Budget battle guide: Skidding into a fiscal pileup
- Article by: CONNIE CASS and CALVIN WOODWARD
- Associated Press
- February 27, 2013 - 12:51 PM
WASHINGTON - America's leaders have threatened to shut the government down, drive it over a cliff and bounce it off the ceiling. Now they're ready to smack it with a "sequester." And it looks like they mean it this time.
Big, scary-sounding cuts in federal spending are set to begin Friday. Should Americans be worried?
A primer on the nation's latest fiscal standoff — how we got here, who could get hurt and possible ways to end this thing:
Like life in a bad Road Runner cartoon, the United States has survived the New Year's "fiscal cliff," double rounds of debt-ceiling roulette and various budget blow-ups over the past two years. Now the threat is $85 billion in indiscriminate spending cuts that would hit most federal programs and fall hardest on the military. Pentagon programs are slated for an 8 percent cut; other agencies would lose 5 percent for the current budget year.
By law, these cuts known as the "sequester" begin unfolding automatically at week's end unless President Barack Obama and Congress act to stop them. Even after they've begun, the cuts still could be halted or reversed through legislation.
Why did Congress and Obama agree to automatic cuts they don't like? To corner themselves into getting the nation's deficit under control.
Isn't deficit-cutting good?
Obama, nearly all of Congress and plenty of economists say two things:
1) The budget deficit needs to be reduced.
2) The sequester is the wrong way to do it.
"Only a fool would do it this way," says Paul Light, a budget expert at New York University. "Primordial. It's beyond belief."
It makes him think of the movie "Dr. Strangelove," with Slim Pickens riding bronco on an atomic bomb, waving his cowboy hat.
The sequester was designed to land with a mighty splat — to create such a mess if allowed to occur that lawmakers would do the right and honorable thing and negotiate a measured, meaningful and discerning package of deficit reduction to head it off. But that didn't happen, so the sequester is about to.
And, yes, that should mean progress on the nation's debt. The sequester is one of several developments expected to restrain the nation's red ink after four straight years of deficits topping $1 trillion.
Are the cuts really that bad?
It's unlikely they will be as bad — or at least as immediate — as some overexcited members of the Obama administration have made out. But the cuts have the potential to be significant if the standoff drags on.
Early on, about 2 million long-term unemployed people could see a $30 cut in benefit checks now averaging $300 a week. Federal subsidies for school construction, clean energy and state and local public works projects could be pinched. Low-income pregnant women and new mothers may find it harder to sign up for food aid.
Much depends on how states and communities manage any shortfalls in aid from Washington.
Furloughs of federal employees are for the most part a month or more away. Then, they might have to take up to a day off per week without pay.
That's when the public could start seeing delays at airports, disruptions in meat inspection, fewer services at national parks and the like.
An impasse lasting into the fall would reach farther, probably shrinking Head Start slots, for example.
Much of the federal budget is off-limits to the automatic cuts. Among exempted programs: Social Security, Medicaid, food stamps, Pell Grants and veterans' programs.
Even so, officials warn of a hollowed-out military capability, compromised border security and spreading deterioration of public services if the sequester continues. It's "like a rolling ball," said Homeland Security Secretary Janet Napolitano. "It keeps growing."
Maybe it's fiscal-crisis fatigue.
So far, Americans have yawned this one off. Only 27 percent of those surveyed for a Pew Research Center/USA Today poll last week said they had heard a lot about the looming automatic spending cuts.
Less than a third think the budget cuts would deeply affect their own financial situation, according to a Washington Post poll. Sixty percent, however, believe the cuts would have a major effect on the U.S. economy.
That's what economists and business people are nervous about.
The political standoff is the factor that economists blame most for the slowing economy, according to the latest Associated Press Economic Survey. The uncertainty about future government spending is causing businesses to hold back on investment and hiring, and it's making consumers less confident about their own spending, economists warn.
How did it come to this?
Obama and congressional Republicans have been deadlocked over spending since the GOP won control of the House in 2010, with a big boost from tea party activists who champion lower taxes and an end to red-ink budgets.
House Republicans refused to raise the nation's borrowing limit in 2011 without major deficit cuts. To resolve the stalemate, Congress passed and Obama signed the Budget Control Act, which temporarily allowed borrowing to resume, set new spending limits and created a bipartisan "supercommittee" to recommend at least $1.2 trillion more in deficit reduction over 10 years. Republicans and Democrats on the supercommittee failed to compromise, however.
That triggered the law's doomsday scenario — the so-called "fiscal cliff" package of across-the-board tax increases and spending cuts.
In a New Year's Eve deal, Obama and Congress agreed to raise taxes on some of the nation's wealthiest earners. And they postponed the spending cuts for two months — until Friday.
That was supposed to buy time for a deal.
But there's still no deal.
Obama and congressional leaders have scheduled talks for Friday, the day the automatic cuts begin taking effect. Democrats and Republicans still look far apart, however.
Obama insists on blending spending cuts with targeted tax increases. Republican leaders reject any more tax increases and want to shear spending while protecting the military's budget.
While both sides talk about reducing the deficit, Obama and other Democrats say this must be done gradually, to avoid wounding an already weak economy.
The president has been taking his case to the people, blasting Republicans at campaign-style events. GOP leaders, just back from last week's congressional vacation, are grousing that Obama should be bargaining with them, not grandstanding.
Is there a way out?
Expect negotiations to intensify if enough Americans begin yelping about the pain from reduced federal spending.
Obama and Congress could agree to pare down the budget cuts to a more logical package of reductions, perhaps with some tax changes, too. Such a deal could also retroactively restore the missed spending where they want to.
The "sequester" isn't the only line in the sand, however.
On March 27, legislation that has been temporarily financing the government expires. Without agreement to extend it, the threat of a partial government shutdown looms. Later in the spring, it will be time to raise the nation's debt limit again.
So far, two years of budget crises have been settled with temporary fixes. They have barely dented the underlying disagreement over how to reform Medicare, Social Security, taxes and spending to address the nation's long-term deficit problem.
If those festering questions remain unanswered, the U.S. economy will remain a hostage to politics.
AP Director of Polling Jennifer Agiesta contributed to this report.
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