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ANALYSIS-After US 'fiscal cliff' dive, more battles, new cliffs

Source: Thomson Reuters Foundation - Mon, 31 Dec 2012 05:59 AM
Author: Reuters
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(Repeats from Dec. 29 with no changes to text)

* Budget battles loom over debt limit, spending bills

* New Congress may be more partisan than the old

By David Lawder and Fred Barbash

WASHINGTON, Dec 31 (Reuters) - Whether or not the U.S. "fiscal cliff" impasse is broken before the New Year's Eve deadline, there will be no post-cliff peace in Washington.

With the political climate toxic in Congress as the cliff's steep tax hikes and spending cuts approach, other partisan fights loom, all over the issue that has paralyzed the capital for the past two years: federal spending.

The first will come in late February when the Treasury Department runs out of borrowing authority and has to come to Congress to get the debt ceiling raised.

The next is likely in late March, when a temporary bill to fund the government runs out, confronting Congress with a deadline to act or face a government shutdown. The third will possibly be whenever the temporary bill replacing the temporary bill expires.

While Congress is supposed to pass annual spending bills before the start of each fiscal year, it has failed to complete that process since 1996, resorting to stopgap funding ever since.

Influential anti-tax activist Grover Norquist predicted in an interview with Reuters that conservatives would wage repeated battles with President Barack Obama to demand budget savings every time the government needs a temporary funding bill or more borrowing capacity.

The so-called continuing resolutions to which a divided Congress has increasingly resorted to keep the government operating, provide a "very powerful tool" to pry out spending cuts, said Norquist, president of Americans for Tax Reform.

Republican Senator Bob Corker of Tennessee said he will not be satisfied until there are substantial cuts to federal retirement and healthcare benefits known as entitlements, producing savings in the ${esc.dollar}4.5 trillion to ${esc.dollar}5 trillion range.

"Unfortunately for America," said Corker, "the next line in the sand will be the debt ceiling."

Most observers see the ${esc.dollar}16.4 trillion debt limit as the true "fiscal cliff" in the new year because if not increased, it would eventually lead to a default on U.S. Treasury debt, an event that could prove cataclysmic for financial markets.

The Treasury Department said on Wednesday it would start taking extraordinary measures by Dec. 31 to extend its borrowing capacity for about two more months.

'POISONOUS CLIMATE'

It was a deadlock over raising the debt ceiling in August 2011 that prompted a deficit-reduction deal that led to a key "fiscal cliff" component, the ${esc.dollar}109 billion in automatic spending cuts on military and domestic programs.

If the fiscal cliff's spending cuts or tax increases are left even partly unresolved on Dec. 31, the political combat over them will carry over into the new Congress, possibly simultaneously with the debt-ceiling debate.

"We would be pessimistic of a quick fix" if the deadline is missed, Sean West, head U.S. analyst at Eurasia Group, a political risk consultancy, said in a note to clients. "The political climate will be poisoned. The new Congress will need time to settle in."

"We are concluding one of the most unsuccessful Congresses in history," Democratic Representative John Dingell of Michigan declared in a statement on Saturday, "noteworthy not only for its failure to accomplish anything of importance, but also for the poisonous climate of the institution."

Dingell, 86, is the longest serving member of the House, elected first in 1955.

Historically, bitter struggles in Congress like that over the "fiscal cliff" lead to further resentment and strife in a cycle of cumulative grudges that now spans nearly 30 years.

Many analysts and lobbyists in Washington believe the strife could get even worse because the new Congress convening on Jan. 3 will include fewer members from moderate or swing districts and more from districts tilted heavily to the left or the right.

Republicans in particular are likely to face their most serious re-election challenges in 2014 not from Democrats but from conservative Republicans challenging them in primary elections.

"Ironically," said a post-election analysis published by the law firm Patton Boggs, "the voters have elected a 113th Congress that may be even more partisan than the 112th." (Reporting By David Lawder and Fred Barbash; Editing by Eric Beech)

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