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<\/a>The Pres\u00adi\u00addent and Speak\u00ader are head\u00aded for anoth\u00ader bud\u00adget con\u00adfronta\u00adtion. [Cred\u00adit: Fox News]<\/p><\/div>Con\u00adgress is on hol\u00adi\u00adday, rest\u00ading up for the next round of bud\u00adget wars that will resume after Labor Day. The issues they will face when they return are famil\u00adiar: the fed\u00ader\u00adal gov\u00adern\u00adment is about to lose author\u00adi\u00adty to do what it does best (or, at least, most nat\u00adu\u00adral\u00adly) \u2013 bor\u00adrow and spend. \n
Absent a fresh appro\u00adpri\u00ada\u00adtion of funds, gov\u00adern\u00adment agen\u00adcies will close Octo\u00adber 1; and unless Con\u00adgress agrees to raise the government\u2019s cred\u00adit card lim\u00adit, Trea\u00adsury will default on its debt at a yet-to-be-deter\u00admined date in Octo\u00adber or November.<\/p>\n
The posi\u00adtions tak\u00aden by the two par\u00adties also are famil\u00adiar. The Pres\u00adi\u00addent wants a straight increase in the debt ceil\u00ading, while Repub\u00adli\u00adcans insist on pair\u00ading new bor\u00adrow\u00ading with spend\u00ading reduc\u00adtions. The Pres\u00adi\u00addent says that he will not nego\u00adti\u00adate <\/a>with Repub\u00adli\u00adcans on this point. On appro\u00adpri\u00ada\u00adtions, House Repub\u00adli\u00adcans favor steep cuts in domes\u00adtic spend\u00ading pro\u00adgrams, but pre\u00adfer a soft\u00ader approach to Pen\u00adta\u00adgon spend\u00ading. A fac\u00adtion of Repub\u00adli\u00adcans wants to up the ante, argu\u00ading that Con\u00adgress shouldn\u2019t fund any gov\u00adern\u00adment agency<\/a> unless the Pres\u00adi\u00addent agrees to a pro\u00advi\u00adsion that would pre\u00advent the imple\u00admen\u00adta\u00adtion of Oba\u00admacare. It is unclear whether GOP<\/span> lead\u00aders will join in mak\u00ading this demand.<\/p>\n The Pres\u00adi\u00addent advo\u00adcates what he calls a \u201c<\/span>bal\u00adanced\u201d approach<\/a> to deficit reduc\u00adtion \u2013 bal\u00adanced because it includes a mix of spend\u00ading cuts and tax increases.<\/p>\n A snap\u00adshot of fed\u00ader\u00adal spend\u00ading<\/a> released ear\u00adli\u00ader this month by the Con\u00adgres\u00adsion\u00adal Bud\u00adget Office (CBO<\/span>) shows that the deficit is com\u00ading down faster than it ever has, though hard\u00adly in a bal\u00adanced way. The deficit will be sub\u00adstan\u00adtial\u00adly low\u00ader this year than last large\u00adly because of tax increas\u00ades, low\u00ader unem\u00adploy\u00adment ben\u00ade\u00adfits, and the return to prof\u00aditabil\u00adi\u00adty of Fan\u00adnie Mae and Fred\u00addie Mac.<\/p>\n CBO<\/span> now pre\u00addicts that this year\u2019s deficit will be $642 bil\u00adlion, down from $1.09 tril\u00adlion <\/a>last year. If they\u2019re right, that would be the first year since 2009<\/a> that the gov\u00adern\u00adment bor\u00adrowed less than $1 tril\u00adlion and the biggest one-year decline in the deficit ever.<\/p>\n The chart above (click on it to enlarge) shows how that deficit reduc\u00adtion is being achieved.<\/p>\n If that seems a lit\u00adtle gim\u00admicky, well, it is. But it\u2019s not the only gim\u00admick con\u00adtribut\u00ading to this year\u2019s his\u00adtoric drop in the deficit. Recall that the Fed\u00ader\u00adal Reserve has been buy\u00ading up $45 bil\u00adlion per month in Trea\u00adsury bonds. In all, the Fed held near\u00adly $2 tril\u00adlion in fed\u00ader\u00adal debt (and anoth\u00ader $1.3 tril\u00adlion in mort\u00adgage-backed secu\u00adri\u00adties) as of last week<\/a>. The Trea\u00adsury pays inter\u00adest on this debt to the Fed which \u2013 you guessed it \u2013 returns those inter\u00adest pay\u00adments to the Trea\u00adsury. Last year, the Fed paid a record $88.4 bil\u00adlion<\/a> to the Trea\u00adsury Depart\u00adment, mon\u00adey that also helps reduce the deficit. Here\u2019s how it works: 1) the Fed\u00ader\u00adal Reserve \u201cprints mon\u00adey\u201d to buy Trea\u00adsury debt; 2) the Trea\u00adsury pays inter\u00adest on that debt to the Fed; 3) the Fed gives the inter\u00adest pay\u00adments back to the Trea\u00adsury. Voila! $88.4 bil\u00adlion in gov\u00adern\u00adment \u201creceipts\u201d that help tamp down the deficit.<\/p>\n In a sep\u00ada\u00adrate but relat\u00aded action, the Fed also has held down inter\u00adest rates, enabling the gov\u00adern\u00adment to bor\u00adrow at very low cost. As a result, the Trea\u00adsury has so far made about $5 bil\u00adlion less in inter\u00adest pay\u00adments than it did last year, despite hav\u00ading to ser\u00advice hun\u00addreds of bil\u00adlions of dol\u00adlars of more debt. The gov\u00adern\u00adment has bor\u00adrowed more, but paid less in inter\u00adest. Go figure.<\/p>\n Togeth\u00ader, that com\u00adbi\u00adna\u00adtion of high\u00ader tax\u00ades, flat spend\u00ading, reduced unem\u00adploy\u00adment ben\u00ade\u00adfits and a strange brew of gim\u00admicks are on track to pro\u00adduce sub\u00adstan\u00adtial deficit reduc\u00adtion. And while it includes some\u00adthing to offend every\u00adone, the poli\u00adcies behind that reduc\u00adtion are much clos\u00ader to those of the Pres\u00adi\u00addent than to those of Republicans.<\/p>\n That\u2019s cer\u00adtain\u00adly true of tax\u00ades, which account for over 70 per\u00adcent of the deficit reduc\u00adtion. Anoth\u00ader 23 per\u00adcent derives from gim\u00admicks that nei\u00adther par\u00adty nec\u00ades\u00adsar\u00adi\u00adly advo\u00adcates but both are hap\u00adpy to accept. The UI<\/span> cuts are cycli\u00adcal by design, ris\u00ading and falling with the unem\u00adploy\u00adment rate, a pol\u00adi\u00adcy that has had bipar\u00adti\u00adsan sup\u00adport since the 1930s. Enti\u00adtle\u00adment spend\u00ading has fol\u00adlowed the tra\u00adjec\u00adto\u00adry favored by the Pres\u00adi\u00addent, with those pro\u00adgrams con\u00adtin\u00adu\u00ading to grow auto\u00admat\u00adi\u00adcal\u00adly at uncon\u00adtrolled rates. With the imple\u00admen\u00adta\u00adtion of his health care law, that spend\u00ading will go high\u00ader still begin\u00adning next January.<\/p>\n Seques\u00adtra\u00adtion is the only pol\u00adi\u00adcy that reflects the Repub\u00adli\u00adcan com\u00admit\u00adment to reduce spend\u00ading, although the across-the-board approach is by no means their ide\u00adal option. They want to replace some of those cuts, par\u00adtic\u00adu\u00adlar\u00adly in defense spend\u00ading, with enti\u00adtle\u00adment sav\u00adings, some\u00adthing that the Pres\u00adi\u00addent has so far suc\u00adcess\u00adful\u00adly resist\u00aded. Fail\u00ading that, Repub\u00adli\u00adcans pre\u00adfer across-the-board cuts to no cuts at all.<\/p>\n Although he is win\u00adning on tax\u00ades and enti\u00adtle\u00adment spend\u00ading, the cuts in domes\u00adtic dis\u00adcre\u00adtionary spend\u00ading con\u00adtin\u00adue to trou\u00adble the Pres\u00adi\u00addent. He signed a \u201cstim\u00adu\u00adlus\u201d bill on his first day in office that dra\u00admat\u00adi\u00adcal\u00adly increased that spend\u00ading. By 2010, it had reached $658 bil\u00adlion<\/a>,<\/span> 26 per\u00adcent high\u00ader than in 2008. In nom\u00adi\u00adnal terms, spend\u00ading has not reached that lev\u00adel before or since; it rep\u00adre\u00adsent\u00aded 4.5 per\u00adcent of GDP<\/span>, high\u00ader than in any year since 1981. The GOP<\/span> vic\u00adto\u00adry in the 2010 Con\u00adgres\u00adsion\u00adal elec\u00adtions pro\u00adduced a sharp rever\u00adsal in for\u00adtunes. The Bud\u00adget Con\u00adtrol Act caps domes\u00adtic dis\u00adcre\u00adtionary spend\u00ading at $469 bil\u00adlion<\/a> in 2014, below its 2008 lev\u00adel, and House Repub\u00adli\u00adcans want to push it low\u00ader still.<\/p>\n The Pres\u00adi\u00addent will fight to dri\u00adve that spend\u00ading high\u00ader this fall and push for more tax increas\u00ades. He will meet stiff resis\u00adtance from Con\u00adgres\u00adsion\u00adal Repub\u00adli\u00adcans, who want to hold the line on tax\u00ades, pare enti\u00adtle\u00adment spend\u00ading, and delay imple\u00admen\u00adta\u00adtion of Oba\u00admacare. All of which makes for enter\u00adtain\u00ading spec\u00adta\u00adcle whose out\u00adcome remains uncertain.<\/p>\n To this point, though, the Pres\u00adi\u00addent has pre\u00advailed on enti\u00adtle\u00adment spend\u00ading and tax\u00ades. Repub\u00adli\u00adcans are get\u00adting their deficit reduc\u00adtion but the Pres\u00adi\u00addent is get\u00adting his way.<\/p>\n","protected":false},"excerpt":{"rendered":" Con\u00adgress is on hol\u00adi\u00adday, rest\u00ading up for the next round of bud\u00adget wars that will resume after Labor Day. The issues they will face when they return are famil\u00adiar: the fed\u00ader\u00adal gov\u00adern\u00adment is about to lose author\u00adi\u00adty to do what \u2026 Con\u00adtin\u00adue read\u00ading <\/a><\/p>\n\n