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Friday, August 10, 2012 - 15:41

Analysis: US 'Fiscal Cliff' Actually a Fiscal Ramp Over 4 Mos


WASHINGTON (MNI) - Shortly after Labor Day the Office of Management and Budget will give Congress a long list of specific exemptions to any drastic "fiscal cliff" cutbacks, far more detailed than the broad categories of Social Security, Medicaid and military paycheck exemptions built into the process.

The report to Congress is mandated by the newest law on the books, the Sequester Transparency Act President Obama signed Tuesday.

The report will not be designed to be reassuring. The more programs and categories that are exempted from the so-called fiscal cliff, the deeper will be the cuts for everything else.

In the spirit of the doomsday alternative with which Congress threatened itself, the Obama administration report to Congress is expected to make any sequester triggered on Jan. 2 even more unthinkable than it is now, the better to force a compromise solution.

However, the administration has, at the same time, somewhat softened what would otherwise be the guillotine effect of the cliff or sequester, turning it into more of a fiscal ramp that only gradually chokes government spending.

The Employment and Training Administration at the Labor Department

-- the same office that this week ingloriously posted the sensitive

initial jobless claims data on its Web site more than 15 hours early -- issued guidance to federal contractors July 30 saying any cuts would take at least four months to begin to take effect.

Saying government offices and agencies will need substantial time to implement any sequester order, the Labor Department unit said federal supervisors will have at least 120 days to make it happen. The "it" is the removal of $1.2 trillion from spending.

Some analysts have said the actual cuts have to be about $200 billion less than that. And they saw the law specifies that 18% of the remaining cuts somehow be cut out of the government's interest payments on the national debt, not spending programs that affect defense or benefit payments. That doesn't detract from the fact any sequester would be the most severe and sudden budget cuts ever attempted.

Critics who don't want any of the fiscal cliff threat pressure relieved immediately pounced on Employment and Training, saying the real motive for its guidance message is to forestall any 60-day notices of layoffs going out to thousands of defense industry employees right before the November election.

Any sequester cuts would be two-sided, equally divided between defense and social safety net programs,

The courts may well defer to the Labor Department should advance layoff notices or the lack them be challenged. The larger reality, however, remains that the fiscal cliff continues to be one of the biggest instances of fiscal and economic uncertainty Congress has ever imposed on itself and the nation on purpose. According to the IMF, the threat of economic instability would even reach to the entire global financial system.

Until the Sept. 6 OMB report to Congress, no one in or out of government can reliably estimate how much of a budget cut to expect, even though most accounts have talked of possible 8% to 10% across the board.

That was shot down by acting OMB Director Jeff Zients before the House Armed Services Committee Aug. 1, when he pointed out any sequester cutbacks would be occurring half way through the government's fiscal year, and so could be around 14%, not just 10%. The OMB is given much discretion what to exempt and how to cut, but there could be appreciable differences in how an Obama administration OMB would do the job compared to a Romney administration OMB.

And technically, until the fiscal 2013 budget amounts are settled, OMB cannot give exact cutback totals. With the six-month extension of the 2012 budget numbers Congress has agreed to accept when it returns from its current recess, intended to take a government shutdown off the table while Congress argues about the sequester, the exact FY 2013 cutback figures will not be able to pinpointed with total accuracy.

All of which is beside the point for those budget hawks who are pushing for a congressional compromise. For them it's enough that the sequester or fiscal cliff energize every interest group whose constituents are threatened, so Congress will eventually be under maximum pressure to do something.

But not right away. When the members of Congress return to Capitol Hill from their long August vacation, it will be just in time to hear that Sept. 6 report dramatizing the pain of any sequester. The report will be the hook for furious partisan attack messages that will probably clog the airwaves for a couple of weeks. And then, of course, Congress will be leaving again for the election hiatus.

It's after Election Day, according to the optimists on the issue, and after the sobering news from the ballot box, will Congress finally be ready to face up to the fiscal cliff's implications.

Knowing what changes have been dictated by voters to take effect in January on Capitol Hill, what political party will control what, and who is in the White House next year, members of Congress will put aside their campaign talking points and make serious, intelligent choices, goes the theory.

Or, more realistically, they'll deadlock, legislatively paralyzed, and perhaps, in a last feeble effort of the year, try to vote to put off the effects of the sequester until later. Whatever they do or don't do, according to the Labor Department, they'll have four months to reconsider.

As congressional historians point out, although sequestration was invented as a budget control mechanism in the Gramm-Rudman-Hollings Balanced Budget Act back in 1985, Congress since then has always found a way to avoid any actual sequestration taking effect.

** MNI Washington Bureau: 202-371-2121 **

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