 16 percent of GDP by 2037, according to the Congressional Budget Office. The Treasury would obviously need much more tax revenue to pay for the programs. And funding them would crowd out other important needs such as roads, education, and defense.
At that point, the federal debt burden could get out of control quickly. The debt-to-GDP ratio is on track to hit 77 percent in 2013, according to estimates from the White House Office of Management and Budget. That’s the highest since the aftermath of World War II. It’s also nearly double the 40 percent ratio of 2008. Trouble could begin brewing if the ratio surges closer to a danger zone of 90 percent: Financial markets might suddenly become queasy about the government’s ability to pay its bills. This frightening possibility gives Obama at least some incentive to seek a grand-bargain-style deal this spring, because an agreement like that could head off a potential panic.
If sharply divided members of Congress can wade their way through the mini-cliffs without triggering a debt default, a government shutdown, or a downgrade of the country’s credit rating, they could still possibly come to terms. They might even inch their way toward the $4 trillion deficit-reduction plan drafted in 2010 by former White House Chief of Staff Erskine Bowles and former Sen. Alan Simpson, R-Wyo. Some budget experts say broad tax reform would fit into this rubric.
And even without a giant agreement, lawmakers could take small but significant steps. “A grand bargain is probably the wrong term,” says Judd Gregg, the former GOP senator from New Hampshire and a longtime budget hawk. “It’s going to be done in chunks.” He notes that the 2011 budget has already set curbs on discretionary spending. “There’s still the opportunity and likelihood that you’re going to get major tax reform to replace the agreement on revenues that was reached just now,” Gregg says, although Galston and many other experts are more guarded.
The main incentive is the rising tide of red ink, which GOP lawmakers say they will cite in the upcoming budget showdowns. “We all know that we don’t get out of this in one year, but debt-to-GDP is too high,” says Rep. Austin Scott, R-Ga., the House GOP freshman class president in the previous Congress. There will be “serious discussion over the fiscal realities” at the Williamsburg retreat, he says.
Obama is attentive to the problem, but he and other Democrats want to make sure the burdens of austerity fall on a better economy, not a fragile recovery. “We still need to do more to put Americans back to work while also putting this country on a path to pay down its debt,” Obama said in a radio and Internet address this month.
Still, both parties’ vows to fix the country’s fiscal woes may give way, as they’ve done before, to a grim reality: In a dysfunctional Washington, deferrals, standoffs, and mini-cliffs are more likely than an actual solution.
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KEY VOICES
Chris Van Hollen: The top Democrat on the House Budget Committee warns that GOP efforts to “play politics” with the debt ceiling won’t “go over well with the public” and are “not a sustainable strategy.”
Newt Gingrich: The former House speaker says that fights over government funding and the sequester are chances to get spending cuts, because “threatening to selectively close, eliminate, or shrink various parts of the government” puts President Obama and Democrats “on defense.”
Jacob Lew: The nominee for Treasury secretary, a veteran of past fiscal showdowns, is expected to take a tough line in negotiations with the GOP.
Mitch McConnell: The Senate minority leader brokered the fiscal-cliff deal with Joe Biden but has ruled out further tax increases in upcoming budget talks. “The tax issue is finished, over, completed,” he told ABC.
WHAT’S MOVING
Federal debt: As a share of GDP, the debt has nearly doubled since 2008. An aging population that strains Medicare and Social Security will push it even higher, posing a potential threat to the financial markets and the economy.
Tax reform: Both Democrats and Republicans see an overhaul of the multilayered tax code as a worthy goal. But they are at odds over whether reform should be aimed at collecting more revenue.
Budget process: Dysfunctional, or even abandoned. And there is little change in sight as Congress continues to defer tough budget decisions and to set up more showdowns and eleventh-hour deals.
This article appears in the Jan. 19, 2013, edition of National Journal as Budget Minefield.
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