When Congress returns to Washington on Tuesday, the most urgent task facing President Obama and congressional leaders will be avoiding the year-end “fiscal cliff,” a towering accumulation of $500 billion in budget cuts and expiring tax breaks that would abruptly reduce government borrowing but could trigger a new recession.
In the past, policymakers have handled such moments by delaying the pain and giving themselves new deadlines for getting the budget under control. Now, however, the national debt is larger, as a percentage of the economy, than at any time in U.S. history except for the period after World War II — and it’s rising rapidly. Avoiding hard decisions could have grave consequences, analysts say, potentially undermining the U.S. economic recovery and the world’s confidence in American leadership.
“I think this is the magic moment,” said Bowles, a veteran negotiator who served as chief of staff in the Clinton White House. “They’ve got to compromise. And I think if you listen carefully to what all the politicians are saying, there’s room to get something done.”
Few expect Washington to replicate the scope of the Bowles-Simpson plan. Though it is widely praised, its $4 trillion in 10-year savings includes major changes to Social Security opposed by liberals and an aggressive new tax code that would generate far more revenue than most conservatives could stomach.
Last week, House Speaker John A. Boehner (R-Ohio) publicly urged Obama to return to a less ambitious framework drafted in secret during the summer of 2011, when the two men came tantalizingly close to compromise. That blueprint would save about $2 trillion, on top of $1.3 trillion in agency cuts already in force.
About half the new savings would come from reversing part of the massive tax cuts that, along with the collapse of tax collections during the recent recession, are a major cause of current budget problems. The rest would come from lower spending, including on Social Security and Medicare, forecast to be the biggest drivers of future borrowing.
The 2011 talks collapsed when Obama asked for more revenue and Boehner, facing a conservative insurrection over taxes, abruptly called the deal off. The obstacles are similar now: Republicans are still talking vaguely about raising money through economic growth rather than higher taxes, and key Democrats are arguing that Obama’s reelection victory entitles them to resist cuts to retirement benefits while demanding even more in new taxes.