Divide on deficit likely to grow after election
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WASHINGTON -- A midterm campaign that has turned heavily on the issue of the mounting federal debt is likely to yield a government even more split over what to do about it, people in both parties say, with diminished Democrats and reinforced Republicans confronting internal divisions even as they dig in against the other side.
In the weeks after the Nov. 2 elections, the White House and a lame-duck Congress will face immediate decisions testing the balance of power -- on extending the Bush-era tax rates, approving overdue spending bills to keep the government operating and, possibly, debating the recommendations that President Barack Obama has directed a bipartisan debt-reduction commission to offer by December.
The report of the 18-member commission, which includes a dozen senior members of Congress, six from each party, will help determine whether a bipartisan consensus exists to deal with the unsustainable combination of fast-growing entitlement programs like Social Security and Medicare and inadequate tax revenues.
The group has delayed making decisions until after the election, to avoid leaks that would become campaign fodder, but even some of its members doubt they can muster the 14 votes needed to send a package to Congress for a vote. At best they hope options left on the table, or agreed to by the chairmen -- Erskine B. Bowles, a White House chief of staff to President Bill Clinton, and Alan K. Simpson, the former Republican Senate leader from Wyoming -- will find support in the spending-and-tax debates.
In interviews, a number of Democrats and Republicans agreed on one thing: For all the pre-election talk that a divided government could force the parties to work together, especially on cutting annual deficits, the opposite could just as well be true.
David Cote, the chief executive of Honeywell International and a member of the debt commission, said in an interview that "the thing that shocked me" was that the debt crisis had been predicted for decades because of the costs of federal benefits for the baby boomer generation.
"We need to have a more thoughtful, nuanced discussion about what we're going to do and what exactly does this mean," Mr. Cote said. "And I don't see that happening. It seems like everybody wants to just argue."
Democrats are certain to lose a number of seats and perhaps their majorities; most of the casualties will be fiscally conservative Democrats from Republican-leaning areas. That will leave a smaller, more solidly liberal caucus less inclined to support cost-saving changes in future Social Security benefits, for example.
Republicans' ranks will almost certainly be strengthened by a wave of conservatives, including Tea Party loyalists, who are opposed to raising any taxes and to compromising with Democrats generally -- a stand that congressional Republican leaders have adopted. And incumbents otherwise inclined to make deals are now wary, Republicans say privately, mindful of colleagues who lost primary challenges from Tea Party candidates.
Both parties also face internal rifts that could hinder any grand bargain to reduce the annual deficits adding to the accumulated debt, which by decade's end will reach economically dangerous levels as more retirees claim Medicare and Social Security.
Most Republicans, especially those likely to be in Congress or running for the party's 2012 presidential nomination, are taking a hard line against tax increases, eager to court the Tea Party and anti-tax conservatives generally. But a growing minority is arguing that the projected debt is too great to shrink with spending cuts alone unless popular benefits and military programs are put under the knife.
"Everything has got to be on the table for discussion," said Sen. Saxby Chambliss, R-Ga., who with Sen. Mark Warner, D-Va., has formed a group of anti-deficit senators to promote the recommendations from the debt-reduction commission.
Given the coming influx of novice lawmakers, Mr. Chambliss said in an interview, "there are a lot of things people are going to have to be educated about, on the spending side as well as the revenue side." He added: "They're thinking we can come in and eliminate earmarks and everybody's going to be happy on the spending side. Gee, that just scratches the surface."
Yet the conservative blowback was fierce this month after Gov. Mitch Daniels of Indiana, a budget director for President George W. Bush and a potential 2012 Republican presidential candidate, suggested keeping an open mind about a consumption tax like the value-added tax used in Europe and a tariff on imported oil. That kind of reaction cannot be lost on others. Two of the Republican members of the fiscal commission are Reps. Dave Camp of Michigan and Paul D. Ryan of Wisconsin, who are in line to be the chairmen of the tax-writing Ways and Means Committee and the Budget Committee, respectively, if Republicans win a House majority. But they must be elected by other House Republicans in December and, Republicans say, a deal with Democrats on deficit-reduction measures could threaten that.
Democrats differ among themselves on whether to extend all the Bush tax cuts as Republicans demand, or just those for households with annual incomes below $250,000 as Mr. Obama wants. Over 10 years, an extension for the middle class would cost more than $3 trillion while extending rates for the rich, too, would cost $700 billion more; together the nearly $4 trillion is more than half the debt projected in the decade to 2020.
Many Democrats, backed by a wide range of economists, say that with unemployment stuck at nearly 10 percent, more stimulus spending is needed -- for the unemployed, struggling states and cities and job-creating public works projects -- before the nation focuses on cutting deficits. The fiscal commission is considering delaying any deficit-reduction proposals until perhaps 2012.
Democrats are also split on fixing Social Security's long-term solvency. Mr. Obama had wanted to tackle the issue early, and he created the debt commission by executive order -- after Senate Republicans blocked legislation -- partly in the hope that it would propose future benefit and payroll tax changes he could embrace. Some Democrats say he will have all the more reason to lead that charge after the elections, to signal a more centrist, fiscally conservative course. Yet liberal groups have already formed a big coalition to lobby against any such move.
What could result is "deficit reduction by gridlock," said John Podesta, the president of the progressive Center for American Progress and a chief of staff in the Clinton White House.
That would be the outcome if Republicans, as expected, block additional unemployment aid and if the parties deadlock in the lame-duck session over pending appropriations and the Bush tax cuts that expire Dec. 31.
That would leave lower spending levels in place for the fiscal year 2011 and force Mr. Obama and Republicans to try to reach a tax compromise next year.
But that sort of immediate deficit reduction, said Robert Greenstein, the founder of the left-leaning Center on Budget and Policy Priorities, "will hurt the economy more than help it without doing very much to deal with the long-term problem, which is where the real issue is."
First Published October 31, 2010 12:19 am