After a an hour-long meeting at the White House, both Democratic and Republican leaders expressed optimism that Congress can strike a debt deal to avoid the combination of automatic spending cuts and the expiration of the Bush tax breaks on December 31, 2012.
However, the ideological chasm between the two parties remains as Democrats vow to end tax breaks for the rich and Republicans continue to demand huge spending cuts—also known in Europe as “Austerity.”
With its weak federal system combined with an uncertain commitment to its banks and huge spending cuts across the continent, Europe has just fallen into a double-dip recession. By keeping federal spending steady despite huge cuts on the state and local levels, America has avoided slipping into another recession.
Yet Republicans are intent on striking a deal that will duplicate Europe’s stark cuts.
“While we’re going to continue to have revenue on the table, it’s going to be incumbent for my colleagues to show the American people that we’re serious about cutting spending and solving our fiscal dilemma,” Speaker John Boehner (R-OH) said after the meeting.
Though the Speaker says that “revenue is on the table,” he continues to suggest this revenue will come entirely from tax reform, which would count on increased revenue from “growth” or “dynamic scoring,” which President Obama has already rejected.
The president has proposed $1.6 trillion in new revenue — most of this comes from letting the Bush tax breaks for upper income households expire.
Senate Minority Leader Mitch McConnell (R-KY) called for “entitlement programs that fit the demographics of the changing America in the coming years.” This suggests that he’ll be calling for cuts to Social Security and Medicare. Cuts to these programs were reportedly part of 2011’s rejected “grand bargain.”
Both House Minority Leader Nancy Pelosi (D-CA) and Senate Majority Leader Harry Reid (D-NV) expressed confidence that they will be able to reach a deal, ideally before Christmas.
However, the rank-and-file members of Congress may not share the leaders’ optimism. During the meeting, an aide to an influential House conservative told Talking Points Memo’s Brian Beutler, “the GOP conference is still much more conservative than it is moderate, and folks in the House are not going to compromise their principles because a Democrat-crafted and media-driven narrative told them to do so.”
Republicans are aware that a majority of Americans would blame them if the Bush tax breaks for the middle class expire.
Meanwhile, the president knows if he comes up with a deal that forces the rich to pay more, he can get away with cuts and entitlement reforms that his Democratic base would normally not accept.
But with neither side talking about including any short-term jobs spending or stimulus in the deal—which was included in the Simpson-Bowles Debt Plan—it seems that America will be facing Austerity on a federal level in 2013.
It’s just a question of how much.
Photo credit: AP Photo/Carolyn Kaste