Q+A-Could Congress reduce the budget deficit next year?

By Andy Sullivan

WASHINGTON, Oct 13 (BestGrowthStock) – President Barack Obama has
identified reducing the United States’ budget deficit as a top
priority in 2011, and the Republicans, expected to have more
power in Congress then, have called for large spending cuts.

Some budget experts fear the United States will face a
Greece-style debt crisis over the coming decade if it does not
bring down budget deficits, which hit 9.9 percent of GDP in
fiscal 2009, to a more sustainable level of around 3 percent of
GDP.

The deficit is expected to shrink in coming years as the
economy recovers from the worst recession since the 1930s,
before widening again due to increased government retirement
and healthcare costs.

Some 91 percent of Americans say it is crucial or important
for Congress to tackle the deficit next year, according to a
Reuters/Ipsos survey released on Oct. 13.

Will Congress be up to the task?

WOULD REPUBLICANS BE ABLE TO CUT SPENDING?

House Republicans say they would slash non-security
spending by roughly $100 billion in the first year if — as a
number of polls suggest will happen — they win control in the
Nov. 2 elections. [ID:nN13258322]

That reduction would represent a 15 percent cut from
current levels.

Their efforts could face a veto from Obama, who has said
the proposed cuts could undermine education and harm the
nation’s competitiveness.

They could also get watered down in the Senate, where
Democrats are generally projected to hold on to control, or to
retain clout even if Republicans win a majority.

Still, Republicans might be able to rein in spending, said
Douglas Holtz-Eakin, a former head of the non-partisan
Congressional Budget Office who served as chief economic
adviser for Republican John McCain’s 2008 presidential
campaign.

“The Senate might hate them and the White House might
oppose, but the leverage could produce a serious reduction in
discretionary spending growth or even an absolute decline,”
Holtz-Eakin said.

WOULD THAT BE ENOUGH?

Even if Republicans managed to slash $100 billion in
domestic spending, that would not be enough to close a budget
gap expected to top $1 trillion again for the current fiscal
year. Experts say lawmakers will need to trim the retirement
and healthcare programs that make up roughly 57 percent of the
$3.55 trillion budget. ((For one possible solution, click on
[nN07239614]))

Neither party is eager to take on this task on their own.
Representative Paul Ryan, the top Republican on the budget
committee, has outlined a plan to control retirement and
healthcare costs, but party leaders have not endorsed it.

Democrats remember 1993, when they passed a
deficit-reduction plan with no Republican help. Voters
responded by handing control of the House to Republicans the
next year.

“Realistically if this is going to be solved it is going to
be solved on a bipartisan basis,” said Joe Minarik, who served
as an associate budget director under former President Bill
Clinton.

WHAT ABOUT THE PRESIDENT’S DEFICIT COMMISSION?

Obama has set up a bipartisan commission to devise a plan
to bring the budget deficit down to a manageable level. The
panel is due to issue a report on Dec. 1, but it is unclear
whether its 18 members will be able to reach consensus or if
Congress would adopt its recommendations.

IS A BIPARTISAN PLAN POSSIBLE?

Republicans and Democrats managed to work together to pass
a deficit-reduction plan in 1990, though it became a liability
for Republican President George H.W. Bush during his reelection
campaign two years later.

No matter which party controls the House and the Senate
after the Nov. 2 elections, they are not likely to hold the
commanding majorities Democrats have enjoyed for the past two
years, limiting their ability to advance legislation.

Budget experts are pessimistic Republicans and Democrats
will be able to work together to tackle the problem without a
European-style debt crisis or other external shock.

“The only way for this problem to get addressed is for
people to break from type,” Minarik said. “It’s hard to be
optimistic, looking at the way people have behaved recently.”

Though many Republicans have sought to harness voter
concern about the deficit, they are likely to remain wary of
inflaming conservative activists who have voted out incumbents
for working with Democrats.

“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,” wrote budget expert Stan
Collender in a recent issue of the Capitol Hill newspaper Roll
Call.
(Reporting by Andy Sullivan; Editing by Jerry Norton)

Q+A-Could Congress reduce the budget deficit next year?