Sunday January 6, 2013

LENOX

Let the celebrations, such as they were, end. While the past week's eleventh-and-a-half hour rescue from a brief slide over the fiscal cliff -- also dubbed the fiscal curb by some misguided commentators who would have preferred a plunge -- merited a brief sigh of relief, the abyss we'll face in less than two months will be far deeper.

That's because it appears President Obama has lost his leverage with Republican extremists -- who make up a majority of the GOP in the House -- because the Republicans have vowed to take any further tax increases or other forms of government revenue off the table. Obama gave ground by agreeing to extend the Bush tax cuts to all income up to $400,000 for individuals, or $450,000 for families, instead of $200,000 and $250,000 as he had sought. That $400K-and-up group is the super-wealthy, about eight-tenths of 1 percent at the very top. The president had no choice -- even the deal based on this major concession almost fell apart in the John Boehner-led House.

The result is only $600 billion in new revenue for the federal government over the next decade, a far cry from the $1.6 trillion originally sought by the White House, a total that had been whittled down to $1.1 trillion before the final agreement cobbled together by Vice President Joe Biden and Senate Republican leader Mitch McConnell. Now, the Republicans plan to hold hostage the requirement for raising the nation's borrowing limit by late February or early March to pay for programs already funded by Congress.


Advertisement

They'll insist on massive spending cuts.

That's not the only sword of Damocles dangling over the nation's economy. The late-winter trifecta includes the need to negotiate sweeping spending cuts since the mandatory, automatic $1.1 trillion slash over 10 years was postponed by Congress to March 1 from the original Jan. 1 "sequestration" deadline. What's more, by March 27 Congress has to approve a "continuing resolution" to keep the government running through the end of September.

Lots of opportunity for political mischief -- and for damage not only to the nation's credit rating but also to the still-shaky economic recovery.

n

There's much at stake for Massachusetts, heavily dependent on federal funding for the state's universities, medical facilities and the defense industry, including General Dynamics here in Pittsfield. The Pentagon and other federal agencies have frozen spending on projects pending a resolution in Congress.

At the independent nonprofit think tank known as the Center for Regional Competitiveness, the senior vice president, Martin Romitti, states that "the riskiest part of the fiscal cliff still remains for Massachusetts."

According to a University of Massachusetts analysis compiled by Romitti, as cited by the Boston Globe, this state is the fifth-highest beneficiary of Pentagon funding ($14 billion in 2011) while the education and medical sector reaped $7.7 billion from Washington. UMass alone could lose up to $32 million in federal research funding, while the Dana-Farber Cancer Institute in Boston is holding back on new projects because future support from the National Institutes of Health is uncertain. MIT could lose more than $100 million of its annual $1.3 billion in federal aid.

As we know, the Massachusetts economy is already in slowdown mode, and Gov. Deval Patrick has proposed a 1 percent cut in state aid to cities and towns for the next six months.

n

How will all this be resolved? Safety-net programs -- Social Security, Medicare and Medicaid -- are in the crosshairs for cutbacks, and President Obama's Affordable Care Act (AKA ObamaCare) may be targeted for reductions even before it's fully launched.

Once again, the nation's most vulnerable citizens -- the elderly, the disabled, the poor and lower-income groups, as well as the middle class -- are likely to suffer the greatest impact from whatever final agreements are worked out.

Republicans are gunning for these programs -- including Social Security and Medicare, known as "entitlements" because they are funded by workers through the payroll tax now back at a full 6.2 percent of weekly wages up to $113,000 a year -- because they are the most costly. But the Defense Department, the Department of Education, and all other federal agencies are also vulnerable.

Likely to be seriously considered, and eventually approved: a cut in future Social Security monthly benefit increases by calculating inflation at a lower rate, and an increase in the eligibility age for Medicare, perhaps rising to 67 in steps.

But even those unpopular remedies wouldn't achieve the needed spending reductions. Only taking a cleaver, not a scalpel, to soaring health care costs by reducing payments to physicians and hospitals could reach the goal, and that solution is likely to be fiercely resisted.

Although President Obama has declared he won't negotiate on the required increase in the amount the government needs to cover its obligations (the "full faith and credit" clause of the U.S. Constitution), McConnell challenged the chief executive in a written statement a few days ago: "Now that he has the tax rates he wants, his calls for ‘balance' mean he must join us in our efforts to achieve meaningful spending and government reform."

Translation: Get ready for a political donnybrook that will make previous confrontations seem quaint by comparison. Or as Shakespeare's soothsayer urged Julius Caesar: "Beware the Ides of March."

Clarence Fanto is a regular Eagle contributor. He can be reached at cfanto@yahoo.com.