The Budget Battle Has No Winners

Finally, agreement in the battle over the U.S. budget — but nobody came out ahead. The cuts affect members of both parties.

At exactly 8:40 p.m., President Barack Obama announced with relief that the White House and the Democrats and Republicans in Congress had reached agreement on a plan to allow a debt ceiling increase. In broad terms, the compromise will be a two-step process.

In order to pay its bills, the United States has to borrow another trillion dollars in the next six months in addition to the $14 trillion it owes for past debts. In order to keep this debt mountain from growing any larger and to begin reducing that debt, the first step will be to cut $1 trillion in spending across the board over the next decade, covering all spending from social to defense outlays.

This first step wasn’t particularly controversial. Republicans, however, wanted to make a point by way of not approving any new borrowing. But America was short some $2.7 trillion needed to pay for loans already in existence up to 2013, i.e., some $1.7 trillion more than the Republicans were willing to agree to. Obama would have been forced to beg for another debt ceiling increase in another 12 months at the latest — and that in the midst of an election campaign.

The Public Demanded an Agreement

The negotiations wound up in a dead end but voters put pressure on their representatives and senators. They wanted to avert a default at all costs and they lit up congressional switchboards. A majority of Americans wanted a compromise.

So negotiators got together again over the weekend and came up with a second debt-cutting measure that determines the rules: By the end of November, a bipartisan commission must come up with a recommendation to reduce outlays a further $1.7 trillion. If the commission is unable to reach an agreement by then, $1.7 trillion in cuts would automatically go into effect without further debate.

Cuts Across the Board

These cuts are already predetermined. They will be across the board and will be considerably more painful for both parties and their constituents than were the first round of cuts. Other parts of the defense budget as well as welfare and social programs will be slashed.

Actually, there’s a third step that is supposed to happen in tandem with the first two: Congress is to pass a constitutional amendment requiring a balanced federal budget in the future. But it’s already clear that neither the House nor the Senate will be able to muster up the two-thirds majority necessary for passage. Step three remains a farce.

So who came out winners? The Republicans who wanted nothing but budget cuts and no revenue increases at any cost? Or the president and his Democrats who wanted to balance any cuts in social spending with increases in revenues such as the elimination of tax breaks and rebates for oil corporations as well as for the richest Americans earning more than $250,000 annually?

No More Than a Bad Compromise

Both parties lost. Neither got what it wanted. Basically, it’s a bad compromise that only prolongs the old battle without any sign of how it will end. But a bad compromise was the only possible outcome this time because a default by the United States would have caused a global economic disaster.

The trick now will come with step two. Where do they cut the $1.7 trillion in spending? Both sides will soon be facing one another again. Republicans will demand spending cut upon spending cut. They want to shrink social welfare programs at any cost.

Democrats will promptly respond that program cuts have to be balanced with higher taxes on the wealthy. They want to reform social welfare programs but not eliminate them completely.

To get both sides to agree by November, it’s already been agreed that automatic across the board cuts will take place if there’s no compromise. The motivation here is the hope that both Republicans and Democrats will find those cuts so painful and the public will find them so incomprehensible that the only option left is a negotiated solution consisting of both program cuts and tax increases.

After everything we’ve seen in the halls of Congress over the past several months only one thing remains to be said: If you want to believe it, it’s true.