Trio of Fiscal Issues to Converge at End of Year; Debt Limit Questions Resurface

by Rebecca Farley on May 17, 2012

U.S. Treasury Secretary Timothy Geithner (Bloomberg News/Landov)

Political observers in Washington this week felt a sense of déjà vu in the wake of comments by House Speaker John Boehner (R-OH) about the national debt. One year ago, in May of 2011, Congress was hotly debating whether to raise the debt ceiling, with Republicans insisting that any increase to the national debt be fully paid for with spending cuts, while Democrats sought an approach that mixed cuts with revenue increases. The parties eventually agreed on a compromise (the Budget Control Act), which raised the debt ceiling limit but also laid out a schedule of spending caps for the next 10 years and set in motion a special committee process whose failure ultimately triggered $1.2 billion in automatic spending cuts to begin in 2013.

Fast forward one year, to Treasury Secretary Timothy Geithner’s recent announcement that the U.S. will once again reach its borrowing limit near the end of 2012 – and Speaker Boehner’s response on Tuesday that any increase in the debt ceiling must be fully matched with “real spending cuts and reforms.” Democrats, in turn, instantly revived last year’s critiques that the fiscal hawks in Boehner’s caucus were holding the global economy hostage to their cost-cutting agenda.

The newest round of congressional sparring over the debt limit sheds light on what is likely to be a particularly complicated season for national fiscal policy. The end of 2012 marks not only the point at which the U.S. will once again reach its borrowing limit, but also the expiration of the Bush tax cuts and the launch of the automatic spending cuts outlined under the Budget Control Act. And the political pressures of the upcoming elections will only make resolving this trio of fiscal issues more difficult. Many experts say a comprehensive deal is unlikely until after the November elections. Nonetheless, Boehner announced on Tuesday that the House would vote before the elections on legislation to extend the Bush tax cuts and put in place a process for expedited passage of a broader tax overhaul in 2013.

Some lawmakers have said they expect Congress to pass a short-term fix that would give them several months or even a year to strike a long-term deal on deficit reduction, the Bush tax cuts, national tax policy more broadly, and the U.S. debt limit. As Sen. Lamar Alexander (R-TN) noted, “my guess is an extension is almost inevitable.” Yet, the extra breathing room may not help lawmakers reach a compromise if the next Congress remains as ideologically polarized as the current one. In fact, the convergence of these three fiscal issues – which has come about precisely because Congress repeatedly failed to find common ground on longer-term fixes for any of them – highlights the pitfalls of relying on legislative patches and extension bills to solve problems of major national importance.

The National Council will continue to keep you informed about the latest updates on the federal budget, spending cuts, and the debt limit. Please visit our blog to see our past coverage about the threats to healthcare and social services spending in the ongoing debates over the nation’s fiscal course.

 

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