- The Washington Times - Monday, July 22, 2013


Despite recent calm, Washington’s coming fiscal storm may be this administration’s worst. There are seven reasons why both parties may find this rapidly approaching debate over spending, taxes and debt beyond their ability to control or resolve. If so, the quietude of fiscal issues’ absence from Washington’s agenda will disappear, not soon to return.

Since time is money, it is fitting Washington is currently living on borrowed sums of both. In mid-May, the cap on government’s ability to continue borrowing was re-instituted. Its debt financing continues only due to temporary revenues surpluses and Treasury’s so-called “extraordinary measures” of debt management. On the spending side, the federal government’s ability to continue its annually-funded programs will end on Oct. 1.

Washington has been lulled by these issues’ absence for the better part of this year. However, within the next three months, it will once more be increasingly embroiled in a debate over how to manage its fiscal affairs.

The following are compelling reasons why this upcoming debate with Congress will likely be the roughest the Obama administration has yet encountered:

The first reason is timing. Until this year’s surprising revenue inflow, the debt limit’s effective deadline had been expected sometime this summer — ahead of the government’s annual spending authority renewal requirement on Oct. 1.

The worst case scenario for a failure to raise the debt limit is government default — something approached two summers ago. Brinksmanship served neither party well, and neither want to go there again. The higher stakes were a deterrent to all-out confrontation in the last debt limit debate. It likely would have been again.

However, now the debt’s effective limit is expected no earlier than late October — well after the need to renew annual spending authority and when failure means government shutdown. By flipping the less serious consequence ahead of the more serious consequence, the potential for an early serious fight is raised.

The second factor is that this fight will likely last longer than expected. The last time Washington addressed the debt limit, it simply suspended its effect for three months. The last time annual spending authority was extended, it was for only six months — the last half of the fiscal year.

Both were short-term fixes. Barring the heretofore elusive “grand bargain,” there is no reason to believe that longer — or even normal — extensions will happen this time.

The third factor working against negotiators is the “escalation effect.” President Obama wants a simple, “clean” debt-limit extension, with no extraneous provisions attached. Republicans want spending cuts included with an extension. Mr. Obama will counter with tax hikes and Republicans with broader entitlement reductions. On spending authority extension, Mr. Obama does not want a simple maintenance of the status quo. He wants more spending — to mitigate the sequestration cuts. Republicans will want less.

On both issues, both parties will find themselves inexorably led into escalating demands.

This escalation points out a fourth factor in play this time: The sides have seen their “qualified positions” disappear. Previously, each party had caveats to their position. Mr. Obama wanted higher taxes, but only on high earners; Republicans wanted lower spending while protecting defense.

In the last fiscal round, those qualifiers disappeared. Mr. Obama got the higher taxes he wanted, while allowing increased taxes on lower income earners, too, with the reinstatement of the full payroll tax. Republicans got the lower spending they wanted, while allowing sequestration’s cuts to defense spending as well. As a result, both sides now enter the debate with far more hardened positions than they have had in the past.

The fifth factor is deficit reduction. Earlier this year, the Congressional Budget Office projected the deficit falling from $1.1 trillion to $845 billion. In its latest report, the CBO estimates the deficit has already fallen $392 billion.

Both sides will see the recent decline supporting their own approaches. Mr. Obama will say the accelerated fall means deficit reduction is no longer the priority it was. Republicans will cite the CBO estimate that revenue has increased 14 percent and spending has decreased 4 percent as evidence that tax increases are covering for still excessive spending.

The sixth factor is 2014’s midterm election — just a year away when the next fiscal debate gets serious. Last time, the nearest election was behind them. Now, a quickly approaching election will heavily influence the debate.

The final factor is the economy. Still weak with last year’s gross domestic growth at just 2.2 percent, the first quarter of 2013 at 1.8 percent and unemployment at 7.6 percent, both sides will blame the other’s fiscal preferences. Mr. Obama will renew his attack on sequestration’s spending cuts and Republicans will label this year’s tax hikes as the reason for slow growth.

Although we have been lulled into a false sense of security during the first half of 2013, this does not eliminate the ample reasons why the upcoming fiscal confrontation could surpass those previously seen during the Obama presidency.

Just as hurricane season is now stirring above the ocean waters, a fiscal storm is soon to build inside the Beltway. Both suggest the need to keep a weather eye on the horizon.

J.T. Young served in the Treasury Department and the Office of Management and Budget from 2001 to 2004 and as a Congressional staff member from 1987 to 2000).



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