President Barack Obama’s election celebration won’t last long. He only has until the end of the year to pressure Congress – the old Congress, not the one just elected – to solve several really thorny problems. Unless Congress acts, massive federal spending cuts begin in January and taxes go up for everybody. And, if those two problems aren’t difficult enough, the United States will also soon hit its debt limit.
The election is over. Now the politics are about to turn nasty.
During a presidential debate, Obama said the spending cuts, called Sequestration, will not happen. Yet at this point: Those cuts are the law, part of the Budget Control Act (that was the compromise from the last financial crisis.)
House Republicans want to solve the problem with massive spending cuts, while protecting the military from budget cuts and not raising taxes. And even then: Some Tea Party members don’t want to raise the debt limit. Ever.
Democrats in the Senate want tax increases for the wealthy to be a part of the solution. The Democrats would also cut more from Defense and less from domestic programs (which include the Bureau of Indian Affairs, Indian Health Service and other federal Indian programs).
One proposed idea is to pass a law that extends everything for six months or a year passing the problem to the next Congress.
“I’m not for kicking the can down the road,” Senate Majority Leader Harry Reid (D-Nev.) said Wednesday. He’s quoted by The Associated Press saying: “I think we’ve done that far too much … we know what the issue is; we need to solve the issue. Waiting for a month, six weeks, six months–that’s not going to solve the problem. I think that we should just roll up our sleeves and get it done.”
One call for an immediate solution is coming from Fitch ratings. That company is one of three companies that rate countries and companies for credit worthiness. If Fitch lowers the rating for the United States, then the cost of borrowing money could go up. Already, during the last debt limit fight in Congress, Standard & Poor’s downgraded the U.S. rating from AAA to AA-plus. Moody’s, the third company, has not changed its rating.
Much of the long-term debate compares the U.S. fiscal situation to Europe. That’s true because the demographics – more, older people and fewer, younger workers – are propelling the deficits. But there are major differences, too. The rules for work and business in Europe are confusing and inflexible. Many private companies cannot fire workers, for example. And the retirement benefits are far more generous – people retire early with real salaries. Social Security (actual name is Supplemental Security Income Program) on the other hand is a modest income. It’s supposed to be a supplement to savings or retirement income (although for many Americans it is retirement).
Back at home, what complicates this particularly financial issue is that the pressure points are different for Republicans and Democrats. Republicans could live with the domestic cuts, but would like to stop the Defense cuts. Vice Versa for the Democrats.
However on taxes, some argue that it would be better for Congress to do nothing. The expiration of the Bush tax cuts will be painful, and slow economic growth, but would also reduce the deficit. Now.
House Speaker John Boehner (R-Ohio) said Wednesday that the American people expect this problem to be solved, but in order to get “Republican support for new revenues, the president must be willing to reduce spending and shore up the entitlement programs that are the primary drivers of our debt.”
Except that doesn’t include Defense spending.
Back in May, the Congressional Budget Office said policymakers have a tough choice to make. It would help the economy to change the law on taxes and spending, but it would add to the deficit. “The fiscal restraint embodied in current law will reduce deficits markedly in the next few years, to an average of 1.4 percent of GDP over the 2013–2022 period,” the CBO said. And the numbers are huge: Federal debt held by the public will fall from 73 percent of GDP in 2012 to 61 percent in 2022.
“By contrast, if the scheduled fiscal restraint was eliminated by extending all current policies—not just in the short run, but for a prolonged period—debt would continue to rise much faster than GDP,” CBO concluded.
So the solution is simple, right, do nothing and the debt problem shrinks. Not exactly. The CBO also says “allowing the full measure of fiscal restraint now embodied in current law to take effect next year would have substantial economic costs in the short run.”
So the choice is to take a hit now – knowing there will be a new economic crisis – but reducing federal debts. Or wait until later.
Not everyone buys the idea that a solution must be found before the first of the year. Congress “should not make budget decisions with long-term consequences based on an erroneous belief: that the economy will immediately plunge into a recession early next year if the tax and spending changes required under current law actually take effect on January 2 because policymakers haven’t yet worked out a budget agreement,” says the Center on Budget and Policy Priorities. “Suppose policymakers could not work out such a package until January or even early February 2013 — because it took the intense political pressure that they would face after failing to reach agreement by December 31 to move them off some of their rigid positions, such as opposition to any tax increases to help reduce deficits. That modest delay could produce a policy that is better for the economy over the mid- and long-term than another extension of current tax and spending policies,” The CBPP says. However the “best policy would be to replace sequestration with at least an equivalent amount of deficit reduction that occurs with much less force in the first few years and more in the later years, in order to minimize the restraint it imposes on the economy in 2013-14.”
The spending cuts are a particular problem for tribes, contractors and others who have current contracts with the federal government. How quickly can any contractor cut from a current budget? No notice has been given to layoff people under that contract (even though current law requires a 60-day notice for larger companies)?
This fight is complicated. And the politics are harsh and nearly intractable. But this is why it matters: Unless the law is changed, unless Congress can pass a new law, then deeply destructive budget cuts begin across government on January 2. There is no escape, not at the Bureau of Indian Affairs, not at the Indian Health Service, not really in any corner of government. The cuts are automatic, not carefully thought about by merit.
What will happen when the cuts start? How will the agencies actually implement them? The problem is these answers are unclear. Yet the deadline for implementation is only weeks away. Unless Congress and the President find common ground quickly.
Mark Trahant is a writer, speaker and Twitter poet. He is a member of the Shoshone-Bannock Tribes and lives in Fort Hall, Idaho. He has been writing about Indian Country for more than three decades. His e-mail is: email@example.com.