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Economic woes threaten budget debate

By ANDY SULLIVAN
June 14, 2011

Anabella Maldonadon, 5, attends a protest against education budget cuts with her mother Linda (not shown) who was laid off from her teaching job after 8 years, in Los Angeles. REUTERS/Lucy Nicholson

Sputtering job growth and talk of new tax cuts are throwing more hurdles in the way of a deal to reduce the deficit as Democratic and Republican negotiators step up their budget negotiations this week.

Vice President Joe Biden and top lawmakers must work around a stark divide over taxes and healthcare as they try to find trillions of dollars in budget savings that would give Congress the political cover to increase the $14.3 trillion debt ceiling before the Treasury Department runs out of money to pay the nation’s bills.

The Treasury Department has warned that it will need to start halting some payments if Congress doesn’t act by August 2 and pressure is mounting on Biden’s group to deliver results before markets get spooked.

As negotiators weigh painful cuts in annual spending and benefit programs, their task could be complicated by the need to weave in measures to stimulate the economy.

Recent data indicate that the country is still struggling to emerge from the deepest downturn since the Great Depression, and the unemployment rate ticked up last month to 9.1 percent.

Washington has few tools left to spur faster job growth as the Federal Reserve’s sweeping bond-buying program winds down and Congress has no appetite for additional fiscal stimulus.

Still, both parties are eager to show voters they are taking steps to spur job creation.

The White House is weighing a payroll tax cut for businesses and President Barack Obama said on Monday that he would enact a number of recommendations put forward by an outside jobs council of business executives.

In an interview with NBC television, the president said a deal could be reached without massive spending cuts.

“There is a way of solving this problem that doesn’t require any big, radical changes,” he said, according to a transcript released by the network.

“What it does require is everybody makes some sacrifices, and we make these changes in a balanced way.”

Obama’s outside advisers group, led by General Electric Co chief executive Jeffrey Immelt, called for measures to cut red tape, provide more loans and invest in construction, manufacturing, healthcare and tourism.

Republicans, meanwhile, are touting a job-creation agenda of their own that consists of tax cuts and scaled back regulations, which they say would reduce the uncertainty that has kept capital on the sidelines. They are also urging the Obama administration to advance free trade agreements with Panama, Colombia and South Korea.

ONLY GAME IN TOWN

As one of the few pieces of must-pass legislation on the agenda this year, the debt-limit increase could serve as a vehicle for job-creation efforts. Because most stimulus, whether tax cuts or increased spending, has the effect of worsening budget deficits in the short term, it could complicate the Biden group’s mission of reducing deficits that have hovered at their highest levels relative to the size of the economy since World War Two.

Republicans have said that any debt-limit increase must include spending cuts of at least equal size, which would point to a package of at least $2 trillion in order to cover the country’s borrowing needs through the November 2012 elections.

Obama and Republican negotiators have said those cuts could be spread out over 10 years, which would minimize their impact in the short term.

Facing increased pressure, the Biden group has stepped up the pace of its talks and plans to meet three times this week. Obama and House Speaker John Boehner want the group to complete its work by July 4 in order to give them plenty of time to hammer out a final deal and get it passed through the House and the Senate well before the August 2 deadline.

Participants in the Biden group say job-creation measures have not come up so far. That could change this week.

“We are trying to look toward a plan that will manage down the debt and deficit and at the same time help signal a return to economic growth,” House Republican Leader Eric Cantor, one of the negotiators, told reporters on Monday.

The group is scheduled to take a close look at annual spending levels, budget process reforms and healthcare benefits this week.

An administration official said the talks could expand beyond that agenda.

“We’re expecting the talks to cover a broad range of issues, many of them interconnected, so it’s kind of hard to isolate a particular category,” the official said.

Copyright © 2011 Reuters

3 Responses to Economic woes threaten budget debate

  1. woody188

    June 15, 2011 at 12:37 am

    They are also urging the Obama administration to advance free trade agreements with Panama, Colombia and South Korea.

    They don’t mean free trade, they mean labor arbitrage. It will only accelerate the fall of the US Middle Class.

    I think it’s also important to point out that in the face of the lowest taxes since World War II, the rich have pocketed and off-shored money instead of creating jobs. SURPRISE! Voodoo/trickle-down economics don’t work in the new millennium just like they didn’t work in the 80’s and 90’s.

    The real problems are stagnant wages, deflating home values, and reduced purchasing power via dollar devaluation. NOT ONE POLITICIAN WILL ADDRESS THESE ISSUES OTHER THAN TO PAY THEM LIP SERVICE!

    • Carl Nemo

      June 15, 2011 at 1:45 am

      Spot-on commentaray Woody…! : (

      Carl Nemo **==

      • Carl Nemo

        June 15, 2011 at 3:46 am

        Spot-on commentaray Woody…! : (

        Should read:

        Spot-on commentary Woody…! : (

        Most folks recognize this as a typo, but for me it’s almost a ‘seppuku moment’ … : ( /

        My apologies!

        Carl Nemo **==