The fiscal cliffs to come

One self-created crisis behind it, official Washington is lumbering toward another fit of fiscal cliffiness: what to do about the debt ceiling.

Some on the right are already hoping for House Republicans to bite every bullet they have left and shut the government down if they can’t wrest “serious” spending cuts from the White House and Senate Democrats. The President has already made clear he will not negotiate over a debt ceiling increase.

House Speaker John Boehner, who is likely to be re-elected to that post later today, has drawn his own battle lines. No more private talks with the President. No more compromise. He wants (and his caucus desperately needs) a win on spending.

These are opening lines and subject to change. While it’s likely that there is some stomach in Republican ranks to shut the government down without a spending deal, the GOP’s horrific messaging effort during the recent fiscal cliff dance tells me they are utterly unprepared for such a turn — particularly once the President starts using the word “default” at every opportunity.

There’s another word to keep in mind: “sequestration.” Yes, the draconian, horrible, terrible spending reductions that were supposed to go into effect on January 1st have been delayed until March 1st. As Tim Donner argues below, the most fiscally prudent course is to swallow the cuts. While the “cuts” embodied in the sequester are of the “only in Washington” variety, meaning they are cuts in the increase in spending as opposed to genuine reductions, they are better than nothing.

If that wasn’t enough, we can also add tax increases. Those “permanent” tax cuts the GOP is so proud of today? Goldman Sachs says not so fast:

Tax increases would become part of the debate if entitlement reforms are considered. Although the President has indicated he will not negotiate on the debt limit, he has also indicated that whenever entitlement reforms are considered, he expects those to be balanced with additional tax reforms (i.e., spending cuts must be balanced with tax increases).


And none of this takes into account the expiration of the continuing resolution that has been funding the government since the beginning of its fiscal year back on October 1st.

That expires on March 27th.