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Friday
Jan252013

US Politics Analysis: Why the Republicans Postponed the Showdown on the Debt Limit

On Wednesday afternoon the Republican-controlled House of Representatives passed a bill that extends the borrowing authority of the US Treasury to 18 May, even though the country’s legal debt limit has been reached.

Senator Harry Reid, the Majority Leader of the Senate, has indicated the bill will also clear his chamber without revision or amendment. With President Obama signalling he will not veto the measure, the fight in Congress over raising the debt limit -- originally set for late February, has been delayed until the summer.

The bill is not a blank-check increase in the debt limit. It includes a provision that the Senate must pass a budget resolution, which Republicans argue has not done in 4 years, with a penalty of deferring members’ pay until they do so.

An article at MSNBC summarised much of the initial reaction, "House GOP Cave Complete, Debt-Ceiling Suspension Passes". Allowing the debt limit to be raised, without securing spending cuts of an equal amount, the Republican leadership appears to have abandoned its hard-line stance of the threat of a debt default.Regarding this temporary extension as a “cave” is short-sighted at best, however, and it is just plain foolish at worst. The decision to pass the short-term bill was made at the annual Congressional Republican retreat in Williamsburg, Virginia, last week, after the House leadership conferried with, and listened to, the more conservative members of the GOP caucus. The party is still not unified --- 33 Republicans opposed Wednesday’s bill 000 but what emerged from Williamsburg was a strategy to force spending cuts on friendlier battlegrounds than those of the debt limit talks.

As Robert Costa, a writer for the National Review, tweeted the day before the vote in Congress: "Was outside the RSC lunch today, spoke with members as they left. If you think a 3-month extension means peace, think again.”

This bill, and the idea behind it, is a tactical retreat that allows the GOP to use its one effective weapon, a refusal to pass laws that do not cut overall government spending, to best advantage. A default on America’s debt would be disastrous for the economy --- though no one is quite sure what the implications would be in material terms --- and for the public image of a Republican Party hoping to pick up seats in the Senate in 2014.

Before the debt limit becomes an issue again in the summer, Republicans have three opportunities to forward their agenda of cutting government spending. The "sequester" is due to take effect in March, unless legislation is passed that revokes the scheduled deep cuts to the military and federal domestic programs. Republicans will not object if a way is found to reprieve the military from the sequester, but there is little that Democrats in Congress can do to halt the drastic cuts to non-military discretionary spending.

America currently spends $1.043 trillion on programmes that exclude the military and entitlements like Social Security and Medicare. The sequester will cut $69 billion. The Republican leadership, as part of the agreement in Williamsburg, has vowed it will not make any attempt to alter that part of the sequester --- whatever the consequences may be for military spending. With the GOP removing the insistence on no cuts to defence, Democrats can prevent the sequester hitting domestic programmes by conceding reforms to entitlement spending.

Another advantage for Republicans in dealing with the sequester first is that, if it occurs, $974 billion becomes the new baseline for discretionary spending. Even if the Senate Budget resolution merely seeks a return to spending at the $1.043 trillion mark, then Republicans can argue that Democrats have increased government spending dramatically. Moreover, with the sequester cuts in place prior to the debt limit debates in the summer, the GOP can seek additional decreases from that $974 billion figure.

After the sequester manoeuvres, Republicans will have the chance to continue pressing for spending cuts at the end of March, during the debates over continuation of Government funding and the negotiations over the budget for the next fiscal year.

The new objective for Republicans is to frame all arguments about Government spending around the goal of a balanced budget in 10 years. Measures that meet that aim without raising Government spending will be supported, and those that do not will be opposed. Rep. Paul Ryan (R-Wisc.) will soon produce a House Budget proposal for that balanced budget, and Republicans then hope they can begin a campaign to win back public support by contrasting that fiscally-responsible plan with the spending in the budgets of both the Senate and President.

If Republicans have failed to secure the cuts in Government spending they desire, then the threat of default, when the debt limit is reached in the summer, is the last option. With the GOP's interim steps before then, Democrats will be in the a quandary --- it is they, not the “crazy” Republicans, who will carry the burden of backing down to avoid a fiscal nightmare.

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