Budget battle guide: This time may be for real

Published on NewsOK Modified: February 27, 2013 at 9:30 am •  Published: February 27, 2013

Less than a third think the budget cuts would deeply affect their own financial situation, according to a Washington Post poll. Sixty percent, however, believe the cuts would have a major effect on the U.S. economy.

That's what economists and business people are nervous about.

The political standoff is the factor that economists blame most for the slowing economy, according to the latest Associated Press Economic Survey. The uncertainty about future government spending is causing businesses to hold back on investment and hiring, and it's making consumers less confident about their own spending, economists warn.

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How did it come to this?

Obama and congressional Republicans have been deadlocked over spending since the GOP won control of the House in 2010, with a big boost from tea party activists who champion lower taxes and an end to red-ink budgets.

House Republicans refused to raise the nation's borrowing limit in 2011 without major deficit cuts. To resolve the stalemate, Congress passed and Obama signed the Budget Control Act, which temporarily allowed borrowing to resume, set new spending limits and created a bipartisan "supercommittee" to recommend at least $1.2 trillion more in deficit reduction over 10 years. Republicans and Democrats on the supercommittee failed to compromise, however.

That triggered the law's doomsday scenario — the so-called "fiscal cliff" package of across-the-board tax increases and spending cuts.

In a New Year's Eve deal, Obama and Congress agreed to raise taxes on some of the nation's wealthiest earners. And they postponed the spending cuts for two months — until Friday.

That was supposed to buy time to cut a deal.

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But there's still no deal.

As the days before Friday's deadline melt into hours, neither side shows sign of blinking — or even negotiating.

Obama insists on a blend of targeted spending cuts and tax increases. Republican leaders reject any more tax increases and say the savings must come from spending cuts.

While both sides talk about reducing the deficit, Obama and other Democrats say this must be done gradually, to avoid wounding an already weak economy.

The president is taking his case to the people, blasting Republicans at campaign-style events. GOP leaders, just back from a congressional vacation themselves, are publicly grousing that Obama should be bargaining with them, not grandstanding.

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Is there a way out?

Expect intense negotiations to begin in Washington if enough Americans begin yelping about the pain from reduced federal spending.

Obama and Congress could agree to pare down the budget cuts to a more logical package of reductions, perhaps with some tax changes, too. Such a deal could also retroactively restore spending where they want to.

The "sequester" isn't the only line in the sand, however.

On March 27, legislation that has been temporarily financing the government expires. Without agreement to extend it, the threat of a partial government shutdown looms. Later in the spring, it will be time to raise the nation's debt limit again.

So far, two years of budget crises have been settled with temporary fixes. They have barely dented the underlying disagreement over how to reform Medicare, Social Security, taxes and spending to address the nation's long-term deficit problem.

If those festering questions remain unanswered, the U.S. economy will remain a hostage to politics.

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AP Director of Polling Jennifer Agiesta contributed to this report.

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