Familiar Battle Lines Ahead of Next Fiscal Fight

Both parties’ strategy rests largely on the other one folding in negotiations.

The United States Capitol building in the snow, Washington DC, December 19, 2009
The United States Capitol building in the snow, Washington DC, December 19, 2009 (William Couch)

After they narrowly staved off a “fiscal cliff” that would have cut spending and raised taxes by nearly half a trillion dollars, Democrats and Republicans are preparing for the next budget fight that will likely come in February when the United States can no longer afford to borrow under existing law.

According to Treasury Secretary Timothy Geithner, Congress will have to raise the “debt ceiling” next month if the government is to avoid risking bankruptcy. It has already exhausted its legal ability to borrow but is able to postpone default several weeks by, for instance, suspending the reinvestment of federal workers’ retirement account contributions in short-term government bonds.

The United States have posted deficits over $1 trillion for the last four years. The national debt has risen to over $16 trillion, double from where it was six years ago.

Republicans, who control the lower chamber of Congress, intend to leverage their support for raising the debt ceiling on austerity measures. Earlier this month, President Barack Obama rejected that notion. “While I will negotiate over many things, I will not have another debate with this Congress about whether or not they should pay the bills they have already racked up,” he said.

The two parties were similarly at odds over raising the debt ceiling two years ago when a last-minute compromise agreement limited future public spending but did not accomplish entitlement and tax reforms necessary to balance spending in the long term.

Similarly, the deal that averted the fiscal cliff included some spending reductions, while others were postponed for two months, as well as tax hikes for high-income earners.

Politico reported this week that there’s little optimism among lawmakers in Washington about the possibility of reaching a comprehensive agreement this time. “The strategy of each party,” it determined, “rests largely on the other one folding.”

President Barack Obama says he absolutely won’t forfeit anything in return for an increased borrowing limit. House speaker John Boehner says he won’t permit an increased borrowing limit unless spending is sliced by the same amount. Republicans won’t raise taxes any further, even as the president insists that any package is divided equally between cuts and revenue. And congressional Democrats are still hoping Obama acts unilaterally to resolve the debt standoff.

The president and his party divided Republicans in the fiscal cliff negotiations when nearly half of conservative House members would not vote to raise taxes. They insist that deeper spending reductions ought to be enacted, especially in social insurance programs like health care for the elderly and poor and public pensions which, combined with food stamps, Supplemental Security Income and unemployment insurance, account for more than two-thirds of federal spending.

Comprehensive entitlement and tax reform is indeed needed for fiscal consolidation in the long term but Democrats are reluctant to cut social spending while Republicans oppose further tax increases.