Who Blinks First? The Budget Battle Explained

There are actually three different budget fights going on in the United States.

After the two political parties averted a shutdown in the United States last month, the possibility of the federal government seizing nonessential operations looms once again with no compromise apparently in sight.

Conservatives in the House of Representatives voted to cut $61 billion from this year’s budget earlier in the year after winning a majority in November’s midterm elections on a promise to rein in spending.

The measure was rejected by the Democratic majority in the Senate. To prevent a government shutdown at the time, the two parties compromised on a short-term extension that included $4 billion in cuts which were largely taken out of President Barack Obama’s budget proposals for the fiscal year 2012.

The Republicans continued to insist on their total package of $61 billion in cuts however. They cite the $1.65 trillion in deficit spending in 2011’s budget and the mounting national debt as necessitating austerity measures today to avoid deeper cuts in the future. Democrats have characterized the proposal as reckless and fear that it could imperil the still fragile economic recovery. They have offered more than $30 billion in cuts.

The White House vowed on Thursday that it would block another short-term spending measure with a presidential veto, forcing both sides to find common ground or face a shutdown before Friday night.

The federal government previously shut down twice between November 1995 and January 1996 when the Republican majority in Congress and Democratic President Bill Clinton failed to reach agreement on a budget. Services deemed essential, including air traffic management, defense, police and utilities, were unaffected by the shutdown and would be again. As during the 1990s though, hundreds of thousands of federal workers could still be without work for as long as the impasse lasts.

Even if the parties manage to agree on a budget, there are two more spending hurdles ahead.

Before the summer, Congress has to vote on raising the federal debt ceiling which legally maximizes the amount of money that the federal government can borrow. The current limit, enacted last February, is $14.3 trillion. Regardless of the tens of billions proposed in spending cuts by Republicans, this fiscal year’s budget would grow the national debt beyond that scope.

Letting the nation default on its debt could trigger another financial meltdown but several fiscally conservative freshmen members of Congress have announced that they will vote against the measure to protest runaway federal spending.

Discussions are already underway about the budget for fiscal year 2012 which starts in October. The president has proposed $100 billion in yearly cuts between 2012 and 2021, achieving a total of $1.1 trillion in deficit reduction without balancing the budget within ten years. Cuts would be found by economizing on welfare provisions, including financial assistance for the working poor, heating benefits and subsidies for community organizing activities in poor neighborhoods.

The president also proposed a 5 percent cut in defense spending, eliminating tax exemptions for oil and natural gas producers and subsidizing high-speed rail and electric car development.

Republican leader John Boehner declared the budget dead on arrival, saying in February that it “spends too much, borrows too much and taxes too much.”

Earlier this week, the opposition introduced an alternative budget that would cut some $6.2 trillion from the president’s proposal and achieve $4.4 trillion in deficit reduction over the next ten years. As part of the plan, major health support programs for the elderly and the poor would be reformed. These entitlement programs already account for the lion’s share of federal spending and are expected to expand hugely in years ahead as America’s population ages and there are less and less working people to pay for the elderly and the unemployed.