We’re still in the posturing phase of the fiscal cliff situation, and now we have another data point. Harry Reid has come out and said pretty forcefully that he will not roll back the trigger, the automatic cuts to defense and discretionary spending due at the end of the year, without a “balanced” approach to replace them.
Senate Majority Leader Harry Reid (D-Nev.) announced today that Senate Democrats would not agree to replace mandated spending cuts unless Republicans agree to a “balanced” approach that asks the wealthy to help pay for it.
In a floor speech, Reid derided a House Republican legislative package expected to be approved Thursday that is designed to undo the spending cuts that were triggered last fall when the super committee failed to agree on a $1.2 trillion deficit reduction plan. The mandatory cuts are slated to take effect in January 2013. Reid said that “efforts are under way [in the House] to undo a hard-fought August agreement” to reduce the deficit as part of the deal to raise the debt ceiling.
In the speech, Reid acknowledged that the trigger is “far from ideal,” but added that that was the whole point. “Those cuts were designed to be tough enough to force lawmakers to compromise. They were designed to be tough enough to force the two sides to reach to a balanced deal.” Needless to say, that deal failed with the Super Committee. What Reid is saying here is that they will reopen the talks on a balanced deal, but they will not agree to the Republican bill to replace the defense side of the trigger with mostly cuts in the social safety net for the poor (including Medicaid, food stamps, preventive health care, and other block grant funding for the needy, like Meals on Wheels and the free school lunch program). “Going back on the August budget agreement now in order to protect wealthy special interests is no solution,” Reid said.
In economic terms, the right move is to put the trigger aside without replacing it. Any deficit reduction could come from the expiration of the Bush tax cuts, which would be short-term austerity but a much softer blow than spending cuts, based on all economic analyses. Cutting spending in the midst of a still-fragile recovery makes the same mistake as we’ve seen in Europe. And nobody expects the economy to kick into high gear by the end of the year. 2013 is not the time to create a massive fiscal drag.
This is not the prescription that Reid’s offering, however. He just wants a nice and tidy “balanced” approach, in effect merging the question of the Bush tax cuts with the question of the trigger. But even a piecemeal combination of the two would create a fiscal drag that the economy would have trouble overcoming in 2013. I suppose a one-sided solution, as Reid calls it, which extends tax cuts for the rich, protects defense spending and puts all the burden on the poor, sick and vulnerable, is the worst option. That’s not in doubt. But that doesn’t mean the alternative is a bed of roses.