Back to the edge of the cliff

Published 11:00 pm Wednesday, January 9, 2013

The fiscal cliff is dead, thanks to the Mitch McConnell Tax Hike of 2013. For people wanting smaller government and economic freedom, the American Taxpayer Relief Act of 2012, which is the compromise to avert the fiscal cliff, is horrible. The Congressional Budget Office says the bill will add $4 trillion to deficits over the next 10 years. Spending is our country’s biggest problem, but the bill focused on taxation: $40 in tax revenues will be raised for every $1 in spending cuts.

Even though the bill didn’t tackle spending, at least “cliff” debates are behind us, right? Nope! In 2013, we can look forward to political theater similar to the “fiscal cliff” showdown two or three times.

It’ll begin in about a month or so when the term “debt ceiling” becomes the lead story on evening news broadcasts. Some may recall the summer of 2011 debt ceiling drama, when the US reached its previous debt limit of $14.3 trillion. To spend beyond our debt limit requires Congressional approval, but Congress and President Obama couldn’t reach an agreement. The polarization and gridlock over raising the debt ceiling went on for weeks, and it contributed to Standard and Poor’s downgrading our country’s credit rating, which had never occurred before in our country’s history!

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After weeks of wrangling, a deal was reached to raise the debt ceiling from $14.3 trillion to $16.4 trillion. 525 days $2.1 trillion of additional unfunded spending later, we are again at our debt limit. Congress and President Obama have managed to ratchet up our federal debt faster (in terms of total dollars) than at any other time in history. To exceed our debt limit will require Congressional approval, which means Congress and President Obama will have to reach some kind of compromise or face a government shutdown.

Thanks to some creative accounting, the Treasury Department has come up with ways to keep the federal government running until late February. But, if a deal isn’t reached by then, the Treasury’s authority to borrow and spend on everything from defense to entitlements freezes up.

Given what we’ve seen from the Republican leadership the last go-around, it’s safe to assume a deal will be cut before the February deadline. And, if the past is any guide, you can bet taxes will go up and spending cuts, if any, will be minimal. Nancy Pelosi has telegraphed the Democratic Party’s next move by saying she thinks taxes on capital gains and dividends should go up. Republicans have said further tax increases are off the table, but they’re looking like a pretty dysfunctional bunch at the moment.

Maybe the Republicans and John Boehner will surprise us by holding the line on deep spending cuts. In the absence of significant spending reform, however, they may need to put a government shutdown on the table as a viable option. Given the unwillingness of the Democrats to negotiate on serious spending cuts, a government shutdown could send the Obama administration an important message: Americans are tired of Washington’s failure to address our country’s spending problem.

President Obama and Congress have done their best to kick the hand grenade of fiscal deficits and rising debt down the road, but the day of financial reckoning for us has arrived. The same cast of characters will try to play the can-kicking game a few more times in 2013, but we know the game they are playing: President Obama and the Senate won’t budge on spending cuts and won’t negotiate unless more tax increases are on the table. Boehner and the House, who are scared of being blamed for a government shutdown, will flinch and generations of Americans will be far worse off as a result.

Maybe we’ll all be surprised; maybe, just maybe, the Republicans will have the courage to play hard ball and, if push comes to shove, shut down the government to make clear the American public is serious about our spending problem. But, my money’s on the same “politics as usual” we’ve seen throughout the Obama administration and throughout many earlier periods in US history—meaningful reform won’t happen, and talk of cliffs and financial woes will persist for years and years to come.

Scott Beaulier is Executive Director of the Manuel H. Johnson Center for Political Economy at Troy University.