Analysis: U.S. debt limit bill gives political cover to both parties

WASHINGTON Thu Jan 24, 2013 2:49pm IST

U.S. one dollar bills are displayed in this posed photograph in Toronto October 22, 2008. REUTERS/Mark Blinch/Files

U.S. one dollar bills are displayed in this posed photograph in Toronto October 22, 2008.

Credit: Reuters/Mark Blinch/Files

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WASHINGTON (Reuters) - Previous budget dramas in Washington produced bargains that made it look like Congress was making great strides, without actually doing so.

Wednesday's vote by the Republican-controlled U.S. House of Representatives to extend the government's borrowing power until May 19 was no different.

It temporarily removed a hazard - a potential default within the next month - that only existed because Republicans created it. They initiated Wednesday's vote after taking a beating in public opinion polls for engaging in budget brinkmanship over the "fiscal cliff," a series of budget deadlines that came together at the end of 2012, which could have resulted in huge tax increases and spending cuts had Congress not acted to either eliminate or postpone most of them.

While House Speaker John Boehner advertised the vote as the "first step" toward a balanced budget that puts the onus on Democrats to address the deficit. But the House-passed bill does not contain measures that are guaranteed to bring about deficit reduction.

The bill did not: cut government spending; extract commitments from President Barack Obama or Democrats in the U.S. Senate to cut government spending; or avoid three potentially jarring fiscal confrontations a few months down the road.

Automatic budget cuts postponed from the fiscal cliff around New Year's Day kick in on March 1. A bill that temporarily funded the government will expire on March 27, threatening a potential shutdown of some federal operations. In May, the borrowing authority approved on Wednesday will run out.

While Republicans say each of these will present an opportunity for them to engage Democrats, including Obama, in deficit reduction negotiations, their track record is not promising.

"I don't think it (the House debt limit bill) has much to do with deficit reduction at all," said Robert Bixby, executive director of the non-partisan Concord Coalition, a budget reform advocacy group. "It's a way of defusing a political crisis."

"Our base case remains a series of endless cliffs," Chris Krueger of the financial services firm Guggenheim Partners wrote in a note. "Short-term extensions of these cliffs could result in an endless game of kick the can - until the can kicks back."

As for deficit reduction, he wrote: "Don't hold your breath, though hope springs eternal."

Ethan Harris of Bank of America Merrill Lynch said, "It is another example of where politicians' bark seems worse than their bite."

Welcome to the latest chapter in a two-year battle between Obama and congressional Republicans over how the world's largest economy can gain control of a $16.4 trillion national debt.

There was the 2010 presidential commission to find budget solutions, a 2011 congressional "super committee" that was supposed to put the government on a sound fiscal path and a "fiscal cliff" of late 2012 designed to force big decisions.

All sputtered.

Now, Republicans have crafted a debt limit increase without setting a specific new ceiling on borrowing that they could be blamed for.

In a tough-looking move, their legislation aims to withhold lawmakers' pay if the Senate or House fail to produce a non-binding budget plan this year. Some lawmakers argue that the pay provision violates the Constitution, which restricts Congress' ability to "vary" its own compensation.

Wednesday's bill does not require the Senate and House to agree on a budget, only to pass their own budget bills. If the Republican-controlled House and Democratic-controlled Senate manage to pass proposals, they are likely to be vastly different.

Last year, Democrats in the Senate rejected a House Republican budget that projected a plan to bring the budget into balance gradually over a 30-year period.

In pledging to eliminate budget deficits within 10 years, House Republicans are putting themselves on a path to writing a budget that will cut even more deeply into Medicare and Medicaid healthcare for the elderly, disabled and poor, and the Social Security retirement program.

Budget experts think the 10-year pledge will be a steep climb for Republicans, especially if they refuse to use any tax increases for deficit reduction and if they stick to previous proposals to slowly phase in benefit cuts for programs like Medicare.

Meanwhile, Senate Democrats are talking about defending those social safety net programs, investing in other programs and further raising taxes on the rich and big corporations, despite Republican insistence that tax increases are off the table.

Whether or not there is a sweet spot for compromise remains to be seen.

But with Senate passage looking certain on the Republican debt limit bill and Obama's approval all but guaranteed, Republicans are the ones who have blinked in this latest duel.

They have agreed to let government borrowing continue without extracting one penny's worth of spending cuts.

(Additional reporting by Thomas Ferraro and Kim Dixon; Editing by Fred Barbash and Stacey Joyce)

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