In the Red

Mired in Gridlock, Congress Barrels Toward a Fiscal Cliff Over Debt

With no serious budget negotiations underway in the House, Senate or White House, lawmakers are closing on a fiscal disaster, with no parachute in sight—and doing little more than arguing over blame.

07.19.12 8:45 AM ET

Dick Cheney had a familiar message for House and Senate Republicans when he made a rare appearance on Capitol Hill this week: The cuts coming for the Defense Department at the end of the year are very, very bad.

But Cheney, who was the architect of the Pentagon’s war-time budget and a staunch supporter of the simultaneous Bush tax cuts, had no solutions to offer his GOP audience as they grasped for some way—any way—to undo the defense cuts that most of them agreed to last summer, all while vowing to preserve the Bush-era tax cuts that are set to expire at the end of the year.

Even for the former vice president, there are no easy answers for the mess that Democrats and Republicans have created for themselves by putting off decisions again and again about how to pay for the country’s boom-time budget in an era of high unemployment and gaping deficits. Unless Congress acts, a possible government shutdown, a debt-ceiling increase, $1.2 trillion in spending cuts (including $600 billion of cuts for defense), and $3 trillion of tax hikes will all hit in rapid succession over the next four and a half months.

But with no serious negotiations under way between the House, the Senate or the White House, Congress is barreling closer to the fiscal cliff that awaits the country, with no parachute in sight, and did little more this week than argue over who deserves more of the blame.

On Tuesday, Cheney moved quickly from a meeting with Senate Republicans to more meetings on the House side of the Capitol, at one point walking just feet behind Senate Majority Leader Harry Reid, who was standing before a gaggle of reporters guessing what Cheney had been talking about moments earlier.

“I’m sure the vice president is up here to spur them on to focus on how the defense industry is being hurt by the sequester,” Reid said.  “But they voted for it. Republicans voted for it.”

To Reid’s point, more than half the GOP caucus voted in favor of the worst-case scenario they now find themselves in, with potentially devastating defense cuts on the way, little leverage to force Democrats’ hands to extend all of the Bush tax cuts, and very little stomach for another bruising fight over the debt ceiling increase or a government shutdown that gave Congress its lowest-ever approval ratings the last time around.

Sen. Patty Murray was typical of most Democrats’  they-made-their-bed-let-them-sleep-in-it approach to the GOP’s predicament, telling a group at the Brookings Institution that Democrats are willing to go over the “fiscal cliff” if Republicans continue to insist on renewing all the Bush tax cuts, instead of agreeing to extending those just for middle and lower-income Americans.  “If we can’t get a good deal, then I will absolutely continue this debate into 2013,” Murray said. “Our country is going to have to face the consequences.”

But the road ahead for Democrats is hardly without its dangers.  With unemployment still above 8 percent, economists have warned that letting all the Bush tax cuts expire could drag the American economy back into a recession, while the budget cuts could lead to widespread manufacturing layoffs. That makes some Democrats wary of what would happen if they let all of the moving parts go forward as scheduled, especially those from defense-heavy states like Virginia, Maryland, California, and Ohio.

“We agree that we should replace the sequester. We agree that it’s a mistake to create the kind of uncertainty that’s out there,” Rep. Chris Van Hollen (D-Md.) said Wednesday. But like the rest of the Democratic leadership, Van Hollen insisted that Republicans have only themselves to blame of they can’t find a way out of the cuts

“The keys to the lock are in the hands of our Republican colleagues,” Van Hollen said. “The reason we haven’t been able to move forward is that our Republican colleagues continue to insist on supporting tax breaks for special interests and tax breaks for folks at the very top…. That’s why we’re in the situation we’re in right now.”

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Last week, Republicans flatly rejected President Obama’s proposal to extend the Bush tax cuts up to $250,000 and all but ignored Democratic Leader Nancy Pelosi’s idea to extend some of the Bush tax cuts now and debate the rest next year.

“If all this borrowing, taxing and spending was the secret to economic success and prosperity, we would be on the verge of entering the golden age along with Greece,” Rep. Paul Ryan (R-Wis.) said Wednesday, calling for all the Bush tax cuts to be extended.

As members of both parties haggled Wednesday about who to blame for the country’s fiscal mess, a panel of defense contractors told the House Armed Services Committee that just the threat of the cuts has already forced them to stop hiring and delay capital investments all across the country, a reality that could imperil incumbents in both parties.

“We’ve slowed down on, I think, the very simple and logical premise that if we’re going to engage in significant reductions in the workforce in January it’s imprudent to bring people on for six months,” said Lockheed CEO Robert Stevens.

“We know sequestration is the law and we know the law takes effect January 2nd,” said David Hess, the president of Pratt & Whitney. “That likely means we will have plant closings and workforce reductions.”

Rep. Buck McKeon (R-Cali.), the chairman of the committee, said that despite Congress’ role in approving the cuts, it’s up to President Obama to head them off. “This is already in motion. I ask the president to put forth some leadership,” he said. “As the commander-in-chief, he has the obligation to help us solve this problem.”

But the White House’s position Wednesday was the same as it has been since Republicans agreed to the deal last year—without tax increases on the top 2 percent of Americans, the law is now the law.

In the face of the looming crisis, Republican Whip Eric Cantor laid out the House’s schedule for the next two weeks. In addition to “red tape reduction week” next week to focus on cutting government regulations, Republicans will take another vote to extend all the Bush tax cuts, the very proposal President Obama said he would not sign.

After a five-week recess in August, the House is scheduled to be in session for eight days in September and five days in October before recessing for the November elections— when voters will decide which leaders can best handle the struggling U.S. economy and which ones are just making the problems worse.