Breathing a sigh of relief that the fiscal cliff has been resolved?
Not so fast.
A much bigger financial crisis is in the offing, a truly perfect storm that threatens the re-imposition of the arbitrary, just-delayed sequester, in addition to a government shutdown, and a potential sovereign default.
Inaction or delay on any of these issues could be catastrophic for the nation.
The components are these: as part of the Biden-McConnell fiscal cliff deal, Congress delayed implementation of the $1.2 trillion (over ten years) sequester for two months, or by March 1st. The cuts would hit discretionary domestic spending and defense spending equally, creating a $100 billion hole that would have to be absorbed in the next seven months.
In addition, the Treasury Department has used up the extended borrowing authority granted in the 2011 Budget Control Act. That law was the legislative compromise between the Administration and the House GOP after a summer of contentious debate on the debt ceiling, which rattled consumers and financial markets in ’11.
Treasury Secretary Tim Geithner has notified Congress that Treasury had officially run out of borrowing authority on New Year’s Eve, but that the department was taking “extraordinary” measures to continue government operations. However even these measures will be exhausted by the end of February. Without fresh borrowing authority which can only be granted by Congress, the government will not be able to pay about 1/3rd of its annual commitments on or about the end of February, requiring immediate and truly draconian cuts in government spending, and necessarily prioritizing US interest payments on debt first to avoid a sovereign default.
And finally, there is the budget.
The inability of the Senate to pass a budget in the regular order throughout POTUS’ first term has left the nation without a proper and predictable budget process forcing the country to lurch from one temporary funding measure to another. Not only is it inefficient, it is costly. It is through these last minute “omnibus” deals that bills get loaded down with pork.
The last Continuing Resolution – or temporary funding measure – which Congress passed last year expires on March 27th. Without additional action, the government will have to shut down. National Parks close. Medicare benefits don’t get processed. Social Security checks don’t go out.
It will get ugly fast.
So clearly these are truly consequential issues. Any one of them would represent a full plate for Congress. That they occur nearly simultaneously only serves to make the potential crisis that much greater. But the spending and borrowing issues that are hurtling toward us are significant, not simply due to the potential, horrific impacts of inaction, but because they represent the last tangible policy checks on federal spending until after the 2014 midterm elections.
Consider this.
Despite the fact that government revenues have nearly returned to their historic 2007 level (with the Bush tax cuts still fully in effect, mind you), the USG under President Obama still spends about $1 trillion more than it takes in each year; a truly astonishing amount of debt despite the return of more robust revenues after the 2008 recession.
If the debt ceiling is increased, if the sequester is canceled, if new funding for the federal government continues at the current trajectory, without any tangible changes to entitlement programs and general spending, there are no additional regulatory or legislative hurdles to force reforms. What we will have instead is fairly unlimited federal spending for the next two years, aggravating existing deleterious consequences to our national finances, the economy and ultimately, our citizens.
But as with the fiscal cliff, the President and the GOP hold vastly different perspectives on how to manage these budget issues. And unfortunately, it is the President’s course that threatens the very budget restraint and economic success that he claims as goals.
Regarding the biggest, long-term drivers of American debt – entitlement programs – the President has only been willing to discuss the most modest of changes behind closed doors and away from his Caucus in Congress, which remains militant against any changes to these programs whatsoever, despite the clear evidence of impending insolvency.
In addition, while deficits continue to explode in 13 digits, the President remains wedded to additional tens of billions in government-sponsored stimulus; a policy whose effectiveness in POTUS’ first term remains more than dubious.
And POTUS has already staked out ground that any spending cuts that he might ultimately agree to must be “offset” by tax increases. That is a frighteningly similar prescription to the European economic formula for the past two years.
How is that working out for the EU?
Finally, in a demonstration of how little the Administration is concerned about the exploding debt, the President has proposed – with a serious face – that Congress cede authority to the Executive Branch to raise the debt limit whenever the President deems fit to do so, having Congress willingly abdicate one of its core constitutional responsibilities.
In sum, the President’s policies are recipe for financial disaster.
But like the fiscal cliff negotiations, these new topics will be hashed out not in sober, thoughtful fact-based debate, but in elaborate PR offensives, bromides and tag lines in which Team Obama excels.
The President employed this approach in the fiscal cliff talks, opting out of a serious dialogue in favor of demagoguery.
POTUS effectively pre-blamed Republicans for a middle class tax hike, claiming that the GOP was sacrificing lower income Americans so that they could protect the rich. Of course it had no truth, nor did it make economic sense in light of the fresh revenues to the Treasury with the Bush tax cuts intact, but it was nevertheless the dominant narrative, which proved potent and devastating for the GOP, which is still reeling from the political damage.
The White House sees history repeating itself in the new budget crisis, sure that the public will blame the GOP for failure to avert the coming deadlines, while paying little attention to the President’s demands in order to move legislation. Already, POTUS has said he will not negotiate on the debt limit, a fairly astonishing thing to say as it is a key component of any deal with the GOP on spending.
It is always useful to remember that POTUS is a president, not a king.
But the sad truth here is that the President and his team are lousy at governing, but are formidable campaigners.
The GOP lost an election that was theirs for the taking given the ruinous economy, but got out-hustled by Team Obama in a scorched earth, say anything-do anything campaign.
And in the fiscal cliff discussions, it became glaringly obvious that the GOP had no communications strategy, nor a Plan B (Boehner’s plan notwithstanding), with little if any internal coordination between the House and Senate. Republicans were bested at every turn by a more focused and disciplined Team Obama, while the GOP was all over the map, to its detriment.
The fact remains that GOP cannot prevail on these most consequential of policy issues unless they have an integrated, proactive plan to take to the American people – and to do so now.
While commentators and pundits are correct that breaching any of the deadlines to come would cause grave economic and financial pandemonium, there must be a counter-argument that the terms of any deal are just as important. Specifically a deal that perpetuates the current course may be worse that no deal at all.
But to ensure that the government doesn’t – again – come down to the final hours in the frantic search for a band-aid, the GOP needs to get on the air, not with attack ads, but with rational arguments of what is at stake. Arguments that can be understood in the same 30, 60, 90 second increments that the President will be using to indict the GOP for inaction.
Calling all Super PACs. Calling Mssrs Koch. Calling Mr. Adelson. We need you now. The Republicans need to be up in major media markets with cogent, concise and convincing commercials that can convey to the American people the depth of the problem we face the hard but necessary solutions.
Here’s one.
How about an eight year old carrying a knapsack full of his share of the national debt? That alone is troubling. The child morphs to an 18 year old. Using CBO’s projections of the impact of ten years of Obama policies, show how much larger and heavier the knapsack would be. It is a compelling visual.
How about an ad using quotes from European leaders on the need for tax increases and spending cuts and compare that to Obama’s position.
This is not rocket science.
If there is one thing that Americans understand, it is debt. The last four years have seared that into the consciousness of those most in danger of economic insolvency. These people want better for their children. It is time to get America riled up about what their government is doing in plain sight.
The President embraces the vision of a cost-free government that would balance the budget if only greedy millionaires would pay more, but that is a fallacy. The debt bomb cannot be solved by tax increases.
You could tax every millionaire at 100% and only barely dent the debt. You could tax every household earning 100,000 or more at 100% and still balance the books. Yet this is the President’s only real solution. It is symbolic, but not practical. Social justice is not a successful economic plan.
Real financial reform comes only from spending restraint and setting the table through taxes and regulation for economic growth. That is the GOP plan, and that is why this matters.
So Republicans, it’s time to get organized quickly.
If you are waiting for Valentine’s Day to make your case to the American people, you have already lost the battle and probably the war.
It’s time to come clean, to be honest, and to tell the truth about what needs to be done to fix our budget. Let there be at least one Party that is willing to do that, regardless of the short term consequences.
The truth remains that the US can get its house in order. If we take mildly painful steps now, we can head off a wholesale crisis that is less than a decade away. Americans are hungering for someone to lead when they have a president who is little more than a hollow campaign vessel, great at rhetoric or scoring political points, but of diminished value and capability for additional substance.
Someone needs to step up and try to fill the vacuum.
If we don’t’ stand up and be counted, if we punt again, if we say it is too hard, we all deserve what is coming.
The time for action is now. The path is clear. The cause is right and just.
The clock is ticking…..