Tales from the Trail

Bejeebers! A scary fiscal outlook and Tea Party politics

October 20, 2010

Tackling huge budget deficits and growing debt is essential for the United States to avoid a financial market crisis that would push interest rates higher and severely damage the U.S. economy, many economists have warned.

Compromise and statesmanship will be needed to cut spending and raise revenues to narrow the budget gap, and that might not be possible inUSA-ELECTIONS/TEAPARTY the current political environment, says at least one experienced budget expert.

“We’re certainly going to have a more fiscally conservative Congress next year,” Rudolph Penner, a former Congressional Budget Office director told a U.S. Chamber of Commerce forum.  “The Tea Party, if nothing else, has certainly moved both the Republicans and Democratic Party to the right.”

However, that may not translate into a deficit-reducing budget deal that can pass the House of Representatives and the Senate and then get signed by President Barack Obama, he said.

“A real problem here is that the Tea Party is going to scare the bejeebers out of any Republican that is talking about compromise for fear of what will happen in the next primary,” Penner said. “There is no way we’re going to get out of this problem without a compromise between the two parties.”

Tea Party activists are pushing for deep government spending cuts and have threatened to end the careers of Republicans who go along with tax increases. Democrats are reluctant to cut the Social Security retirement program and Medicare and Medicaid health plans for the elderly and poor.

Alice Rivlin, a former Federal Reserve Board vice chairman and member of Obama’s fiscal commission, said U.S. government spending will rise dramatically faster than the economy can grow as the retiring 77 million-strong baby boom generation begins to draw on promised Social Security retirement and Medicare health benefits. Bringing the budget into balance will take compromise, she said.

But Penner and former White House Budget Director Jim Nussle said they feared it will take a bond market crisis to focus lawmakers on the task of cutting spending and raising revenue to reduce the deficit, which stood at $1.3 trillion last year.

Obama’s bipartisan deficit commission is improving the chances of avoiding crisis, said Penner. The 18-member panel is due to make its recommendations in December. 

It may not have been given great odds for success, but it can help Washington focus, he added. “It’s become an island of sanity in an otherwise crazy city.”

For more Reuters politics news see: http://www.reuters.com/news/politics

Photo credits:   REUTERS/Rebecca Cook (Tea Party activists wear ‘Stop Obama, Stop Socialism’ tea bag hats at Michigan rally)

REUTERS/Mike Segar (A man holds a sign at a tea party rally in New York)

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