Shadow boxing on the budget and the deficit

A broad, intensive debate on the U.S. budget has dominated Washington for a week, ever since President Obama announced his budget proposal for the next fiscal year, which begins on 1 October, and the new Republican majority with 87 Tea Party supporters in the House of Representatives pushed through budget cuts totaling 61 billion dollars in this year’s budget despite unanimous opposition from the Democrats.
In addition, on March 4, the U.S. government reaches its debt ceiling and unless the parties can agree to raise the ceiling so that the state can borrow more money, the entire government machinery can come to a halt.
This happened during President Clinton’s big budget battle in 1995 after the Republicans, like now, won a majority in the House of Representatives and challenged the President. Led by the newly elected Speaker, Newt Gingrich, they forced a government shutdown, which ultimately paved the way for Clinton’s political comeback and re-election 1996. It remains to be seen whether today’s Tea Party Republicans recall that scenario during today’s budget battle, or if they even care.
The battle for this year’s budget, which was never approved by Congress, now goes to the Senate where Democrats have a majority and where the budget proposal from the House Republicans have no chance. Much negotiation remains and much of what can now be called “shadow boxing” remains before a possible budget deal can be reached.
President Obama has so far not wanted to lay his cards on the table. His budget of 3.7 trillion dollars includes a lowering of the budget deficit over the next ten years by 1.1 trillion. But that prognosis has not proved to be particularly credible and has led to the criticism from many, including those whose support he can usually count on.
Somehow, he seems to have fallen back into the role he played for a whole year during the healthcare debate, when he passively followed the debate in Congress, waiting for a deal that never came. It was not until he finally resolutely stepped in and pushed, that a deal came about. The same active engagement from the President was also seen during the lame duck session and resulted in his success on a series of f important issues.
That kind of active leadership is absent today. Everyone is waiting for everyone. No one, whether Obama or the Republicans, seems ready to be out front and tackle the big issues – Medicare and Medicaid, Social Security or defense – that is needed to really bring down the deficit, which today amounts to 1.5 trillion dollars, or 11 percent of the economy, the largest deficit since World War II.
Instead, the deficit debate so far has dealt with only a small portion, or 12 per cent, of the federal budget. That’s not enough to make any serious inroads, but neither party has so far seemed ready to concede this, and no one talks about possible tax increases, which many experts believe will be necessary, eventually. Tax increases have often proven to be the political kiss of death – former President George H.W. Bush and Democratic Presidential candidate Walter Mondale are recent proofs of this.
It is still touch and go for the American economy. Jobs and unemployment are still foremost on the minds of Americans. Many worry about a new dip of the American economy, a new recession, although the Federal Reserve has predicted a nearly 4 per cent growth this year. However, the Fed believes this is still not enough to drastically reduce today’s unemployment 9 percent. In these uncertain economic times, it is not advisable, according to the Fed, either to raise taxes or cut drastically in public expenditure – that could threaten the positive, but fragile, progress that the economy is making right now.

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