Economic Outlook: Budget winners

By ANTHONY HALL, United Press International  |  Dec. 20, 2012 at 7:06 AM
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Leadership in Washington is demonstrating, again, its willingness to kick the can down the road when it comes to budget decisions.

The budget plan, in whatever form it takes, is already a plan to avoid the so-called "fiscal cliff," a $500 billion budgetary adjustment if tax hikes and spending cuts are added together.

That adjustment is viewed as so monstrous that it would send the U.S. economy back into a recession and push unemployment back to 9.1 percent from its current 7.7 percent.

To steer clear of that mandated budget, which would kick in Jan. 1 if no other budget agreement is reached, two plans are on the table. One is about spending and how much can be cut. The other is about taxing and how much revenue can be raised.

In leadership's infinite capacity for avoidance, it has already been agreed that most of the spending cut decisions will be made in January and February. At best, the White House and the opposition will come up with a target for spending cuts. It may even end up as a guideline for establishing a target for spending cuts. All this is far too painful for men in gray suits to bear.

Likely the spending cuts will be penciled in for 2014 or beyond. It's no wonder these budget talks are grueling. Chewing mushy oats without any teeth is bound to be a messy affair.

The House is likely to play Goldilocks with the tax adjustment, first voting on a tax-hike threshold of $250,000, as in anyone earning that much or more would see a tax hike.

The plan, some political analysts said, is to set that vote up to purposefully fail, so that President Barack Obama gets the message that $250,000 as a cutoff point isn't going to fly. Even the process, at this point, has become cynical.

The next votes will be far dicier. The president has proposed a tax-hike threshold of $400,000 and House Speaker John Boehner, R-Ohio, has slapped together a proposal that sets the bar at $1 million.

This is, indeed, more baldfaced cynicism still. Boehner's plan is simply to put an agreement out there that will pass in the House, as if to say, "Oops. Well, we certainly gave it our best shot," and shrug sheepishly and walk away. There is zero budgeting integrity in Boehner's approach. It is simply a way to offend as few voters as possible, as if that was the point all along, and go home for some much deserved R&R. After all, chewing with no teeth is grueling.

This points to the white elephant sitting in the room.

Former Republican presidential candidate Mitt Romney proposed closing the budget gap without tweaking any budget line items at all, just get the economy rolling and put 10 million out-of-work people back to work so they can pay taxes rather than drain government coffers by collecting unemployment.

This is the ultimate method of kicking the can down the road and, as it happens, the most sensible. The problem is, it isn't one of the options.

Doing nothing hasn't been an option since Republicans stonewalled the debt ceiling debate in 2011 and declared, "something must be done now" about the national deficit, which is running at about $1 trillion a year, and the national debt, which is approaching $17 trillion.

As The New York Times reported recently, however, the "philosophical quibbling" is over. It's just a matter of finding the compromise in numbers that each party can agree to embrace.

It's coming down to face-saving headlines. The winners here: the U.S. military that Republicans pretend isn't an economic stimulus program, those out of work who require extensions on unemployment benefits and taxpayers who dodge the bullet.

It's true: There are plenty of winners in an avoidance scheme.

But then, imagine that cool, wet morning in late February when leaders in Washington wake up and realize they didn't fix the budget and they didn't fix the economy, either. It will be time to rev up that wonderful program for putting people back to work -- only they'll look through the budget and find out there isn't a jobs program penciled in, anywhere. Then it will be time to go back to sleep.

In international markets the Nikkei 225 index in Japan shed 1.19 percent while the Shanghai composite index in China rose 0.28 percent. The Hang Seng index in Hong Kong climbed 0.16 percent while the Sensex in India slipped 0.11 percent.

The S&P/ASX 200 in Australia gained 0.35 percent.

In midday trading in Europe, the FTSE 100 index in Britain was flat, rising 0.06 percent, while the DAX 30 in Germany gave up 0.09 percent. The CAC 40 in France was little changed, dropping less than 0.01 percent, while the Stoxx Europe 600 was down a marginal 0.03 percent.

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