Now that we've moved past the tax portion of our never-ending series of fiscal cliffs, we're heading to the spending portion. Or at least that's what most of us thought after Barack Obama largely won the tax debate and got rates increased for those making more than $400,000 a year, along with a permanent Alternative Minimum Tax (AMT) patch that protects the middle class from the LBJ-era equivalent of the Buffett Rule. But in a rare press conference marking the upcoming end of Obama's first term in office, the president insisted on Monday that he would refuse to agree to any deficit solution that didn't present balance.
"Over the years," Obama told the White House press corps, "I've signed into law about $1.4 trillion in spending cuts." That may be news to most Americans, who see the federal government on track for a fifth straight year of trillion-dollar deficits under Obama. As these deficits show, Obama hasn't done anything to bring the government in line with its revenues. In the FY2009 budget that Democrats kept out of Bush's hands and which Obama approved in a final omnibus bill in March 2009, Bush proposed a spending level of $3.1 trillion, but Washington ended up spending $3.5 trillion instead, thanks in large part to the economic crisis.
That level of spending hasn't abated. In fact, it has increased. The budget submitted by Obama in early 2012 for FY2013 proposed $3.8 trillion in new spending, an increase of 31 percent over the final Bush-Democratic Congress budget, and a 9 percent increase over the budget Obama signed two months into his term. So where exactly has spending been "cut"?
Republicans want to change the trajectory of spending, a fight on which they have engaged since the 2010 midterms — without much success. They gained some leverage in the 2010 elections by taking the House, but had to scale back their demands for spending cuts to mere tokens while fighting increases on tax rates. They hoped to fight Obama on both spending and taxes in the 2012 election and agreed to short-term deals, only to see Obama and the Democrats win last November and leave them with slightly less leverage than before.
What can Republicans do to force Obama to start considering actual and significant cuts in spending — not just reductions in the rate of growth, but real cuts? Politico reported on Monday that Republicans on Capitol Hill are looking at two options: A credit default or a government shutdown, both based on the statutory debt ceiling. Neither option is risk-free, politically or economically, but the government shutdown option would probably give Republicans the best results — if they can manage it properly.
A debt ceiling, after all, only allows the federal government to spend money already allocated by Congress. Obama made this point repeatedly on Monday, offering a restaurant analogy to claim that he's only being fiscally responsible by insisting on a clean debt-ceiling increase. "You don't go out to dinner and then, you know, eat all you want and then leave without paying the check," Obama lectured NBC's Chuck Todd. "And if you do, you're breaking the law." The only problem with that analogy is that we're not paying our bills; we're adding to the running tab and borrowing 40 cents on the dollar to make it look like we're covering our obligations. It also ignores the fact that Obama himself voted to block a debt-ceiling increase in 2006, and that Democrats in the Senate threatened to do the same thing in 2009.
One other problem that Obama failed to mention is the manner in which Congress has authorized the spending. Congress traditionally raised the debt ceiling in the normal budget process, but we haven't had a normal budget process for over 1,350 days. Harry Reid refuses to produce a normal budget, in part to keep the spending baseline at FY2010 levels, when Democrats last controlled both chambers of Congress.
The debt ceiling has been the only real leverage the GOP has to force some sort of budget reform, but it's a dangerous weapon. So far the bond markets have been tolerant of the American budget muddle, mainly because there aren't too many other havens than the U.S. dollar. But that won't last forever. If the U.S. actually does default, or if the bond markets decide to punish the U.S., it will make future borrowing even more costly, which will drive up deficits even faster. That has very bad ramifications for the American economy, potentially for years after this standoff gets resolved.
By contrast, a government shutdown — or at least the threat of one — makes more sense. For one thing, it actually addresses the problem of government spending by refusing to allocate any more funding, rather than refusing to authorize borrowing for spending already approved. The current continuing resolution runs out on March 27, at which point most functions of the federal government have to stop without approved funding from Congress. John Boehner promised his caucus that he would insist on a return to normal order in the budget process; this would be a perfect time to demand a budget from the Senate instead of getting caught up in White House negotiations intended to bypass the normal budget process yet again. A refusal by Harry Reid would give House Republicans an opportunity to pass a budget without the Senate — and then insist that it's Reid who shut down the government by violating the Congressional Budget and Impoundment Control Act of 1974.
Of course, Republicans remember all too well that they attempted to force a budget victory in 1995 over Bill Clinton with a government shutdown, and ended up losing the political war. That case, however, differed from today in a couple of significant ways. The deficit was much smaller, although still politically potent, and Clinton had already started to triangulate after the 1994 midterm fiasco for Democrats. The budget standoff looked much less like a crisis than a public-relations stunt for the new Contract with America majority. In this case, the crisis is obvious and very potent politically, although not certain by any means to favor Republicans. It will take a great deal of effort to get the messaging started immediately for a March 27 standoff over budgeting for the rest of FY2013, an effort that Republicans haven't done much in the last two weeks to push.
The GOP should forget the ghosts of 1995 and force the showdown over the real issue — out-of-control spending. At this point, after the beating Republicans took in November and the disarray after the New Year's Day fiscal-cliff deal, they don't have much to lose, especially by fighting on the high ground and forcing Democrats to defend inflated spending.