A new budget kabuki begins


The actual law that was passed in the wake of the debt ceiling deal is a very detailed and complicated 28-page document. Given that the deal was supposedly agreed upon on Sunday, July 31 and was passed by both chambers and signed into law just two days later, I am amazed at how such a complex legal document could have been prepared in such a short time, even allowing for the massive resources the government has at its disposal. Now that the dust seems to have settled on the debt ceiling deal, let’s see what it says and what is likely to happen. As I said, it is quite complicated and I am not certain that I have all the details right.

It calls for immediate spending caps to be shared equally between defense and non-defense spending to reduce the deficit by $1 trillion over a ten-year period. The novel feature is that a new 12-person Joint Select Committee (popularly referred to as a ‘Super Committee’) has been charged with creating a plan to reduce the deficit by an additional $1.5 trillion over the decade covering fiscal years 2012 through 2021. The new committee will be made up of three Republican senators (appointed by the Senate Minority leader), three Democratic senators (appointed by the Senate Majority leader), three Republican members of the House of Representatives (appointed by the Speaker) and three Democratic House members (appointed by the House minority leader).

These 12 members are expected by November 23 to approve a plan by a simple majority vote. The two chambers of Congress and their committees can then debate this plan but cannot amend it or delay it. All they can do is vote to approve or reject the entire package, which they must do by December 23, just in time for Christmas, because nothing creates an air of holiday cheer more than enacting hardship on poor people. If a plan that cuts at least $1.2 trillion is not signed into law by the deadline, automatic cuts (‘sequestration’) of whatever amount is needed to reach $1.2 trillion goes into effect. According to the White House, the cuts would be such that “the sequester would be divided equally between defense and non-defense program, and it would exempt Social Security, Medicaid, unemployment insurance, programs for low-income families, and civilian and military retirement. Likewise, any cuts to Medicare would be capped and limited to the provider side.”

This report by the Center for Budget and Policy Priorities explains in some detail what is involved in sequestration. The Center’s head Robert Greenstein warns of the serious implications of this deal.

This plan sets up an interesting dynamic, so let’s see how this might play out. I will follow my usual practice of predicting that the most cynical option, the one that benefits the oligarchy the most, will end up as the winner.

I think it is highly unlikely that the trigger of automatic spending cuts of $1.2 trillion will be allowed to go into effect, simply because the defense industry, an integral part of the oligarchy, will not allow cuts in those areas that can really save money, which are the enormously expensive weapons programs that are essentially a government subsidy to the defense industry. Defense Secretary Leon Panetta has already gone on board against any suggestion of this sort, calling it a ‘doomsday mechanism’ and he will fight it tooth and nail. When the time comes near, if the many wars that the US is involved in are going well (whatever that means), he will argue that it would be madness to cut military spending when we are so close to winning. If the wars are stalemated or going badly, he will argue that he needs more resources to turn things around. So I predict that the automatic cuts will not occur.

This means that the Super Committee has to come up with a plan that will reduce the deficit. They can do this by a mixture of raising revenues (mostly taxing the rich) or cutting expenses. Since the oligarchy wants their taxes further reduced, you can be sure that the Republicans will oppose any tax increases on the rich so that means that the $1.2 trillion deficit reduction will have to be reached using spending cuts, and this is where the assault on Social Security, Medicare, and Medicaid and other programs to protect the elderly and the poor will occur. All it takes is for one Democratic member out of the six to vote with the Republicans for the plan to get out of committee, and it is not hard to see that happening, with that person saying it was for the sake of ‘bipartisanship’ and to ‘save the country’.

The rest of Congress with then be placed in the position of having to approve the entire plan or rejecting it and seeing the automatic cuts go into effect. Since cutting defense spending would go against the interests of the oligarchy, the Democratic party leadership will say they have no choice but to vote in favor of the plan, even though they dislike it. (In fact, this is why I think that the automatic cuts plan called for half to come from defense. It is there as a poison pill, so that it will never happen.) At the moment Nancy Pelosi says that her party will fight all cuts to entitlement benefits but her promises mean nothing. She and Harry Reid will agree to go along with the plan.

And while the White House says that the president “will insist on shared sacrifice from the most well-off and those with the most indefensible tax breaks”, we already know what Obama’s promises are worth on this score. After all, Panetta has already said that instead of defense, the cuts should come from Medicare and Social Security. He has made it clear that he is speaking not just on his own behalf but that Obama supports his views.

When it comes time to sign the final bill, Obama will once again do his patented regretful sighing act and say that while he would have liked to see taxes raised on the rich, for the sake of the country he will sign the bill.

So that is my prediction for the script for the latest kabuki drama that will unfold in the next six months. Of course, there are many other scenarios that can play out. I have picked the most cynical because that is usually the most accurate predictor of events.

As always, I would be delighted to be wrong.

Comments

  1. Bruce says

    An early indication of whether we should take this Supercommittee seriously is whether the members of the “Gang of Six” are appointed. I don’t like the deep cuts recommended by the “Gang”, but I do believe they took their jobs seriously and did lots of research and work to come up with a solution to long term debt.

    My guess is that the democrats (Durbin, Warner, Conrad) are appointed, but the republicans are not. Due to the screeching insistence that no tax-raising republicans are allowed on a panel for compromise, the names of Chambliss, Coburn, and Crapo will be replaced by those unwilling to work with the other side.

    Compromising democrats combined with noncompromising republicans? The result: your prediction comes true.

  2. says

    Sounds about right. Since the outcome of this particular charade is so predictable, we need to look at any possible opportunities in the short- to medium-term to showcase the predatory nature of the corporate oligarchy.

    The event I’m waiting for is the back-door enactment of a corporate tax holiday allowing the “repatriation” of some of the $1.9 trillion booty that corporate America has amassed while the rest of America suffered. Much of this money, which could create a lot of jobs (if they actually wanted to) or pay a lot of tax, has been stashed in offshore tax havens. Pfizer, to take just one example, actually reports losses in the U.S. – where it writes off its research, marketing, and management costs – while accumulating huge profits abroad from royalties registered to foreign subsidiaries.

    I would expect a certain number of Democrats to sign on to this obscenity, but if they do the pressure mounting in the country will build even higher.

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