Already Washington has begun fighting the next battle in its fiscal war of attrition. This will be its fourth fiscal engagement in just over two years and should culminate just two months after the last one. There is no reason to expect it to end or slow down without a fully negotiated settlement. Such a deal requires entitlement reform.
As President Obama begins his second term this week, he may be experiencing, as the inimitable Yogi Berra put it, “deja vu all over again.” Didn’t his last term end with a fiscal fight? Yes and no. He had a fiscal fight on his hands then, too — it just never really ended.
While the recent “fiscal cliff” fight addressed taxes, it merely delayed scheduled spending cuts until March 1. Yet before the battle was even over, the next was ready to begin.
On Dec. 26, Treasury Secretary Timothy F. Geithner informed Congress that the government’s borrowing authority would soon be breached, and “extraordinary measures” would only provide about $200 billion, or two months of additional authority. That’s about when the spending cuts’ delay ends and just before the government’s temporary funding bill expires on March 27.
These three deadlines establish the next fiscal battle’s terrain — a rougher landscape than the last. There are more deadlines and more serious consequences: potential government default and shutdown.
Understanding what lies ahead means understanding the last two years.
We can date the first battle’s beginning to Sept. 29, 2010. Unable to agree on government’s annual funding, a continuing resolution was enacted — effectively, a ceasefire.
Following Republicans’ November 2010 landslide, the ceasefire erupted into live fire. Six more continuing resolutions would be needed before an April 2011 agreement — six months after the fiscal year began — was reached hours ahead of the deadline. The Congressional Budget Office estimated total spending savings at $23 billion.
This first battle established two of the fiscal war’s hallmarks: Conflict only ends at the last minute, and it does not end before the trigger for the next fight is in place — in this case, an April 4, 2011 Treasury letter warning of the need for a debt limit increase by Aug. 2.
In the second battle, the stakes grew enormously — progressing from government shutdown to government default and contested sums increasing from tens of billions to trillions.
The last-minute, multifaceted August deal raised the debt limit in steps. It also cut spending $2.1 trillion, with more than half to be determined by a bipartisan super committee or enforced automatically in January 2013.
Its super committee did not arrive at an agreement, but the second battle did produce the fiscal war’s longest peace — roughly a year. The next battle’s elements already existed, however — onerous, automatic spending cuts coinciding with the Bush tax cuts’ expiration.
In the just-fought third battle, Mr. Obama also unsuccessfully sought to add a debt limit increase. Even without the debt limit, this battle was as ugly and expensive as the last (both sides offering versions of deficit reduction worth over $2 trillion), but with a new element: taxes.
Another last-minute resolution produced either permanent tax hikes of $620 billion (measured against current policy) or permanent tax cuts of almost $4 trillion (measured against current law), depending on your interpretation. The second battle’s automatic spending cuts also were delayed two months.
Now, we will watch another battle unfold over the next two months. It has been one long conflict, occasionally punctuated by peace, but with still important lessons.