Raise Your Hand if You See Stalemate Coming

Posted October 4, 2010 at 7:01pm

As someone who for more than three decades has watched, participated in and commented on the annual debate in Washington over spending, revenues and deficits, I have a hard time believing anything positive is in store for the federal budget next year.

[IMGCAP(1)]I don’t just think a stalemate is in the offing; I see a stalemate that starts with hardened positions that get even more entrenched, bad feelings that get even more extreme, a debate that will be in worse shape when it’s over than it was at the start and one or more government shutdowns in our not-too-distant future.

There are many reasons why you might disagree. The Simpson-Bowles deficit reduction commission, which is supposed to issue its recommendations in December, could provide next year’s budget debate with some positive momentum that leads to an agreement. House Republicans’ new “Pledge to America” emphasizes spending cuts and could be a sign of things to come. As the economy continues to improve next year, there could well be the call that has been missing since 2008 from Wall Street for a shift in federal fiscal policy to deficit reduction.

The tea leaves tell me that none of this will occur or, if it does, that it won’t have much of an effect. There appear to be five primary reasons why a stalemate on the federal budget is much more likely than progress.

First, unless something very unexpected happens Nov. 2, there will be smaller majorities in the House and Senate than have existed the past two years. Small majorities generally make legislating difficult because a handful of Members can scuttle any deal, and the extreme emotions that already exist about federal spending and taxes will make work on the budget especially challenging. Given the hardened, inconsistent and sometimes incomprehensible starting positions on the budget, factions are likely to use this power on everything including the ground rules for deficit reduction negotiations, budget resolutions, individual spending and revenue bills. They will almost certainly be prepared to withhold their participation and votes if they don’t get what they want.

Second, it’s hard to imagine that the politics of obstruction that worked so well the past two years will be abandoned in 2011. Even if control of the House or Senate changes hands to the Republicans, it looks as if the strategy of using every possible political and procedural roadblock and then blaming the other side will still be in vogue.

Third, the Federal Reserve appears to be on the verge of taking additional actions to stimulate economic growth. If it does, and if those actions are successful, federal deficits and national debt will become relatively less important issues. As a result, it will be easier for Congress and the White House to avoid a deficit deal because voters will blame the budget less for the country’s economic ills.

Fourth, there has been a clear shift to a take-no-prisoners attitude in American politics in general and in budget policymaking in particular. Cooperation and compromise are now equated with collaborating with the enemy. For example, Sen. Jim DeMint (R-S.C.) has made it clear in recent weeks that he’d rather lose a debate next year than compromise to get a deal done. A number of candidates who are currently ahead in the polls are saying something similar or even more extreme. Federal spending and revenue have been the poster children for the no-compromise stance of this year’s election, and that attitude is likely to manifest itself as inaction during next year’s budget debate.

Fifth, the Simpson-Bowles deficit reduction commission appears nowhere close to an agreement that will be supported by 14 of its 18 members. The commission has shown in recent weeks that it suffers from the same partisan divisions over revenue and spending that stymie Congress, making a bipartisan deficit reduction blueprint much less of a possibility. As a result, any optimism that the commission will provide a preseason boost to action next year is quickly fading.

The results of this witch’s brew of bad budget ingredients are not hard to see. The fiscal 2012 budget debate will likely start next year with a quick rejection of the president’s budget (expect the retro phrase “dead on arrival” to make a comeback) by Congressional Republicans, but Congress will be limited in its ability to come up with a workable plan, let alone compromise with the White House. Indeed, it’s not clear that Republicans, if they are in the majority, will be able to agree among themselves on a plan. Lawmakers will then try to raise the stakes by attracting voters’ attention to the normally inside-the-Beltway budget process. That will require extreme tactics, like threatened or actual government shutdowns and angry bashing of the Federal Reserve.

It also means that, rather than legislative initiatives, the only changes in the federal budget outlook in 2011 will be the result of new estimates of previous actions, such as still-lower Troubled Asset Relief Program costs, and revised economic forecasts. That will mean that the projected deficit will be close to the baseline level of about $1 trillion and that a deal on the federal budget will be no closer than it is now.

Stan Collender is a partner at Qorvis Communications and founder of the blog Capital Gains and Games. He is also the author of “The Guide to the Federal Budget.”