Picture in your mind two trains approaching each other at a high rate of speed. One train is the Bush tax cuts, set to expire at the end of the year. The other is a requirement to implement budget cuts to the tune of $1.2 trillion over 10 years, half to domestic spending and half to defense/security spending--also set to go into effect at the end of the year. We often think of government these days as a train wreck. Well, a train wreck of historic proportions is about to happen, and there seems to be no way of avoiding it. Welcome to Dysfunction Junction.
All of this stems from Congress's habit of pushing off difficult decisions. The original deal to implement tax cuts put a time limit on it, setting up an inevitable confrontation, but one safely distant ... until now. The other has its origins in the clusterf*k over the debt ceiling. The end result was a deal to make deep cuts to the budget. Of course, they couldn't exactly come up with what should be cut, so they appointed a committee to look into it, with the proviso that if the committee couldn't come up with a plan, then automatic cuts would be triggered through a process known as sequestration.
Well, the committee couldn't get it done, so the automatic cuts are being triggered at exactly the same time that Congress will have to vote on whether to extend the Bush tax cuts. Some analysts view this as the ultimate "damned if you do, damned if you don't" moment. If we don't cut the budget and increase revenues, than the debt will sky-rocket. If we do implement the budget cuts and let the Bush tax cuts expire, and throw in the payroll tax cut to boot, then the impact would amount to 4 percent of the national income, a crippling blow to any economy.
As of the moment, the Republicans are desperately looking for a way out of the budget deal they themselves foisted on the rest of us. The first signal was a proposed budget plan by Sen. Paul Ryan, R-Wis., recently endorsed by Mitt Romney, that would sharply cut domestic spending and leave defense spending alone. It may or may not be a great plan, but it not what the Republicans agreed to do, which is spread the cuts evenly between domestic and defense spending. Instead, it eliminates health care reform, revamps the Medicare program, and makes deep cuts in domestic programs that have already endured several rounds of cuts.
Sen. Lindsey Graham, R-So. Car., has been running around claiming that the mandatory defense cuts are too deep and must be somehow undone. He is even willing to consider revenue increases, if it comes to that, a position echoed by Jeb Bush. If the Bush tax cuts are not extended, they will get their wish in spades.
Is their a compromise in sight? Given recent history, it is hard to see what deal might emerge from the great minds currently in the House and Senate, but a deal there will be. The worry is that by the time the politicians reach agreement, the markets will already have been forced to make their own choice. And don't forget, all of this is occurring just as Europe is approaching its own Disfunction Junction.
Win or lose, President Obama will be the president who cuts the deal, since all of this has to be done before the next president is sworn in. The prospect of a lame-duck Congress being tasked with coming up with one of the grandest compromises in our nation's history is enough to make anyone nervous. Fasten your seat belts, folks. This could get ugly.