Refocus the Austerity Measures

Federal lawmakers narrowly avoided a government shutdown on Mar. 2, when they passed and President Barack H. Obama signed a temporary funding bill to extend government spending authority to Mar. 18. The extension was intended to give Congress more time to reach an agreement on spending levels for the remainder of the fiscal year, but chances of a compromise don’t appear much better than last week. House Republicans insist on a $61 billion reduction in non-defense discretionary spending, while Democrats warn that such a large cut would derail the economic recovery. There is now a real possibility that the budgetary standoff could lead to a government shutdown, which would likely backfire against the GOP. Republicans would do well to compromise on this year’s budget, and save their political capital for the much more important fight over entitlement reform.

While Americans favor budget cuts at the moment, Democrats are counting on Republicans to overplay their hand, and reduce spending by unpopular amounts to appease their Tea Party allies. A government shutdown, which would impact the daily lives of a huge proportion of the public, could easily sour voters on the GOP’s austerity agenda.

A government shutdown is a temporary suspension of nonessential government functions that occurs when Congress and the President cannot agree on spending levels. This last happened in 1995, thanks to a skirmish between President William J. Clinton and House Speaker Newt Gingrich. Two back-to-back shutdowns late in the year resulted in the furloughing of several hundred thousand federal employees, as well as economic losses and tremendous inconvenience to a vast number of citizens. For example, the government closed 368 National Park Service sites, resulting in an estimated loss of $14.2 million per day in tourism revenues for communities near the sites. About 200,000 U.S. applications for passports went unprocessed, inconveniencing travelers and inflicting millions of dollars in losses on the tourism and airline industries. Veterans experienced major curtailment and delays in federal benefits, including medical services, and many employees of federal contractors were furloughed without pay.

Americans were infuriated with the shutdowns in 1995, and held the Republicans responsible—a CNN poll reports that 49 percent of the public blamed GOP congressional leaders. Only 26 percent blamed President Clinton, who used public outrage over the shutdown to stifle the ascendant Republicans in his 1996 bid for reelection. Recent surveys suggest history may repeat itself if the government is shut down this year. A Feb. 24 Gallup poll indicates that Americans favor compromise over a government shutdown by nearly a two-to-one margin.

A government shutdown runs a serious risk of alienating large numbers of voters from the Republican Party. And for what? The proposed $61 billion in cuts would make a small dent in the 2011 deficit, which the Congressional Budget Office projects will total close to $1.5 trillion. What’s more, Democratic concerns about the impact of these cuts on the economic recovery, while they must be balanced against the implications of the mounting debt, are well placed. Fed Chairman Ben S. Bernanke conservatively estimates that the GOP spending reduction plan would result in the loss of a “couple hundred thousand jobs,” and Goldman Sachs projects it will reduce growth by 1.5 to 2 percentage points during the second and third quarters of this year.

Amid this squabbling over a tiny portion of the budget, entitlements continue to grow at an alarming pace. The CBO reports that spending on Medicare, Medicaid, and Social Security is on track to increase from about 10 percent of GDP today to about 16 percent in 2035, and that this growth combined with declining revenue could cause the national debt to expand to 200 percent of GDP. Ensuring the solvency of these entitlements over the long term would do much more to restore confidence in U.S. fiscal responsibility than $61 billion in discretionary spending cuts, and will be necessary in the near future in any case. Social Security, which is projected to go bankrupt by 2039, is particularly ripe for restructuring.

No doubt $61 billion is significant, but it is small potatoes compared to the real work that needs to be done to rein in entitlement spending. The GOP would be foolish to squander the current outcry for budgetary reform by allowing a disagreement over a small fraction of this year’s budget to lead to a government shutdown. Republicans should compromise on 2011 spending, and capitalize on the national mood by addressing entitlements as soon as possible.

Peyton R. Miller ’12 is a government concentrator in Winthrop House. His column appears on alternate Tuesdays.