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A Coming Government Shutdown?

From here, it almost seems inevitable.

by
Tom Blumer

Bio

October 31, 2010 - 12:09 am

As detailed in my previous column, despite appearances to the contrary, the federal government’s spending on its regular operations is wildly out of control, tax collections are flat, and the fiscal year 2010 out-of-pocket deficit was much higher than it was in fiscal 2009.

So what are the chances of meaningfully turning this around? Even with Republican majorities in the House and Senate, the task ahead is Herculean.

Nothing illustrates the difficulty ahead more than an October 28 item in the Associated Press by Julie Hirschfeld Davis, with help from Laurie Kellman. The AP reporters’ write-up makes it clear, just days before the midterm elections, that the presumed GOP congressional majority and the party’s somewhat likely Senate majority will be spending much of the next two years in a knock-down, drag-out fiscal fight with President Obama, his party, and his press apparatchiks. With the battle lines already being drawn, it becomes difficult to imagine how this gets resolved without a repeat of the federal government shutdown the country experienced in 1995. This wouldn’t necessarily be a bad thing, but if it happens, the outcome needs to be different from 15 years ago.

AP’s reporters are clearly gearing up for the battle (key scare words bolded):

Republican leaders, ever more confident of their chances of winning control of the House and possibly even the Senate, have begun plotting a 2011 agenda topped by a push for more than $100 billion in spending cuts, tax reductions and attempts to undo key parts of President Barack Obama’s health care and financial regulation laws.

… Most agree a marquee item on a new GOP majority’s agenda would be an aggressive package of spending cuts, on the order of $100 billion or more, that could also be paired with steps to block implementation of key parts of Obama’s health care law and new financial regulations.

… What’s less clear is how Obama would respond, and whether a turbocharged Republican majority could muster a bipartisan compromise, especially when its freshman class will probably have little appetite for following any established party position or leader.

… On health care, there’s little doubt that a Republican majority would quickly set a vote to ax the overhaul law – a symbolic move that has no chance of succeeding given Obama’s veto pen. The GOP would then follow up with attempts to block key elements of the measure by denying the money to implement it.

Let’s first deal with the pathetic reportage from the AP’s Davis and Kellman. Then I’ll look at the bigger problem.

“Plotting”? After two years of unaccountable czars, union intimidation of and violence against private citizens, congressional non-transparency (remember “we have to pass the bill so that you can find out what is in it”?), and legislators skipping town without even passing a budget, it’s Republicans who are “plotting”? The rest of us would refer to what the Republicans are doing as “planning.”

“Tax reductions”? Since the reporters don’t reference anything else, one has to assume that they are writing about keeping the tax increases scheduled for next year (popularly referred to as “letting the Bush tax cuts expire”) in place. Folks, if the increases are cancelled or postponed, taxes won’t be reduced. They’ll stay the same.

“Bipartisan compromise”? Given that the president has justified his consistent refusal to retreat from his positions by saying, “That’s what elections are for” (as if anyone besides a small cadre of progressives in the know and of others who researched him and knew the truth had any idea of what was really coming), here’s my one-word response: Why?

“Ax the overhaul law”? That’s a really clever allusion to violence, Julie and Laurie, but the rest of us know it as “repeal.” The reason what we refer to as ObamaCare needs to be repealed is because it isn’t an “overhaul law” at all — it’s a statist takeover of about one-sixth of the economy.

Finally, there are the supposedly “aggressive” spending “cuts” of $100 billion or more.

A look at data taken from the Congressional Budget Office’s August Baseline Budget Outlook and the final Monthly Treasury Statements from fiscal 2008, 2009 and 2010 quickly reveals that a $100 billion reduction in planned spending is not only not enough, it’s not even a “cut”:

First, on the receipts side, the CBO thinks that collections from all sources are going to increase by 22% in fiscal 2011, and by 37% in two years. Given that actual collections have trailed CBO’s projections by over $100 billion in each of the past two years, and that the economic recovery (if it’s even fair to call it that) has been anemic, I don’t what else to say except, “You cannot be serious.”

On the spending side, note that fiscal 2011 spending as the CBO defines it is projected to be 7.5% higher than the year just ended, and an obscene 36% higher than it was just four years ago. Even if the Republicans reduce fiscal 2011 spending by $100 billion or so, outlays will still be about 4.5% higher than 2010. This is what Davis and Kellman refer to as “cuts.” It is obviously nothing of the sort.

Davis and Kellman (conveniently, I believe) are forgetting that the GOP’s Pledge to America is calling for a return to the level of spending seen in 2008, exempting national security. After considering a bit of inflation, that would amount to about $3.2 trillion, representing a legitimate and long, long overdue cut of about 7% from fiscal 2010.

Can anybody seriously look at the numbers above and claim that this can’t or shouldn’t be done? Even though the answer is obviously “no,” Obama, Democrats, and the press will scream bloody murder. The president, who despite RINO Republicans’ wishes is not prone towards any kind of compromise, will likely veto anything that doesn’t keep the spending spigots wide open. It is reasonable to believe that he would let the government shut down rather than give in to the GOP Congress.

If this happens, will it work? It did last time, for the Democrats. The Gingrich Congress caved. The GOP congressional majority never regained its fiscal mojo, and eventually became a congressional minority because of it.

But this time may be different. The stakes are much higher. The national debt held by “the public” (i.e., except for amounts owed between federal agencies) will be about two-thirds of gross domestic product by the end of 2011. If trillion-dollar deficits continue for the rest of the decade, it’s virtually certain that the public debt-to-GDP ratio will hit 90%, a figure many economists consider a tipping point. At that juncture, it becomes very likely that investors will either refuse to continue to buy government bonds or will begin demanding much higher interest rates for doing so. Massive tax increases, hyperinflation, or worse will become likely scenarios.

The new media-driven, tea party-inspired portion of the electorate seems to get that. If enough of the rest of the voting public does, an Obama shutdown scenario could blow up in his and his party’s collectivist faces. Recently, we’ve learned that even if his union supporters “go French,” there’s a chance they’ll get taken down by fatigue.

Regardless of whether the confrontation occurs, our national solvency is clearly at stake in the next few years. There will be little if any time for rest after November 2.

Along with having a decades-long career in accounting, finance, training and development, Tom Blumer has written for several national online publications primarily on business, economics, politics and media bias. He has had his own blog, BizzyBlog.com, since 2005, and has been a PJM contributor since 2008.
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