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As Shutdown Looms, Congress “Caught Between a Rock and a Hard Place,” Tonelson Says

Odds of a government shutdown rose Tuesday after talks between the White House and House Republicans broke down...and the political rhetoric heated up.

There's "no excuse" to not pass a budget for the remainder of the fiscal year, President Obama said. "Nobody gets 100% of what they want, and we have more than met the Republicans halfway at this point…there's no reason why we should not get an agreement."

In his own impromptu press conference, House Speaker John Boehner said he would continue to fight for "the largest spending cuts possible" and not "allow the Senate and the White House to put us in a box."

With three days to go before the current continuing resolution runs out, and neither side wanting to be blamed for a shutdown, there's still time for Congress to reach a budget deal.

"There's a long, rich tradition of [politicians] being able to reach compromise when time is about to reach out," says Alan Tonelson, research fellow at the U.S. Business and Industry Council.

Tonelson suggests there may be "one or two more continuing resolutions" before a final deal is reached, notwithstanding President Obama's protestations on that issue: "What we are not going to do is once again put off something that should have gotten done months ago," he said.

Still, Tonelson notes there's a "very deep philosophical spilt" between Democrats and Republicans, as well as an internal split between the old-line GOP and freshmen members of the Tea Party. "Given the major philosophical issues at stake, the exact path to compromise is very difficult to see right now."

More importantly, Toneslon — as with prior guests — frets the current budget debate is missing the bigger picture of what really ails the U.S. economy. (See: David Walker: Budget Debate "Like Arguing About the Bar Tab on the Titanic")

Between Rock & Hard Place

First, the economy's reliance on government stimulus means budget cuts will result in slower growth and higher unemployment, he says, as has been the case in the U.K. and other European nations that adopted austerity measures.

Congress is "caught between a rock and a hard place," Tonelson says. "As important as taxes, spending and the size of government questions are, you can't forget our fundamental problem is our economy became very unproductive in the 1990s and first decade of this century."

For example, while there a "strong case to be made for more tax cuts," any reform should focus on creating incentives for corporations to create U.S. jobs, rather than on the absolute level of taxation, he says.

If not, "way too much of this tax windfall will be use for investing overseas, and the rest for unproductive activity like stock buybacks," Tonelson warns. "We've been down that road and it doesn't work for the long-term health of the U.S. economy."

Aaron Task is the host of The Daily Ticker. You can follow him on Twitter at @atask or email him at altask@yahoo.com

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