By Andrew Clevenger / The Bulletin
Published: January 03. 2013 4:00AM PST
WASHINGTON — Say goodbye to the “fiscal cliff” and hello to the debt ceiling.
On Wednesday, as the implications of last minute votes in the Senate and House of Representatives to avoid sending the U.S. economy plunging over the so-called fiscal cliff sank in, members of Oregon’s congressional delegation began to look ahead to the next possible showdown.
“These next few months are not going to be for the faint-hearted,” said Sen. Ron Wyden, D-Ore.
Thanks to a convergence of three financial deadlines, congressional leaders may find themselves back at the negotiating table in a matter of weeks, dealing with the same issues they were unable to solve during the latest round of maneuvering.
First, the “fiscal cliff” deal postponed the automatic cuts to defense and discretionary spending known as sequestration for only two months, meaning they will go into effect March 1 without additional action by Congress.
Second, the government is on the verge of hitting the debt ceiling, the limit on how much money it is authorized to borrow. President Barack Obama has said he will not negotiate over raising the debt ceiling, which is necessary for the government to honor its existing debts, but it does give Republicans some bargaining leverage.
The last time the country hit the debt ceiling, party leaders were unable to strike a grand bargain on deficit reduction, and the resulting deal created sequestration’s mandatory cuts.
Third, the continuing resolution that funds government operations expires March 27. Without Congress authorizing additional funds, the federal government could face a possible shutdown.
Medicare and taxes
For Wyden, the short-term deal provides a small window for Congress to address two main issues: Medicare and tax reform. Because of shifting demographics — over the next decade-plus, 10,000 Americans a day will turn 65 — and rising health care costs, Medicare threatens to dwarf other potential deficit reduction efforts, he said.
“If you duck Medicare, you’re basically ducking budget reform,” Wyden said. “Absent reform, it will eventually engulf the federal budget.”
Members of both parties understand the numbers, so it’s less a question of substance than of finding the political will to make tough decisions, he said.
On taxes, there is common ground on simplifying the tax code by “cleaning out a lot of the ridiculous tax preferences and special interest loopholes” in order to broaden the tax base and keep rates low and progressive, he said.
“Tax reform is very hard because special interest groups pound our members hard to keep their preferences,” he said.
Sen. Jeff Merkley, D-Ore., said the new Congress needs to hit the ground running after it is sworn in.
“It’s going to be a very intense period trying to forge this path. If we’re going to avoid another (crisis followed by a short-term solution), we’re going to have to have a coherent plan,” he said.
On the surface, it’s clear the “fiscal cliff” deal will not have a major impact on the deficit, he said. The tax increase on individuals and households that earn more than $400,000 and $450,000, respectively, will generate $600 billion in revenues over 10 years. But $60 billion a year represents roughly 6 percent of the annual $1 trillion deficit, Merkley said.
All cuts
The last time the government’s revenues and expenditures were in balance, they were both around 21 percent of the gross domestic product, he said. Now, revenues have shrunk to about 15 percent of the GDP, while spending has grown to about 23 percent, creating a growing deficit. Congress needs to create a framework to increase revenues and cut spending until those numbers gradually converge, he said.
“We know if we close that gap too quickly, we send the country into recession,” he said.
Economists have suggested that the $1.2 trillion of mandatory spending cuts would do just that, so sequestration should be replaced with a combination of revenue and cuts, Merkley said.
Because the “fiscal cliff” deal increased revenues by raising taxes on the wealthy, some members will say the next deal has to be all cuts, he predicted.
In a message to supporters Wednesday explaining his decision to vote in favor of the “fiscal cliff” deal, Rep. Greg Walden, R-Hood River, said he was frustrated that nothing was done to effectively cut spending.
“The plan that passed wasn’t perfect — in order to balance the budget, we need to do more to cut spending and grow our economy. But my principle has always been to secure tax relief for the most number of Americans as possible. And yesterday I voted to do that,” Walden wrote.
“Now that tax relief has been extended, it’s time for the president to work with Congress to get our nation’s fiscal house in order by addressing the underlying problem, which is spending. The national debt is currently $16 trillion and climbing, over $50,000 for every American. We must cut spending and grow our economy to avoid passing on an even bigger debt burden to our children and grandchildren.”
Three Oregonians
The “fiscal cliff” deal passed, with bipartisan support, 89-8 in the Senate and 257-167 in the House. Only 16 House Democrats voted against the measure, and three of those — Reps. Earl Blumenauer, Peter DeFazio and Kurt Schrader — are from Oregon.
DeFazio said he voted no because the deal hinders Congress’ ability to deal meaningfully with the deficit and burgeoning debt.
“The Senate plan pushes dumb, across-the-board spending cuts back just two months, creating yet another fiscal cliff crisis that coincides with the debt ceiling limit,” he said in a prepared statement. “This sets the stage for a massive attack on Social Security and Medicare under the guise of fiscal responsibility. Republicans are already proposing to increase the Medicare eligibility age to 67 and cut the cost of living adjustment for Social Security and veterans’ benefits.”
Schrader said that after the results of the November election, he hoped for a thoughtful discussion in Washington about how to intelligently enact a mixture of tax reform, entitlement reform and some discretionary cuts.
“The ‘fiscal cliff’ was designed accidentally and on purpose to make sure that we actually protected and grew this country going forward,” he said. “We did none of that with what we did yesterday.”
Liberal Democrats who insist that Medicare and Social Security can’t be touched are simply putting their heads in the sand and creating problems for future generations, he said.
“I strongly believe they are going insolvent. They need to be fixed,” he said. “The president is going to have to exert tremendous leadership and tell Democrats that we have to do entitlement reform. … I think Democrats need to get an education.”
