Business & Economy

Sanders and Welch outline priorities for surviving the “fiscal cliff”

Fresh from victories for themselves, President Barack Obama and the Democratic Party, U.S. Sen. Bernie Sanders, I-Vt., and Congressman Peter Welch, D-Vt., outlined their priorities for the upcoming lame duck session and how to deal with the “fiscal cliff” that could threaten the nation’s economic recovery.

During a Monday morning press conference, Sanders argued that two of the main messages of the November elections are that the wealthy “must contribute to deficit reduction” and revenues must be part of any bargain. Welch made a similar case several hours later, saying that the voters have expressed a clear desire for more cooperation and a balanced approach.

If no budget deal can be reached, however, deep spending cuts identified during a 2011 debate over raising the debt ceiling will begin to go into effect in January.

The term “fiscal cliff” dramatically describes what the government faces if the terms of the Budget Control Act of 2011 go into effect.

Federal Reserve Chairman Ben Bernanke used – but did not actually coin — the ominous phrase in early 2012 when explaining the stakes to the House Committee of Financial Services.

“Under current law,” Bernanke explained, “on January 1, 2013, there is going to be a massive fiscal cliff of large spending cuts and tax increases. I hope that Congress will look at that and figure out ways to achieve the same long run fiscal improvement without having it all happen at — at one date.”

After the debt ceiling showdown, House Republicans and the White House established a so-called “super committee” to craft a long-term budget solution. If the committee failed, almost $1 trillion in automatic cuts – half from the defense budget, half from domestic spending – would take effect beginning in January 2013 in a process called sequestration.

The basic idea behind the Budget Control Act was that the cuts would be so extreme that Congress would be forced to make a deal to avoid them. But the plan did fail, and if sequestration happens the first round of automatic cuts and tax increases will total $644 billion.

“Hope springs eternal” that a deal can still be reached within the next six weeks, said Welch. “The pressure is an opportunity to get an outcome that is beneficial.” But he admitted to being skeptical about the prospects and suggested that it might be preferable to wait for “a good deal than throw a Hail Mary pass” between now and the end of the current congressional session.

Republicans who lost their seats “won’t be that cooperative,” he quipped.

“We can start the discussion in a new framework in January,” said Welch. Once the Bush tax cuts expire they could be restored for everyone except those making more than $250,000, he added. In that scenario Congress would actually be voting for a tax cut, an outcome he says reflects the public’s preference for a “middle-class oriented policy.”

Sanders also believes that effective steps can be taken in January. “It’s not like you can’t do anything the day after,” he said.

The impacts would be gradual. Congress could also change laws retroactively after the deadline. But Sanders acknowledged that Vermont would begin to feel the cuts in education and other domestic programs if action is delayed more than a month into the new year.

Asked about the need for compromise, he suggested that the election had changed the dynamic. The voters want deficit reduction without penalizing the elderly, students, the disabled and the poor, Sanders said. Although the opinions of the minority should be respected, he added, Obama’s re-election sends the clear message that most people do not want changes in Social Security or Medicare to be part of a budget deal.

Welch agreed that Social Security “should be off the table” in future discussions of a “grand bargain.” He and Sanders reject a Simpson-Bowles debt commission recommendation that the retirement age for Social Security be raised. But they like its proposal to cut the defense budget by 15 percent, part of a proposed $200 billion annual reduction in discretionary spending.

Other key recommendations of the debt commission were $100 billion in new tax revenue, including a hike in the gas tax and elimination of certain tax deductions, reduction of entitlements like farm subsidies and federal pensions, and cutting the corporate tax rate.

One reason Sanders thinks next year will be different is that he and other senators hope to change the filibuster rules, an action they hope to take on the first day of the new session. He accused Republicans of engaging in an “unprecedented level of obstructionism” for the last two years

Minorities have the right to be heard in a debate and to offer amendments, Sanders said, “but it’s not good when a minority can have veto power.”

In addition to the expiration of the Bush tax cuts, other changes set to take effect on Jan. 1 without a congressional deal in place include the end of the 2011 temporary payroll tax cut – 2 percent tax increase for workers, loss of some business tax breaks, changes in the alternative minimum rate, and the implementation of taxes related to the new health care law. Barron’s estimates that more than 1,000 government programs would be impacted by “deep, automatic cuts.”

The effects could be felt even before 2013. For example, households and businesses may change their spending in anticipation of cuts, potentially reducing the Gross Domestic Product.

A combination of higher taxes and spending cuts would reduce the deficit by an estimated $560 billion. But the Congressional Budget Office estimates that the projected reduction in GDP would likely spark a recession. Unemployment would rise and up to 2 million jobs could be lost.

“It’s not as if we need more time,” Welch said. In previous exercises of political brinkmanship Congress has just “kicked the can” down the road. But he thinks there is more support now among Republicans for including revenue as part of the budget equation, plus some acknowledgement that “my way or the highway doesn’t work. People get that.”

Welch also discussed another priority for the lame duck session – passage of the Farm Bill, which authorizes about $100 billion in food and agricultural programs. The 2008 law expired on Oct. 1, but Congress recessed for the elections before reaching an agreement on the update.

In addition to avoiding the cliff and reforming filibuster rules, Sanders mentioned climate change as his third priority for the upcoming congress, citing a new projection that the average temperature could rise by up to 8 degrees and cause “incredible devastation.”

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Greg Guma

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  • John French

    So kind of Mssrs. Sanders and Welch to have ideas on solving the massive problems they have created. Repaying the insane amount of debt they have saddled us with will require $200,000 from every citizen in the country. What a plan our three “leaders” have implemented. Run up the debt until we are a stone’s throw from fiscal collapse, the blame the “rich.” Once again PTA Barnum is proved right.

    • Ron Pulcer

      Mr. French,

      First off, BOTH political parties are to blame for the debt that has been racked up over the past few decades.

      Go ahead and blame Bernie, if you want, since he has been in Congress for a long time.

      But on the other hand, Mr. Welch was elected to Congress in 2006, and began serving in 2007. That is several years after the initial Bush Tax Cuts were passed and Congress voted to give President Bush a pass on starting a war of choice in Iraq, a country that had nothing to do with 9/11.

      Mr. Welch also joined Congress after the Medicare Part D law was passed, which included the “Donut Hole” and prevented the U.S. Government from negotiating for volume discount on bulk purchases of prescription drugs (not very fiscally conservative). The Medicare Part D law was passed with arm twisting from House Speaker Tom Delay (R-TX) late into the night.

      In contrast, Rep. Paul Ryan has been in Congress since 1999. Rep. Ryan has voted for the War in Iraq and Medicare Part D. These votes were held before Rep. Welch entered the U.S. House. So I would say that Rep. Ryan had more to do with our Federal Debt than Rep. Welch, if you look over the past decade or so.

      • John French

        Mr. Pulcer,

        Despite Joe Biden telling the country a whopper during the debates, he too voted for war on Iraq. And don’t expect me or any other thinking American to agree with your subtle charge that the Bush era tax cuts (passed by Congress) are the cause of a $16 trillion debt. Have both parties acted irresponsibly in fiscal matters? Absolutely. Which party is largely responsible for unsustainable entitlement programs and unsustainable spending? The Democrat party, whether you want to admit it or not. I live in Vermont, and Leahy, Sanders and Welch never met an entitlement program they did not want to fund or expand, and imminent financial collapse is the result. We deserve much better than politicians who will happily trade our financial security for votes. There is absolutely no excuse for a $16 trillion debt, and the fact that the President of the United States did not know how much it was when asked on national TV is appalling, inconceivable and inexcusable.

        • Tom Haviland

          ” By themselves, in fact, the Bush tax cuts and the wars in Iraq and Afghanistan will account for almost half of the $20 trillion in debt that, under current policies, the nation will owe by 2019.”

          Maybe not 16 trillion, but almost 10.

        • Ron Pulcer

          Mr. French,

          As I stated first, BOTH political parties are responsible for the federal debt, and we the voters in all 50 states are responsible for voting in a Congress with a 13% approval rating. Yes, Democratic Senators Biden, Kerry, Clinton, et al voted for the War in Iraq, and are also responsible for the incurred debt, just like every Republican who also voted for giving Dubya a blank check for Iraq.

          The difference is that Biden, Kerry, Clinton, et al don’t claim to be “fiscally conservative”. I was pointing out Paul Ryan because he “claims” to be a fiscal conservative when his votes tell a different story.

          Rep. Ron Paul and Rep. Jeff Flake, both Republicans have been consistently “fiscally conservative”. Neither of them voted for Medicare Part D, as it was structured. Why didn’t the Republicans nominate Jeff Flake for President? Instead they ran Newt Gingrich, Rick Perry, et al.

          That is why I split my ticket and wrote in some names in a couple of cases. The electoral choices we have to vote for are not ideal in either party.

  • Jim Barrett

    When you look at these two politicians, you are looking at the CAUSE of the problem we have today in spending and not the CURE!

  • walter carpenter

    “CAUSE of the problem we have today in spending and not the CURE!”

    The GOP congress on the national level has been pretty good at putting us into debt over the years — medicare plan D, and two simultaneous wars with tax cuts for the billionaires being prime examples of how they have done this so efficiently.