'Controlled Default' Risk for US Government: Service Cuts Plan Ready

Republicans want to steal funds from health care reform to finance government agencies, but Obama has let them know that this will not happen. Without an agreement on the debt ceiling, the government will no longer be able to pay salaries and meet obligations to creditors for the first time since 1996. Liquid funds will still be available until mid-October. Then, they will be forced to close down part of the administration.

A new chapter, an old script: The battle over raising the debt ceiling in the U.S. brings back to the foreground one of the central elements of U.S. policy in recent years, the clash between the White House and Republicans in Congress. After the vote in the House — 238 against 189 — to refinance federal government agencies but siphon funds from health care reform, Barack Obama called up John Boehner and explained to him that he will not negotiate over the debt ceiling. If they do not come to an agreement, the outcome is already determined: the closure, at least partial, of the U.S. government, which will no longer be in a position to pay salaries and meet obligations with creditors starting in October.

This new clash has a defined path, even if the outcome remains difficult to predict at the moment. The measure the House voted on binds the refinancing of the federal government on Dec. 15 to the cancellation of funds for “Obamacare” and will be considered in a few days in the Senate, which has a Democratic majority. It is expected that the Senate will send the bill back to the House, approving only the part about the debt, separate from the clause about health care. At that point, John Boehner and the number two House Republican, Eric Cantor, have to decide what to do: whether to defer the conflict or go all the way — as representatives close to the tea party and the more conservative sectors of the party would like — and start a war against Obama on the subject of health care reform, the most important success in the president’s five-year presidency and something that U.S. conservatives have never accepted.

At that point, if Boehner and the Republicans choose the hard line, the most likely scenario is precisely that of default. Against this eventuality, White House Office of Management and Budget Director Sylvia Mathews Burwell is standing ready, having developed with the heads of various agencies a plan for the “orderly” reduction of activities of the federal government — to protect “the safety of human life or the protection of property,” as Burwell has written. In other words, other than essential services, everything else will be suspended: Soldiers will continue to go on missions but not be paid salaries; monuments and national parks will be closed within 48 hours; thousands of public servants will be put on unpaid leave. The situation will be sudden, as was the one that occurred in November 1995 when 800,000 public sector workers were sent home.

“This is the United States of America … This is not a deadbeat nation. We don’t run out on our tab,” Obama said during a visit to a Ford factory in Missouri. The president has been very tough on Congress:

“They’re not focused on you. They’re focused on politics … they’re focused on trying to mess with me,” he said, reiterating that there can be no bartering between raising the debt ceiling and health care reform, which will be fully operational on Oct. 1.

On the other side of the issue, Republicans seem no less likely to bring the fight to the extreme. Eric Cantor has specifically aimed at Democrats who will be up for re-election during the upcoming midterm elections in states governed by Republicans and has asked them to consider what Americans want, “Most Americans want to see this health care bill gone.” It is a clear warning about the possible political backlash that could hit those Democrats who insist on supporting “Obamacare.”

According to many people in Washington, this umpteenth challenge could actually lead to the dreaded default for two reasons: On the one hand, Obama and Democrats have read the recent polls, according to which, the American people would blame Republicans for the default, and they have every political interest in the partial suspension of government activities. On the other hand, House Republicans close to the tea party must mobilize their constituency on a subject of high “ideological purity,” such as health care reform, and demonstrate opposition to Obama’s policy before their return to the ballot box in 2014. John Boehner, often accused by the most radical sections of his party of having conceded too much politically to Obama in recent years, would be forced to yield to those voters and close off every small possibility of negotiation. The instructions from the White House’s budget director to the heads of government agencies, as well as the details on how to deal with the emergency, seem to be further evidence of the possible closure of the U.S. government.