Washington’s Next Fiscal Battle Q+A
President Barack Obama had a clear political edge in his fight with Republicans over the fiscal cliff, and used it to his advantage. In the upcoming battle over federal borrowing and spending, the leverage will be more evenly divided and the outcome less predictable.
In the fiscal cliff fight, Obama wanted to block automatic New Year's Day tax increases on everyone but the country's highest earners. Republicans were trying to protect upper-income people from those tax hikes, but eventually gave in because they didn't want to be blamed for the higher middle-class taxes that a stalemate would have triggered.
Next come three deadlines that will almost certainly become entwined.
The government will run out of cash in about two months. The Obama administration will need congressional approval to borrow more money or face a first-ever federal default, threatening global, economy-rattling consequences.
House Speaker John Boehner, R-Ohio, and Senate Minority Leader Mitch McConnell, R-Ky., have said they won't agree to a debt-limit extension without an accord to cut spending. Just as adamantly, Obama says the government's debt ceiling must be raised and he won't negotiate over it, though he says he would bargain over spending cuts and tax increases to reduce federal deficits.
At around the same time, automatic cuts to defense and domestic programs are due to begin after winning a two-month reprieve in the fiscal cliff deal. And in late March, money financing federal agencies expires and new legislation will be needed to prevent a government shutdown. Republicans are sure to use both those measures to try forcing Obama to accept more spending cuts.
Here's a look at the political pressures each side brings to the battle.
Q: Would Republicans or Democrats really force a federal default just to get their way in a fight over spending?
A: Most wouldn't and it seems unlikely. But they came close two years ago.
As the government neared its debt ceiling in the summer of 2011, the two sides battled to the brink. They finally agreed to about $1 trillion in 10-year spending cuts and created a congressional "supercommittee" to find an additional $1.2 trillion in deficit reduction. The panel produced nothing, triggering a like amount in automatic, across-the-board cuts that Obama and many lawmakers are still trying to find a way to skirt.
That 2011 fight created plenty of worry that the White House and congressional Republicans could become so deadlocked and adamant that they would plunge the government into default. That concern hasn't receded, especially with a fresh infusion of conservative Republicans to join the GOP's tea party-powered 2010 freshman class. That group has proved hard for party leaders, especially Boehner, to control.
This time, many in Washington see threatening default as an empty tactic. The potential consequences are too dangerous, including higher interest rates and tighter credit that would wound the economy and make it costlier for the government to borrow money for a long time.
Q: Then what's the problem?
A: Both sides have reason to think the other will have to cave in. And each has core supporters insisting that this time, their leaders must not yield.
Conservatives angry over the New Year's Day fiscal cliff deal, which boosted income taxes on top earners, want the GOP to block further tax increases and force deep spending cuts, including on costly federal benefit programs like Medicare. Liberals eager to cash in on Obama's re-election say it's time to push hard for his agenda of protecting federal programs and to raise taxes on the wealthiest Americans even more.
Q: What leverage does Obama have?
A: Far more than in the 2011 debt limit fight.
Back then, Obama was worrying about getting re-elected in 2012 and had no interest in a stalemate that could destabilize an already frail economy. Republicans had high hopes of capturing the Senate, hopes that might be enhanced if the economy weakened further. And Boehner's new House majority had momentum and was throwing its weight around.
Yet when the smoke lifted from that fight, polls showed the public largely unhappy with Republicans, considering them too inflexible. Now, Democrats are on offense following Obama's re-election, Democratic gains in the House and Senate and an economy that continues gathering strength, though slowly.
Also helping Obama: The fiscal cliff fight left the GOP divided and Boehner weakened. Most Senate Republicans backed the final compromise between McConnell and Vice President Joe Biden while most House Republicans defied Boehner and opposed it, raising questions about his effectiveness in leading them this year. In addition, the business community, an influential contributor and constituent of the GOP, strongly opposes a federal default. Powerful groups like the U.S. Chamber of Commerce are already making it clear to both parties that lawmakers must raise the debt ceiling, and Democrats think that pressure will be felt by Republicans.
Q: What makes Republicans think they can prevail?
A: They are united around the goal of shrinking the budget. Insisting on spending cuts in return for a debt limit extension is exactly what the GOP wants to make the upcoming fight about. Polling suggests that on those issues, voters seem more inclined to back Republicans. Surveys show most people don't like the idea of extending the government's borrowing limit and back the concept of cutting federal spending, at least until specific programs are targeted.
In addition, after the 2011 debt limit fight, Standard & Poor's downgraded the nation's credit rating for the first time and indicated it might do the same if lawmakers didn't find additional deficit reduction. Republicans say this puts further pressure on Obama to yield.
Q: What about the fights over preventing budget-wide spending cuts or a government shutdown?
A: Both parties think those two prospects will prompt a search for savings that will eventually be tied to raising the $16.4 trillion ceiling on government debt.
GOP lawmakers are trying to create leverage by saying that unless there's a deficit-reduction deal, they're willing to partly shut down the government and live with the automatic spending cuts — which are divided evenly between defense and domestic programs. They interpret the fiscal cliff deal as setting a final figure for new tax revenues and say the focus should be put back on spending cuts.
Democrats believe a federal shutdown would hurt Republicans politically, as it did in the 1990s when the GOP Congress battled President Bill Clinton. Obama insists that additional spending cuts must be coupled with higher taxes on corporations and wealthy Americans to produce a "balanced" package. Polling showed the public backed him when he sought higher taxes on the wealthy in the fiscal cliff fight.
(Copyright 2012 The Associated Press. All Rights Reserved)