Another Year Older, 2 More Trillion In Debt.

Today’s Courier Herald Column:

As we end 2011, a review of the year’s histrionics from Washington have a common theme. Gridlock and stalemate between the House, Senate, and President brought us a year of the status quo.

Republicans who took control of the House with the strong backing of TEA Party conservatives have managed to block new spending, but the cuts promised to existing programs have mostly consisted of reductions in proposed future spending. They have demonstrated more success in thwarting new regulations from the Obama administration, with showdowns over rules imposed by the National Labor Relations board causing a shutdown of the FAA for a few weeks when Congress failed to renew the agency’s authorization.

The Senate, meanwhile, has not passed a budget in 973 days, as Republicans enjoy pointing out. They have instead relied upon a series of continuing resolutions to fund the federal government, with budget negotiations seemingly now an unending part of the Washington culture. Much of 2011 was spent with Congress setting deadlines for fiscal matters, only to miss them and extend for a few months. The dialogue was all about cutting spending and/or reducing the budget deficit. Or it was, until it came time to consider an extension of the payroll tax cut.

Just after last year’s mid-term elections, Democrats and Republicans joined together to pass a cut of 2% for workers’ social security payroll withholdings. The idea proposed by President Obama was straight from Republican supply side economics: Put more money into the hands of consumers and let consumer spending drive economic growth. Instead, a large rise in gasoline prices consumed most of the tax cut, and economic and employment growth remained stagnant most of the year.

The national debt, however, did not. While elected officials in Washington have worked to claim credit for tax cuts, boast that they have controlled spending, and blame the opposing party for failure to implement a long term strategy to balance the budget, the reality is that the country ends the year where it began: borrowing forty cents for every dollar the federal government spends.

While Washington bickered, the debt grew. Americans now collectively owe more than one and a half trillion dollars more than they did when the new year began. Worse, if the language is examined from the passage of the recent payroll tax extension, it is clear that both parties have adopted the view of Grover Norquist, and that failing to extend any temporary tax cut equates to voting for a tax increase.

By this estimation, the “temporary” payroll tax cut which will cost $200 Billion if extended again as expected through the final ten months of 2012 will actually cost $2 Trillion based on the same math Washington scores their spending “cuts. Cuts are generally now counted over a ten year period, with much of the proposed cuts coming in the later years, subject to be overridden – i.e, forgotten about – by future Congresses.

This Congress is already backing of the spending cuts which were agreed to as poison pills to ensure that the “Super Committee” would find an additional trillion in deficit cuts which were agreed to as part of an increase in the debt ceiling. That deal staggered the debt ceiling increase with proposed mandatory cuts, with most of the cuts coming from the Department of Defense. Politicians on both sides of the aisle are now reluctant to cut the defense budget, but the debt continues to accumulate. President Obama is expected to officially request the second part of the agreed to debt increase for another $1.2 trillion this week.

By the agreement reached with Congress, the request is automatic unless Congress votes it down. Expect more political theater and grandstanding, but nothing else. With the Senate unable to find 60 members who will vote in unison on anything, there is no way that this increase will not take effect. Thus, it’s equally safe to assume that the House is equally likely to vote to block it, presuming they return from their Christmas recess in time.

The vote must occur within 15 days, and Congress is not scheduled to return until January 17th. Awards for chutzpah should be given to any Congressman who chides the President for sneaking this through while Congress is taking an extended break, should they decide not to return early to address it. One could expect to run out of such awards, if they existed.

And so, we begin 2012 as we did 2011. It’s as if someone called for a do-over. Yet with the Presidential campaign now officially in full swing, it is doubtful that this time will be different.

5 comments

  1. saltycracker says:

    The payroll “tax cut” is an immediate gratification with long term consequences and should be criminal fraud. They reduced an insurance premium for a guaranteed payout from an inadequate fund.

    The debt reduction was to have been to reduce programs or increase revenues to pay for the essential ones.

    The spread between the average treasury return over the past 50 years and today is between 3.5% to 4% driving responsible citizens to take more risk. Combined with more dollars required for essential items this is a threat. The government is hand picking the winners and losers and crushing the responsible & retired by transferring money from the savers to debtors or non-producers via these artifically low interest rates.
    Soft landing or delaying the inevitable ?

  2. Dave Bearse says:

    I think your remark “with most of the cuts coming from the Department of Defense” is incorrect. The Defense Department to be subject to the largest cut of any department, but I understand it to be about one-half trillion, less than one-half.

  3. peachstealth says:

    Had Republicans proposed a cut in FICA with holding the Democrats would have accused them of trying to break the Social Security trust fund.

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