The deficit: Can Congress cut the deficit without the drama that characterized earlier fiscal challenges?

By MARCELLA KREITER, United Press International  |  Feb. 3, 2013 at 4:30 AM
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"Fiscal cliff" averted (sort of). Check. Debt ceiling postponed. Check. Credit rating reduction avoided. Check. Economy apparently stabilized for now. Check. Deficit reduction? Hmmmm.

The partisan arguments that characterized discussions related to averting the fiscal cliff and vanished when it came to the debt ceiling are about to rear their heads again as Congress tackles the 2014 fiscal budget and tries to keep the government from shutting down at the end of March when the current funding resolution expires.

Thankfully, February is a short month.

Lawmakers have until March 1 to avert the sequester: across-the-board spending cuts that were postponed when Vice President Joe Biden and Senate Minority Leader Mitch McConnell, R-Ky., cut a deal to keep those cuts and an expiration of the Bush-era tax cuts from kicking in at the same time.

The sequester was enacted during the summer of 2011 fight over the debt ceiling as a trigger to make Congress do something to rationalize the tax code and cut the spending that has put he United Statest into a $16.4 trillion hole that now can grow again through mid-May with the temporary suspension of the debt ceiling. The cuts mandated by the sequester are so onerous, especially to defense spending, the thinking went, no rational lawmaker would allow it to take effect.


Under questioning by reporters last week, White House spokesman Jay Carney dredged up the rhetoric that served the administration so well during the fiscal cliff set-to.

"Significant revenue is achievable through tax reform," Carney said. "And it has to be part of a balanced approach, an approach which has always in the president's proposals seen more spending cuts than revenue, and that reflects the kind of balance that allows us to make sure that the burden of deficit reduction is not borne solely by senior citizens or the middle class but more broadly; that asks the wealthiest, including corporations, to pay their fair share; asks people to play by the same set of rules.

"That's just an approach that is broadly supported by the American people. And it makes sense, as it did in getting us to the $2.5 trillion in deficit reduction we've achieved so far; it makes sense in getting us further along the road."

Carney noted during the earlier discussions House Speaker John Boehner, R-Ohio, offered to come up with $800 billion in revenue just by closing tax loopholes and capping deductions -- a revenue approach touted by Republican presidential candidate Mitt Romney during last year's campaign. During the debates, Romney tossed out $25,000 as the upper limit on deductions.

Other suggestions have included trimming Social Security benefits -- even though those funds theoretically are separate from general revenues.

If lawmakers go that route, they better watch out. The third-rail of U.S. politics is alive and well.

A trade-off analysis conducted as part of an overall assessment of Social Security done by the non-partisan National Academy of Social Insurance indicated 75 percent of the 2,000 people queried online think benefits should be increased, not reduced, and 87 percent said lifting the cap on earnings should be considered. Currently, once one's salary hits $113,700 -- the cap for 2013 -- contributions to Social Security end for the year.

Fears over what Congress will do next had an impact on growth in the fourth quarter. The Commerce Department reported last week the gross domestic product contracted 0.1 percent in the quarter, a sharp contrast to the relatively robust 3.1 percent growth in the third quarter, indicating again the economic recovery still is fragile.

Friday, the Bureau of Labor Statistics reported the January unemployment rate was 7.9 percent, up 0.1 point from December.

Some economists tout the sequester as the shock the economy needs to get back to normal -- pain at first but then more robust growth. That camp says the intervention that prevented the U.S. economy from slipping into a second Great Depression following the housing bust is responsible for slow growth now and stubbornly high unemployment.

"The point of the trigger that created these across-the-board cuts evenly divided between defense and non-defense was to make them so onerous that that fact would compel Congress to come up with specific, sensible deficit reduction," Carney said last week.

"We disagree with those in Congress who increasingly seem to suggest that it would be a good thing or a welcome thing to have in your 'back pocket' to make happen, or to use as a means of 'member management.' Inflicting damage on the economy as -- to achieve some political goals here in Washington seems like a very bad idea. We do not support it."

President Obama has been calling for infrastructure improvement as a way to generate jobs and lower unemployment but congressional Republicans have resisted, citing the deficit, which has been about $1 trillion since Obama took office. To get past the debt ceiling, Boehner promised a balanced budget in 10 years -- something we haven't seen since the end of the Clinton administration, before President George W. Bush's tax cuts were adopted.

And the House wants to force a balanced budget. It takes up a measure next week that would require Obama to project a date-certain when the budget can be balanced when he submits his 2014 spending plan -- something the White House already has said will miss the Monday deadline for submission.

Experts estimate the deficit has been reduced $2.5 trillion in the next decade by the 2011 debt ceiling deal and the fiscal cliff agreement and that only $1 trillion to $1.4 trillion more in spending reductions would stabilize the debt for a decade or two, the Los Angeles Times reported. That reduction could be achieved by changing the inflation index used for Social Security, making Medicare drug payments more like Medicaid's, and cutting farm subsidies.

Obama has proposed $4 trillion in deficit cuts, but that includes tax increases, something Republicans have again rejected.

"It says here in The Wall Street Journal, Speaker Boehner suggests that having sequester in his back pocket is a good thing, in terms of negotiations," Carney said. "Now, that's not a positive way to approach an issue that does harm to our economy, and even the uncertainty the possibility creates has contributed to the GDP number we've seen today.

"So our point is there are responsible ways to deal with this. The American public believes that we ought to be responsible in the way that we deal -- the ways that we deal with it."

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