Skirmishes Over Taxes, Spending Are Still Ahead

David Greene talks to Wall David Wessel, economics editor of The Wall Street Journal, about what the "fiscal cliff" deal did not accomplish, and what fiscal tasks face the new Congress.

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DAVID GREENE, HOST:

We heard Robert just talk about there how John Boehner may change his relationship with the White House and President Obama as things go forward. The president last night signed the bill that Congress passed to avoid that much-feared fiscal cliff, and as we've been discussing on this program, there are many skirmishes ahead over taxes and spending in the coming year.

And let's turn now, as we often do, to David Wessel. He's the economics editor of The Wall Street Journal and also author of "Red Ink," a recent book on the federal budget. David, good morning, and welcome back.

DAVID WESSEL: Good morning.

GREENE: And Happy New Year.

WESSEL: And same to you.

GREENE: So Congress acted in time, just in time, to avoid these across-the-board spending cuts and widespread tax increases that we were hearing about and causing so much alarm. But let's talk about the work that's left. What is left undone?

WESSEL: Well, basically three things. One, Congress only put off these across-the-board spending cuts called sequester in Washington for a couple of months. They come back in March unless Congress does something else. Second, it didn't do anything about raising the limit on federal borrowing, and federal borrowing is now up against that limit. And third, of course, it didn't finish the job of putting the federal budget onto a sustainable trajectory.

GREENE: So I mean really a lot of this was just delayed and not taken care of. I mean...

WESSEL: Absolutely.

GREENE: So what's the plan going ahead? I mean is there a plan coming together for dealing with all of this?

WESSEL: Well, if there is, they haven't shared it with the press. I mean there's so many bruises and so many tensions among the major players, not only within the House Republican caucus, but between House Speaker John Boehner and Senate Majority Leader Harry Reid, between Harry Reid and his Republican colleague Mitch McConnell, between both Democrats and Republican leaders with the White House, that it's hard to imagine some grand bargain that gets the job done.

But there are a few action-forcing events. There is, as I said, these across-the-board spending cuts that come back and the federal debt ceiling. So this is just really a break in the action. This was something like half time in the Super Bowl.

GREENE: And we'll get to the second half soon with a lot more drama probably.

WESSEL: Exactly.

GREENE: Well, as we get to the drama and to having all of these people on Capitol Hill trying to work together, one thing they'll be facing is what to do about the debt limit. When exactly does the government hit that debt limit?

WESSEL: Well, actually, the government has hit the legal limit on borrowing, which is something a little bit over $16 trillion. Treasury's now doing this thing that they do. They move money around, delay making certain payments, which buys them a couple of months. There's no precise date here, but analysts say the government won't have the money to pay its bills much beyond the end of February.

GREENE: Soon.

WESSEL: Yeah. Very soon. So we're going to have another round of this thing, and of course it was the debt ceiling fight in August 2011 that brought us the fiscal cliff in the first place. You can already see the battle lines. The president says I'm going to negotiate with Congress about this. The Republicans say, we're not going to raise the debt limit unless you cut spending.

The president says, oh, hey man, I told you if we're going to cut spending, we're going to raise taxes again. And so it's all the same cast with the same lines, just a different quarter of the game.

GREENE: But one thing that we've noticed is the stock market doesn't seem to be all that worried about these coming fights, at least not - at least not yet.

WESSEL: Yeah, I can't figure out the stock market. I mean in Washington we're anticipating another nail-biter sometime in the next couple of months, but yesterday was the best day the stock market had had in more than a year. There was a giant sigh of relief, not only on Wall Street but in stock markets around the world, that the American political system had managed at the last minute to avoid shooting the U.S. economy in the head.

Markets can be fickle, though, and they're going to be watching to see if Mr. Obama, perhaps in his State of the Union address, has some strategy to engage Congress in the next couple of months, perhaps this time dealing more with the Senate at the beginning rather than going through this game with the House so we don't go back to the fiscal cliff in just a few weeks.

GREENE: There were some business winners in this whole fiscal deal, weren't there? Some people are really happy right now?

WESSEL: Absolutely. I mean there's been all this talk about loopholes for business in the tax code and every single tax credit for business that you can ever think of that was about to expire was extended. There's a tax break for making stuff in American Samoa. There's a tax break for rum that's made in Puerto Rico, and of course there's also this incentive that businesses get if they make additional investment, something that was put in during the recession that was supposed to end and has been extended yet again.

GREENE: All right, David. Thanks so much for joining us. We'll be following this closely right along with you.

WESSEL: Good. You're welcome.

GREENE: That's The Wall Street Journal economics editor David Wessel, who joins us often here on MORNING EDITION. And you are listening to MORNING EDITION here on NPR News.

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