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US Budget wars, version 2011: Tonight we’re gonna rock like it’s 1995

US Budget wars, version 2011: Tonight we’re gonna rock like it’s 1995

These days, tough budget battles are being fought both at the federal and state level and the US government finds itself in danger of being shut down, sort of. The last time it happened the Republicans, led by Newt Gingrich, were outsmarted and outplayed by Bill Clinton. The jury is still out on whether they learnt any lessons from the mauling of 1995. By BROOKS SPECTOR.

Back in the winter of 1995, a real winter of our discontent in America, the Republican congress with Newt Gingrich as its leader and Democratic president Bill Clinton went toe-to-toe over national government spending cuts. Thinking back on it, it had all the pumped-up, hyperbolic emotion of that automobile chicken scene in “Rebel Without A Cause”, the duel to the death between James Dean and Corey Allen’s characters – while Natalie Wood and Sal Mineo watched with fascination and horror.

But returning to the US government, 1995 had a bureaucratic duel with death as the two sides’ mutual inability to pass a federal budget before a series of temporary, interim budgets ran out meant the federal government quite literally ran out of money – the national parks were closed, new social security pension cheques were late, civil servants’ salaries were not paid and even the Washington Monument and the Smithsonian museums were shuttered to the great consternation of unbelieving foreign and domestic tourists.

By most accounts – except perhaps his own – Newt Gingrich’s brinksmanship ultimately failed on this occasion. Popular opinion turned against the Republicans in the next election and Clinton went on to a second term as the Republicans were tagged with the blame for the shutdown.

The shutdown didn’t actually shutter the entire US government. The military still had all their toys to play with, air traffic controllers still brought airliners safely to their destinations, the FBI, Secret Service and ATF officers still brought bank robbers, drug dealers, cigarette tax cheats and counterfeiters to book, the Supreme Court still sat and embassies still did whatever it is embassies do. But anything deemed nonessential was actually shut down as government funding was not passed by congress and signed by the president in time because of the dispute between the two sides.

Or, mostly they were shut. In 1995, I was back in Washington on an assignment after more than a decade living abroad. As a mid-level diplomat  in Washington, my job was to backstop American embassies in East Asia for their work in educational and cultural exchanges, managing American libraries and cultural centres, supporting media activities and assisting with the early days of an American embassy Internet presence in countries like Japan and Korea.

When the government shutdown actually happened, essential workers were told to stay at their desks, non-essential ones went home to contemplate their potential cosmic irrelevance. Diplomats, as one would expect, sought compromise. As a result, on Monday, Wednesday and Friday of the first week of the shutdown part of the staff was essential, and on Tuesday or Thursday the other part. The next week was the reverse.

One day while I was in the office, I ended up tracking down another lonely, fellow-essential employee at Nasa to locate some space flight video clips for a US aerospace trade fair in Singapore. The embassy there reasoned that Singaporeans would simply be unwilling to believe the US government had committed ritual suicide over a spat fight between Republicans and Democrats. National honour saved, courtesy of Fedex.

Photo: Then President Bill Clinton waves as he is welcomed to the House Chamber as he arrives to deliver his State of the Union address in 1997. Then House Speaker Newt Gingrich applauds in background. Reuters.

Then, a few days later, when I was unessential, after having had my office email routed to my home, I stumbled on one of those wild rumours that now sweep the Internet routinely. Back then, lots of people seemed to believe that if it was on the Internet, it was true. Period. And so, a seriously credulous, but foolish foreign student advisor at a university in Texas, having misinterpreted the temporary government shutdown as the permanent closure of the US embassies in Pakistan and Korea, had created a real – not virtual – international panic among Koreans and Pakistanis that there would never be any student visas to America, ever again. Wielding my trusty Apple computer and powerful 28.8k modem, I tracked him down in Texas, and eventually managed to convince him I really was from the government and I really was there to help him – and, most importantly, that the embassies were not on the verge of becoming big box, wholesale stores. This became the first time I really felt the power of the Internet and what it could do with a bunch of innocent electrons.

And in the rest of my non-essential, down time at home, I spent my energies calling the bank that held my house bond and various credit card companies to tell them that since I was not getting paid my full salary during the shutdown, I probably wasn’t going to send them their cheques for their full payments either. Not many happy-sounding voices in those calls.

In 1995, full of enthusiasm and hubris after winning a sizeable house of representatives Republican majority in the 1994 election with his “Contract with America”, Newt Gingrich held firm on cuts in government spending. The Clinton administration was just as resolute to keep various social welfare programmes from any major downsizing or even abolition.

But the Clinton forces made their threat to close the government rather than give-in to the Republicans sound a whole lot more compassionate, humane and, above all, rational than the Republicans’ insistence cuts would help the average taxpayer. Clinton forces used their discretionary administrative authority to close those popular national parks and send home the park rangers, to terrify the elderly with the fear that social security payments would be delayed (printing cheques wasn’t a core, essential function) and even frighten US overseas travellers that they would be at the mercy of  kleptocratic dictatorships while travelling because American consulates would have to draw down on such US services as replacement passports for those lost or stolen.

Sixteen years later, a rowdy, Tea Party-infested Republican Party, once again the holders of a healthy majority in the house of representatives is slugging it out with a Democratic president over the budget. In the American system, the way it is supposed to work, the president proposes a budget for an upcoming fiscal year in February and the various committees of congress – House and Senate – consider the parts of the budget. Once the two houses reach an accommodation (with the president and his administration negotiating with congressional leaders in the background), the proposed budgets for various government activities go to the president for final signature and the new budget year begins on 1 October with the money to carry out operations.

That’s the theory. In fact in recent years the government has, more often than not, been reduced to snarling wrangles over the budget sometimes, as in this fiscal year, unable to pass a budget at all. Instead, they have been voting for a series of what are called “continuing resolutions” that maintain government spending at a set level, say, 85% of last fiscal year’s levels so as to keep government functions going. Usually CRs are set for a limited period so congress, again in theory, can finally finish its constitutionally mandated job and pass an actual government budget before the fiscal year runs out. (Of course, in a parliamentary system like the UK or South Africa, the process is generally easier – the majority party is the government and party discipline is much stronger than it is in the US. That doesn’t mean a budget is more generous – witness current developments in Britain, for example.)

Photo: Main opponents in 2011: President Barack Obama makes a point during his State of the Union address to a joint session of Congress on Capitol Hill in Washington, January 25, 2011. Behind the president are Vice President Joe Biden and House Speaker John Boehner. REUTERS/Kevin Lamarque

Back in Gingrich and Clinton’s time, the budget debacle actually did lead to a kind of grand budget bargain that eventually included, among other things, a significant reform of welfare (essentially the American social grant system), setting time limits for individuals to receive grants and the need for them to register for work, if it was available. But all that was during a period of thumping prosperity, low unemployment and a naturally declining government budget deficit as tax revenues burgeoned.  This time is very different. A key thread of the problem now includes a crop of new Republican congressmen who have vowed to cut government spending, reduce taxes and cut back on a whole range of programmes that form the 20th century’s American social safety net (or if you are a Tea Partyer, government’s stranglehold on the economy and society).

Moreover, this debate takes place as the Obama administration is trying desperately to find a way to kick-start the economy and push unemployment back below 9% – especially before the run-up to the presidential and congressional elections in 2012. The Obama forces have argued that spending on infrastructure is this generation’s “Sputnik moment” as Obama called it in his State of the Union speech, and that it will be the charm for dealing with unemployment.

The Obama administration originally hoped to raise taxes on the wealthiest and cut them modestly for the rest to support spending (consumption) increases by individuals and thereby push up growth in the economy. With Obama essentially foiled on the tax front after signing on to a Republican compromise plan, the battle has now shifted to the spending in the budget – defending against cuts if you are a Democrat, or pushing harder for them, if you are one of John Boehner’s Republican troops.

However, the real problem is that this battle is actually taking place on the margins in what is called discretionary spending. The original Republican plan, now somewhat modified, called for $100 billion in spending cuts in the government’s discretionary spending. But this discretionary spending pretty much includes everything else besides defence, social security, Medicare, welfare and interest on the national government debt. This discretionary spending is barely 15% of the total government budget. The Obama administration has put a major cut in defence spending on the table, but it is simultaneously trying to hold fast on most of the rest, even as it continues to push for those vaunted infrastructure “investments” to create jobs, jump-start the economy and give America a bit of an edge against the Chinese in the next generation of high-tech industries. Or, if you are a Republican, to bloat the federal budget.

Of course, beyond even this set of contentious issues, looming in the not-very-distant future will be an almost certain need to raise the debt ceiling. The debt ceiling is the limit of the federal government’s borrowing ability and the government will soon enough bump into that limit as federal deficit spending continues to lift the total debt higher day by day.

At the weekend, The New York Times argued: “In defence of their bill to slash federal spending by $61 billion over the next seven months, House Republicans claim they are trying to make the economy grow and create jobs. In truth, such deep and sudden cuts could derail the recovery, without ever addressing the real sources of budget deficits — mainly explosive health care costs and incessant high-end tax cuts.

“The question is whether the Obama administration and the Senate can prevail against the false rhetoric. Facts, analysis and the moral high ground all favour opponents of the measure. The aim is not to avoid difficult budget decisions, but to block the Republicans’ heedless effort while starting a reasoned budget debate.

“In a recent report, economists at Goldman Sachs estimated that the House cuts would reduce economic growth by 1.5 percentage points to 2 percentage points in the second and third quarters of 2011. That would devastate employment. As a rule of thumb, each percentage point drop in growth means a loss of 1.2 million jobs.

“The cuts also would be off point. All of them come from discretionary spending, a sliver of the budget that excludes the government’s biggest and fastest-growing outlays, chiefly Medicare and Medicaid. Over the past decade, Pentagon spending has accounted for almost all of the increase in discretionary outlays, with much of the rest going to homeland security, veterans benefits and the No Child Left Behind education initiative. Aside from defence, there is not a lot to cut prudently.”

In response, Newt Gingrich, the former Republican Speaker of the House and a possible Republican contender for the presidency argued, au contraire, and in the Washington Post, “The lesson for today’s House Republicans is simple: Work to keep the government open, unless it requires breaking your word to the American people and giving up your principles. Becoming one more promise-breaking, Washington-dominated, sell-out group is a much worse fate – politically and ethically – than having the government close for a few days.

“House Republicans should give President Obama the opportunity to sign significant spending reductions and keep the government open, or to veto their cuts and close the government. Similarly, they should give Senate Democrats a chance to accept real spending reductions or make clear that it is their stubborn liberalism that is closing the government.

“Another shutdown of the federal government is not an ideal result, but for House Republicans, breaking their word would be far worse.”

And so the stage is set – either for a shutdown or some sort of interim compromise – while the big issues over the major budget items are kicked off into the future, just in time for another budgetary battle further down the line. Fortunately, the prospect of a federal government shutdown has diminished since Friday when Republicans proposed a stopgap measure that Democrats said might be acceptable. This compromise would keep the government open for two more weeks, until 18 March, but at a price of $4 billion more in new spending cuts. And during this period, House and Senate leaders would try to negotiate a plan to finance the government, at reduced levels, until the end of the current fiscal year 30 September. Not a permanent solution to be sure, but it may mean neither Republicans nor Democrats want to go over that cliff with James Dean’s nemesis just yet.

Meanwhile, at the state level, even tougher budgetary crises have produced some fairly chaotic debates. Most American states are not allowed by their respective constitutions to engage in deficit spending. In Wisconsin, newly elected Republican governor Scott Walker is pushing to eliminate or weaken collective bargaining by government employees as part of a plan to save some serious cash even as it gives his state government the flexibility to run its operations without collapsing. And, along the way, the power to crush public sector unions and break their ability to gain a pay increase in future. The Wisconsin effort is actually an attempt to follow Indiana governor Mitch Daniels who eliminated bargaining for state employees six years ago by executive fiat. His executive order had a sweeping impact: No increases for state employees in some years, weakening of seniority rules and much greater government freedom to outsource jobs to private companies at less cost than the state’s own employees.

Not surprisingly, Walker’s efforts have provoked a furious response by state employees. Thousands and thousands of demonstrators swarmed the state capitol building in Madison, Wisconsin, on Saturday to protest against the proposals to abolish the collective bargaining rights of public sector unions and police say the crowd was probably about 70,000 people. One ironic side effect has been that the demonstrations have had a positive effect for takeout pizza makers – supporters from across the nation have been ordering pizza deliveries to the demonstrators to show support and keep their energy levels up with those double pepperoni and cheese pizzas during the frigid Wisconsin winter.

Walker, meanwhile, has threatened to trigger as many as 12,000 layoffs beginning this week unless the Wisconsin state legislature enacts his plan. What with the economic downturn from 2008 now truly affecting state and local government tax revenue streams, there are almost certainly going to be more such efforts to trim costs, services and employees. 

And yet, these mano-y-mano tussles between the (Tea Party-aided) GOP and Democrats at the federal and state levels are taking place with perhaps only one thing in mind: the 2012 elections. GOP-ers, at least officially, feel the momentum is on their side, and would love to return to their idea of total and lasting majority. How the US electorate will react in 20 months’ time remains to be seen. DM

For more, read:

Main photo: House Republican Leader-elect John Boehner (R-Ohio), (C), sings after the House Republican Conference elected its new leadership for the 110th Congress in the Longworth House Office Building on Capitol Hill, November 17, 2006. From L-R are House Republican Whip-elect Roy Blunt (R-Mo.), U.S. Rep. Eric Cantor (R-Va.), Boehner, Secretary of the Republican Conference-elect John Carter (R-Tx), and RNCC Chairman-elect Tom Cole (R-Ok). REUTERS/Larry Downing.


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