Lawmakers need to move to center for the nation's good

by Alan Freyer, NC Budget and Tax Center, published in News and Observer, September 23, 2013.

The U.S. Congress is fast approaching an important series of crossroads on the federal budget – “decision points” that will likely affect the well-being of millions of average citizens and the health of our economy for many years to come.

The overarching question is a simple one: Will lawmakers stick to the failed approach of the last three years by imposing additional harsh and historically unprecedented spending cuts or will they move back toward the center and adopt a balanced approach – one that includes cuts and new revenues and does not increase poverty and economic hardship for working Americans?

For those trying to keep track, here are some important decision points to watch:

1 The first involves the start of the new fiscal year on Oct. 1 and the possibility of a government shutdown. Yes, we’ve seen this movie before – unless an agreement on funding levels for 2014 is reached, the federal government will shut down. And if the government shuts down, seniors will not receive Social Security checks, workers will lose access to community college training programs, national parks will close and even some military operations will cease.

2 The second involves more spending cuts and features a less optimistic scenario. Under current law, a new round of hugely painful cuts like ones enacted earlier this year (cuts that feature the absurdly bureaucratic label “sequestration”) are set to begin on that date. Sequestration has already generated significant economic hardship for many North Carolinians in 2013, through reduced access to critical services, damage to the state’s defense contracting base and by reducing overall economic growth and job creation. Another round of cuts will reduce federal spending by $120 billion over the next year on military programs and key domestic initiatives like Head Start, research and development, K-12 education and food safety.

If the nation is to continue to move beyond its current economic doldrums, it’s critical that lawmakers replace these cuts with a balanced package of new revenues and smarter spending cuts that don’t increase poverty or inequality.

3 This moment will arrive in mid-October and involves the question of what to do about the federal debt ceiling. The federal debt limit is the statutory maximum the U.S. Treasury can legally borrow in order to pay its bills – and to cover the costs of commitments previously made to the nation’s borrowers.

For most of the 20th century, Congress raised the debt ceiling when necessary with little or no controversy to keep up with, among other things inflation and the size of the economy. In 2011, however, this stopped when the House of Representatives refused to lift the debt ceiling unless there were deep spending cuts. This confrontational approach ultimately resulted in the downgrade of the U.S. credit worthiness and, ironically, the sequestration cuts many in Congress are now trying to avoid.

As the treasury approaches the current debt ceiling, it is clear that failure to act would be catastrophic and likely result in default by the U.S. government and a global financial crisis.

Unfortunately, the House is again considering holding the debt limit hostage in exchange for more huge spending cuts, despite the fact that the rationale for deep spending cuts has greatly diminished. The short-term federal budget deficit is now less than half what it was in 2009, rendering additional deep spending cuts both unnecessary and economically counterproductive.

Holding the debt limit hostage presents huge economic risks with very little to gain in terms of addressing our nation’s budget. Instead, Congress should raise the debt ceiling without controversy and then – in a separate debate – work to find a balanced approach to the budget that includes new revenues.

4 This is perhaps the linchpin in the entire debate. The question is: Can Congress enact real and broad-based tax reform that goes after the single largest portion of the federal budget: the tax loopholes, deductions, credits and outright giveaways that cost more than $1 trillion in foregone revenue every year? The combined cost of these tax expenditures surpasses every other major function of the budget, including Medicare, Social Security and national defense, and is almost double the cost of domestic discretionary programs. Again, let’s hope so. No single action would do more to address the nation’s fiscal woes.

The bottom line: Solutions exist for what ails the federal budget. Key decision points over the coming weeks should tell us whether Congress has the courage to compromise and find these solutions for the good of the country.