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For the Third Time This Year, the US Government Nears Shutdown Over Fiscal Debate

Posted on the 15 December 2011 by Periscope @periscopepost

For the third time this year, the US government nears shutdown over fiscal debate

Not so sunny days on Capitol Hill. Photo credit: Will Palmer

Just in time for the holidays, a divided US Congress is threatening yet another government shutdown, this time in a row over extending the payroll tax holiday.

Republicans, Democrats, and, according to a recent Associated Press poll, most Americans want to extend the payroll tax break, which expires at the end of the year and would raise taxes from 4.2 percent to 6.2 percent. But the two parties can’t agree on just how to pay for it and so, again, as Jennifer Steinhauer wrote at The New York Times, Congress is “dancing on the edge of catastrophe, locked in a bitter partisan battle over fiscal measures, with unrelated policy debates clinging to the side.” The situation became more tense on Wednesday after the Senate rejected a Republican-controlled House proposal to extend the cuts and unemployment benefits, on the grounds that it also contained cuts to spending and a sped-up approval for an oil pipeline. The Senate, controlled by the Democrats, is crafting its own response now.

It’s the destructive brinkmanship of budget debate and the debt ceiling debate all over again and Americans are getting fed up – 15 percent of all adults claim they don’t think either party can manage the federal the budget deficit – but can this mess be resolved?

How is another government shutdown in the works? So, yet again, political brinkmanship has put America’s finances in peril – Senate Majority Leader Harry Reid, a Democrat from Nevada, has tied the payroll tax cut to a $1 trillion government finance spending omnibus measure, indicating that he won’t allow a vote on the spending bill until everyone comes to an agreement on the payroll tax. And without an agreement on the spending bill by Friday, the US government will be unable to pay its bills. So far, there is no short-term stopgap measure in the works, either, because House Republicans are gambling that Democrats will instead pass their “megabus” appropriations bill, “poison pills and all”, Talking Points Memo said, rather than risk a shutdown. “We’ve been here before: another cluster on Capitol Hill. Just over 48 hours to go this time.

What’s the beef? Both parties agree that that the tax cut should be extended, but they’re squabbling over the extra bits: Republicans want spending cuts, increased Medicare premiums, and an oil pipeline, and don’t want to pay for the payroll tax by using a surcharge on incomes over $1 million. Democrats may be willing to compromise on the surcharge, Talking Points Memo revealed Thursday, but that would leave a substantial funding hole to fill and no clear way to do it. One potential is to have mortgage giants Fannie Mae and Freddie Mac charge lenders higher fees, but, said TPM, “they have to make a decision soon.”

Again? Really? “The threat of the potential December shutdown is even more bizarre than the previous two near-misses, because it centers on the Republicans’ reluctance to extend a tax cut to middle-class workers and relatively minor issues over a spending bill that each side was tantalizingly close to signing off on,” wrote Steinhauer in The New York Times. “This latest in a series of high-profile, last-minute fights, all in a single year, underscores that the 112th Congress has no modern antecedent for what many see as its unusual — and potentially dangerous — brinkmanship.”

Eleventh hour deal? Who knows. While the White House is warning government departments that they might not be open for business on Monday, it’s still expecting an “eleventh hour” deal, Reuters reported, under the headline “Theatre of the absurd”. “But after watching the elaborate political theater that played out on Tuesday [when House Republicans passed their payroll tax cut plus extras], it’s anyone’s guess when cooler heads might prevail.”

Is the payroll tax cut even worth it? “The payroll tax cut is a pain killer, not a cure, and misunderstanding the difference could leave our economy even more injured,” warned Nancy Pfotenhauer, former chief economist for the Republican National Committee, in US News and World Report. Senate Democrats, she complained, want to pay for the tax cut, which offers only limited short-term relief, by “raising taxes on job creators”. “Substituting temporary tax relief for families already working is of little comfort for the millions who need a job.”

No, it’s not. The Chicago Tribune agreed with Pfotenhauer – and claimed that extending the tax cut and long-term jobless benefits would only add to “our already enormous national debt”. “Here’s why: The payroll taxes that otherwise would be paid into Social Security only would be recouped years later, and that’s under the most optimistic scenarios.” Social Security is in desperate need of reform, the paper said. “But continuing to cheat the program of the routine revenues on which it is structured inevitably endangers its ability to meet its obligations. And filling any shortfall in these Social Security revenues by borrowing still more billions is beyond foolhardy.” Extending the tax cut will just shortchange Social Security in the long run.

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