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U.S. Budget Brinksmanship

Author: James M. Lindsay, Senior Vice President, Director of Studies, and Maurice R. Greenberg Chair
April 6, 2011

U.S. Budget Brinksmanship - us-budget-brinksmanship

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The specter of a federal government shutdown looms as the White House and Congress wrangle over a budget for the final six months of the current fiscal year. But as Democrats and Republicans scramble to meet Friday's deadline, even bigger budgetary battles are in the offing. How these clashes play out will signal--domestically and internationally--whether Washington can put its fiscal house in order and shape the battle for control of the White House and Congress come 2013.

The numbers separating the two sides on the FY11 budget are small. The White House and Senate Democrats have agreed to $33 billion in cuts. Speaker of the House John Boehner has proposed $40 billion in cuts.

Boehner has warned his colleagues that shutting down the federal government will help Democrats and hurt Republicans, just as it did back in 1995.

But House Republican hardliners aren't buying the argument. With Tea Party protestors shouting "cut it or shut it," they insist that standing firm is the best strategy politically and legislatively. As Representative Mike Pence (R-IN), a darling of the Tea Partiers, puts it, "sometimes, the most reasonable thing in the legislative process is to be unreasonable."

However this week's budget battle turns out, more spending fights are on the horizon. Next up is whether to raise the ceiling on the national debt. The federal government will reach its $14.29 trillion debt limit by May 16. If the ceiling is not raised, Washington will within a few weeks not have enough cash to pay all its bills. In a worst-case scenario, it could be forced to default on its debt.

The stakes in the debt ceiling debate are enormous. "Default by the United States is unthinkable," Secretary of the Treasury Timothy Geithner told congressional leaders this week. It "would cause a financial crisis potentially more severe than the crisis from which we are only now starting to recover."

Still, Geithner's warning may not deter House Republicans bent on remaking federal spending. They see the debt ceiling vote as leverage to force major budgetary changes on an unwilling Senate and White House. In a legislative version of the game of chicken, they believe that the other side will blink first rather than risk damaging the economy.

The kinds of spending changes House Republicans want can be seen in the spending plan that House Budget Chairman Paul Ryan (R-WI) unveiled on April 5. Ryan proposes cutting federal spending by $6 trillion over ten years, in good part by privatizing Medicare and handing Medicaid over to the states.

The early signs from the White House suggest that it sees Ryan's plan as an opportunity to score political points at the GOP's expense rather than an opportunity to begin a national conversation on the tough choices the country needs to make to put its fiscal house in order for the long term.

So Republicans and Democrats have staked out competing visions for the future. House Republicans are betting that Americans are ready to embrace bold change. The White House and and Senate Democrats are putting their money on incremental changes to business-as-usual.

If the two sides cannot forge a common ground, they will shake the world's confidence in Washington's ability to solve its fiscal problems. That could derail the economic recovery and remake the political terrain come Election Day 2012.

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