The ship of state is sailing into a dangerous triangle. No, not the unknown dangers of the Bermuda Triangle. But into the well-known dangers of a fiscal triangle of disaster. And the arrival date is also-known: January 1, 2013.
The three points of the triangle are the start of the automatic sequestration mandated by the Budget Control Act of 2011, the expiration of the medley of forty-seven tax cuts known as the Bush tax cuts and the need to once again raise the debt ceiling, perhaps even before the end of the year. The $110 billion sequestration in the first nine months of 2013 requires a twelve percent across the board cut in defense and discretionary domestic spending. These cuts and the estimated $500 billion in 2013 tax increases, including the payroll tax, would not be large enough to avoid raising the debt ceiling. Together, the tax increase and sequestration could reduce the Gross Domestic Product (GDP) by up to four percent. Double dip recession anyone? How about a depression?
The conventional wisdom is that Congress and the president will address these issues during a lame duck congressional session after the November 6th election and a grand compromise will be reached as was done in December 2010. But this is not 2010. There are more issues and more complex ones and likely an even more toxic environment.
First, the obvious. Yes, there will be an election. But the problem will have to be solved by the present president and congress. President Obama will be in office until at least January 20, 2013 and the new congress will not be seated until January 2nd at the earliest The election, with all the possibilities of recounts and claims of irregularities are unlikely to improve the chances for comity and compromise. And based on the primaries so far, Super PACs will not have a positive effect. Why is it reasonable to believe that the atmosphere for a resolution of these long-standing disputes will be easier rather than harder?
If Republicans hold the House or make other gains, why would they agree to change their position against any tax increases? If Democrats hold the presidency or Senate, or make major House gains, why drop insistence on new revenues or protecting entitlements. And why should Tea Party zealots agree to another debt ceiling increase? And a close election such as that for president in 2000 or the Minnesota Senate seat in 2008 could embitter the political process just when comity is needed.
Then there is the timing problem. In the absence of Congressional direction the Internal Revenue Service (IRS) may have to again delay finalizing tax forms and instructions, thereby delaying collections and increasing the need to borrow. The Pentagon and other government departments will begin drawing up contingency sequestration plans this summer and, unless a resolution seems likely, will have to begin preparations for the cuts in the fall. Government contractors will have to follow suit and, in some cases, issue layoff notices by late October to meet legal requirements. How do airlines plan for a cut in Air Traffic Control assets? How can court dockets be scheduled if U.S. Marshals are cut significantly? Procrastination by politicians can impose painful costs on governments, individuals and businesses.
How can this recognized disaster in waiting be avoided? Maybe it cannot. But if it is to be avoided, we cannot wait until a lame duck session to begin. This issue, even more than the long-term debt and deficit issue, must be discussed during the presidential campaign and each side's position made clear. The presidential and congressional candidates should be required to give specific answers to the following questions:
· Will you allow automatic sequestration of defense and domestic funds to go into effect as scheduled? If not, how would you address the deficit problems created?
· Which of the tax cuts due to expire at the end of the year would you allow to expire and which would you recommend be retained?
· What conditions, if any, would you attach to a debt ceiling increase?
Only by discussing these issues and presenting the electorate with a clear choice can the winners claim a mandate to induce Congress to act and provide the Senate and House with political cover to take unpopular steps. But the result could also be unclear or at least indecisive. We muddled through in December 2010 and again in the debt ceiling fiasco last summer. We may well be out of muddle room.