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Washington's Decision Deficit

Author: Toni Johnson
September 30, 2011

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This week Congress narrowly avoided a potential shutdown (Bloomberg) of the government for the third time in a year. The latest debate was over money for the Federal Emergency Management Agency and follows a damaging faceoff (AP) over funding the Federal Aviation Administration and a threatened shuttering of highway programs. It also comes just two months after a prolonged fight over raising the nation's debt ceiling.

Battles over issues that were once a matter of routine legislation--such as funding the FAA and raising the debt ceiling--or broadly bipartisan--such as authorizing the surface transportation bill and providing emergency disaster relief--highlight the gridlock. "At a time when our politicians might be called upon to solve extraordinarily difficult problems, they can't even be trusted to pay the bills," writes the Washington Post's Ezra Klein.

Those problems include mounting debt, intractable unemployment, a housing slump, crumbling infrastructure, tax and immigration reform, and a host of others--all of which remain unresolved. Some analysts say Washington's impasse is adding to the country's economic malaise by lowering consumer and investor confidence. Concern about the situation extends to leading foreign policy experts, who say improving the health of the country is crucial to maintaining economic competitiveness and projecting U.S. power abroad.

The stakes remain high. Though the debt ceiling was raised in August, there is wide agreement by lawmakers and experts that U.S. debt needs to be brought under control. The debt ceiling issue brought about the creation of the so-called super committee, which has started meeting. This bipartisan group of twelve lawmakers is tasked with finding targeted savings of $1.5 trillion (Reuters) through raising revenues and budget cuts. To address the vexing issue of unemployment, President Barack Obama earlier this month unveiled a $447 billion jobs package, which includes tax incentives and increased spending to spur job growth. Some analysts have said the package is needed to stave off another recession (Bloomberg). But Republicans have argued against any new tax hikes and point out that 2009 stimulus spending did little to create jobs. It is unclear when the GOP-led House will deal with the plan (VOA) in whole or in pieces.

With a presidential election year looming, the partisan conflict is expected to worsen (LAT). "At the heart of every major standoff this year is a deep philosophical disagreement on the size and role of government," says AP's veteran Washington correspondent Tom Raum. The Obama administration has stressed that more spending is needed to stimulate the economy. Of the money in the jobs package, more than $100 billion is pegged to infrastructure investment. A number of economists consider investment crucial to spurring growth and good for the economy overall. Several analysts have pointed to a recent World Economic Forum report on competiveness (PDF) that found that U.S. infrastructure has slipped to twenty-fourth place, down from ninth a decade ago.

Republican lawmakers, meanwhile, have focused on a spending-cuts-only approach aimed at lowering the deficit and reducing the role of government. Conservatives question infrastructure spending's value as economic stimulus and whether it helps in job creation. Congress is crafting a long-term highway-spending bill, and analysts suggest it could increase spending but it is unlikely to be close to Obama's request.

The way forward is unclear, particularly on Obama's jobs plan and the super committee talks. There is no timetable for the jobs plan, but the committee must submit its findings before Thanksgiving. "The right question is not whether we can reduce unemployment by lowering the deficit (we can't), but whether we can make progress on both problems" (NYT), writes Christina Romer, a former Obama economic adviser.

A group of 150 businesses sent a letter to the committee (NationalJournal) on September 28 arguing that reforming the tax code is the best way to spur economic growth and improve the nation's fiscal health. The New York Times' Thomas Friedman writes that Obama needs a "grand bargain" with super committee members to find solutions that both lower the deficit and stimulate the economy. Fareed Zakaria says a grand bargain is especially needed on funding infrastructure (WashPost). Other experts argue that what's really needed to spur economic growth is a plan for underwater mortgages (FiscalTimes).

Background Materials

"Calculating the Odds of a U.S. Deficit Deal," Reuters

"Fact Sheet: The American Jobs Act"

"What's at Stake in 2011? Only the Future of America," Global Post

"Building a Future: Falling Apart and Falling Behind," 2011 Transportation Infrastructure Report

"Five Infrastructure Challenges," Christian Science Monitor

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