Averting a government shutdown was only the first of a series of gates Congress must clear in this year’s downhill slalom of fiscal politics. Even sharper turns lie ahead – raising the debt ceiling, and approving next year’s federal budget.
In mid-May, the U.S. Treasury will bump up against the limit of its legal authority to borrow money to finance the federal government’s operations and service its debts. Republicans have served notice that they see the coming vote to raise the debt limit as another opportunity to extort deeper cuts in federal spending for next year.
The stakes in this game of fiscal chicken, however, are infinitely higher. Without a debt limit hike, the United States, for the first time in its history, would be forced to slash hundreds of billions in spending, or more likely, default on its obligations. Are GOP leaders really willing to let the Tea Party turn America into Argentina?
More likely they’re bluffing. Still, it wouldn’t be a bad thing if the debt ceiling vote becomes an action-forcing mechanism for serious negotiations to cut future deficits and stabilize the national debt. By “serious” I mean pragmatic and bipartisan, qualities you can only find nowadays by crossing the Capitol from the House to the Senate.
The House this week will probably pass some version of Budget Committee Chairman Paul Ryan’s proposed budget. It’s an ideological document, not a plausible point of departure for horse trading. By taking taxes off the table, Ryan panders to GOP taxophobia and ensures no Democratic support for his plan. And that plan is a distributional horror, concentrating all the pain of deficit reduction on middle- and lower-income Americans, while giving the most fortunate a free pass.
That’s why all eyes are on the “Gang of Six,” a bipartisan group of Senators who are trying to forge consensus around the Fiscal Commission’s deficit reduction plan. Its centerpiece is a call for a sweeping overhaul of tax expenditures, with the savings dedicated both to buying down individual and corporate tax rates and cutting federal deficits. PPI will co-host a public forum on tax reform tomorrow featuring Sens. Micheal Bennet (D-Colo.), Dan Coats (R-Ind.), and Ron Wyden (D-Ore.), as well as prominent budget and tax experts.
And President Obama, who seems to have gone on walkabout, returns to the fiscal fray Wednesday with a major speech on the need for cutting entitlement spending, especially for Medicare and Medicaid. The unsustainable growth of these huge “mandatory” programs – not the domestic spending targeted by House Republicans in the shutdown battle – is the real driver of federal spending and debt.
A decisive intervention at this stage by the President is crucial, since many Democrats are as deeply in denial about the need for entitlement reform as Republicans are when it comes to raising enough tax revenue to finance government. Many liberals, irate over the $38 billion in domestic spending cuts Democrats were forced to swallow to keep the government open, are demanding that Obama stop compromising and take up the ideological cudgels against Republicans. They want a full-throated defense of progressive government. But that requires action against entitlement spending, which is inexorably soaking up tax dollars and squeezing domestic programs that progressives rightly want to protect.
It also means showing the public that Democrats can responsibly manage the nation’s finances and restore fiscal discipline, even as they shield progressive priorities from chainsaw wielding Republicans. Obama’s challenge is to nudge, prod and cajole both sides toward a grand political bargain for shared sacrifice, built around tax and entitlement reform.
On the other hand, both Obama and Ryan have punted on the other big entitlement program, Social Security. It isn’t as big a problem as Medicare and Medicaid, but it must be on the table too because it’s adding to the nation’s overall debts. What’s more, it’s easily fixable. The Fiscal Commission pointed the way with sensible reforms, backed by Senate Democrats and Republicans, for raising the retirement age to match increases in longevity, and trimming future benefits for wealthy retirees.
The next step, however, should be tax reform. If the two parties can coalesce behind a plan similar to the Fiscal Commission’s, they could assure a balanced approach to deficit reduction, and build trust for the hard work of entitlement reform.