When it comes to deficit reduction, Congress has been “kicking the can down the road” for years — and is probably about to do so again.
Politicized as they are, I believe the Republican-controlled House and Democratic-controlled Senate will not agree on any meaningful deal before sequester kicks in on March 1.
That could mean that during the next seven months there would be $85 billion in painful, across-the-board cuts — $46 billion in defense and $39 billion in non-defense discretionary spending — leading up to Oct. 1 and the end of the fiscal year.
I write “could mean” because Congress magically always seems to find a way to lessen the pain for most people while performing its kicking-the-can-down-the-road routine.
Remember, there’s another fiscal deadline little more than a month away — March 27, when the temporary fiscal 2013 Continuing Appropriations Resolution runs out and Congress starts scrambling for funds to run the entire government for the rest of the year.
Of course, there is a history to all this.
In April 2011, three months after Republicans took control of the House, a last-minute government shutdown was averted with a $39 billion GOP-demanded budget cut for the second half of fiscal 2011, primarily in return for allowing funding of the newly passed Affordable Care Act (Obamacare).
That set the stage for a deadline battle over extending the debt limit. In August 2011, it was the Budget Control Act of 2011 (BCA), a deal to increase the debt limit while at the same time capping some $1 trillion over 10 years in future spending with the promise to come up with another $1.2 trillion in deficit reduction through additional tax revenue and spending reductions.
A bipartisan presidential commission was established to come up with a program. Democrats and Republicans agreed there needed to to be an automatic trigger to force a compromise. So the sequester idea was built into the legislation.
Republicans wanted the trigger to automatically cut domestic spending programs that would be unacceptable to Democrats; the White House and Hill Democrats threw in defense spending cuts, which they believed Republicans would not accept.
And so the sequester trigger was born. When the commission failed to reach agreement, the trigger was to be pulled last month.
In the interim, we in the media have aided and abetted this fiscal charade, quoting often conflicting statements by politicians and officials without trying to accurately deal with what either group said.
Reduced to slogans, this type of debate has confused the limited public that pays attention, alienated most others and fueled the partisan nature of all discussion.
Take the American Taxpayer Relief Act of 2012 as signed by President Obama on Jan. 3, the bill that at the last minute prevented the country from going over the so-called fiscal cliff, deferred sequester, and instead kicked the can down the road.
The act is best known for raising the personal tax rates to 39.6 percent for individuals earning more than $400,000 and couples earning $450,000. It also raised capital gains rates for those taxpayers and in some cases limited their deductions.
Overall it is expected to raise about $620 billion in additional revenue over the next 10 years. Republicans these days argue that spending cuts, not more tax increases, are what is needed.
As House Speaker John A. Boehner (R-Ohio) put it in a letter to his constituents Feb. 8, “Americans know the president got his higher taxes on the wealthy last month when the fiscal cliff was reached, and those tax increases were accompanied by no corresponding spending cuts.”
Truth of the matter is that the fiscal cliff agreement on balance will add more than $3 trillion to the national debt over the next 10 years because it made permanent the Bush tax cuts for the roughly 98 percent of the American people who earn less than $450,000. Those tax cuts were supposed to expire Jan. 1.
“Our cost estimate showed that legislation [the cliff agreement] as a very large tax cut, not the tax increase that you have just described,” Congressional Budget Office Director Douglas W. Elmendorf told Rep. Tom Price (R-Ga.) at last Wednesday’s House Budget Committee hearing. Price was trying to make the GOP point that the cliff agreement only involved revenue-raising while Elmendorf pointed out the regularly overlooked fact that the measure overwhelmingly was a tax cut and revenue loser.
Other than lobbyists and tax lawyers, hardly anyone noticed that the dozens of other specialized family taxes due to expire — including the Child Tax Credit and Earned Income Tax Credit — were extended and that a permanent fix for the Alternative Minimum Tax was included. These elements added more to the debt over 10 years than retention of the Bush personal tax rates, yet hardly anyone, Democrat or Republican, mentions them.
The cliff deal also set up an interesting way to deal with the sequester, which was also set to kick in Jan. 3. It postponed the sequester for two months, setting the upcoming March 1 deadline. But the White House and Congress also agreed they needed to cover the $24 billion that was supposed to be sequestered, i.e. cut, during those two months.
Magically they agreed that $12 billion would come from allowing persons with regular individual retirement accounts (IRAs) to transfer them over the next 10 years to Roth IRAs, which are not taxed when that money is taken out.
Of course individuals would have to pay the required tax when they change to Roth accounts, and over the next 10 years that would result in $12 billion in estimated additional tax revenue. No one apparently is hurt by that.
The other $12 billion under this agreement would not have to be dealt with until March 27, when Congress must pass some arrangement to keep the government funded through Sept. 30, the end of fiscal 2013. The cliff agreement calls for an additional $4 billion to be cut from fiscal 2013 funds, without specifying where it is to come from.
That still leaves $8 billion, and here there is a hint of what Congress may do with the rest of the sequester. The cliff agreement said that $8 billion was to be added to the amount that was to be sequestered in 2014 under the original 2011 Budget Control Act.
In short, that money was just added to the amount that was already in the can that was being kicked down the road.
That possible congressional approach is mentioned in a fascinating Feb. 7 study by Amy Belasco of the Congressional Research Service. The study looks at the sequester’s potential effects on the Defense Department and the Continuing Appropriations Resolution.
She analyzes a variety of situations, and includes many sound suggestions. However one is that Congress could “soften the impact” of sequester by amending the 2011 BCA figures, making the required reductions lower for this year and next than originally set, and then putting them higher for the following three years so someone at that time has the burden of deciding how to make up the difference.
Doing that kind of “kicking-the-can-down-the-road” fits the current congressional approach, but it does little to solve the nation’s underlying debt problem.
For previous Fine Print columns, go to washingtonpost.com/fedpage.