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Beyond the 'cliff': Why spending cuts are next on the agenda (+video)

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“President Obama declared the other night that those he calls ‘rich’ are now paying their ‘fair share.’ So it’s time to move on," Senate minority leader Mitch McConnell (R) of Kentucky said Thursday. "The president got his revenue, now it’s time to turn squarely to the real problem, which is spending."
Economic reality. Bringing the deficit under control will require restraint on the spending side, as well as the new tax revenue that Obama has won. Here's a reality check: This week's fiscal deal includes an estimated $650 billion in deficit reduction over 10 years, compared with a "baseline" in which all Bush tax cuts and some other key policies were extended. But over the next 10 years budget deficits were on track to total $7.9 trillion, according to the nonpartisan Committee for a Responsible Federal Budget (CRFB).
So the Jan. 1 accord cuts deficits over the next 10 years by less than one-tenth. Few budget analysts are hoping for policymakers to bring deficits down to zero, but a widely voiced hope is that further bargaining could bring total deficit reduction to $4 trillion. That amount could make the difference between the national debt continuing to rise or falling somewhat, as a percentage of the year's gross domestic product (GDP).
For the economy, stabilizing or reducing it can pay big dividends. It would maintain investor confidence, a key enabler of job creation, whereas economic research suggests that the pace of GDP growth slows when debt is high and rising.
Deadlines. Americans may be tired of the "cliff" metaphor that abounded in news reports leading up to Jan. 1, but now a new day of fiscal reckoning looms, in early March. The agreement just passed by Congress postponed sizable automatic spending cuts, which had been scheduled for January, until March 1. Neither side likes that automatic approach, called "sequestration." But to avoid it, they'll need to cut a bargain on spending.
Adding to the pressure: In early March, the government will start having trouble getting by without borrowing more money by issuing Treasury bonds and notes. For the government to borrow more, Congress must approve a hike in the official debt limit. Republicans don't want to agree to that unless a spending-restraint deal is reached, perhaps including some reforms of Social Security or health-care programs.

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