An early test of whether US politicians can craft a consensus on fiscal policy in the wake of Standard & Poor’s debt downgrade will come as early as next month, when Congress needs to approve a new round of funding for the government.
Much of the attention on Capitol Hill is focused on the work of a bipartisan panel of lawmakers – known as the “supercommittee” – that has been charged with recommending by late November as much as $1,500bn in measures to shrink US deficits.
But there is a more pressing fiscal issue that has to be dealt with by the end of next month. Congress needs to extend a new budget law funding more than $1,000bn in federal programmes and departments for the 2012 fiscal year, which starts on October 1.
Failure to do so would mean the US will be, as it was in April, on the brink of a government shutdown. This would validate concerns about a breakdown in the political process and ring alarm bells about the ability of the supercommittee to succeed.
The biggest threat to a deal on the 2012 budget comes from the possibility that conservative and Tea Party-backed Republicans in the House of Representatives will use the opportunity to push for the deepest possible spending cuts.
“I would say the odds are better than 50-50 that someone will try to hold [the government] hostage for more spending cuts,” says Stan Collender, a budget analyst at Qorvis Communications and former Democratic staffer in Congress.
Republican leaders in the House have so far indicated that they are shying away from this battle, preferring perhaps to direct their energy at shaping the outcome of the supercommittee.
“While all of us would like to have seen a lower discretionary appropriations ceiling for the upcoming fiscal year, the debt limit agreement did set a level of spending that is a real cut from the current year’s level,” said Eric Cantor, House majority leader, in a memorandum to fellow Republicans last week.
“I believe it is in our interest to enact into law full-year appropriations bills at this new lower level,” Mr Cantor said.
The deal that raised the US debt limit and averted a default this month set the cap on 2012 spending at $1,043bn.
That was $7bn less than the spending levels for 2011 but $24bn more than the spending limit contained in the House Republican budget, which was written by Paul Ryan of Wisconsin and passed the lower chamber in April.
This offers plenty of fodder for criticism from the right flank of the party.
“I fully expect conservative rank-and-file to be prepared to defend the level of spending in the Ryan budget,” says Michael Franc, vice-president of government studies at the Heritage Foundation, a conservative think-tank, predicting that some tension with the party leadership will arise. “That’s going to be their rallying cry, to push [spending] down further.”
Mr Franc argues that if the economy worsens further in the next few weeks, conservatives could actually feel more pressure to fight for deeper spending cuts.
“A lot will depend on members’ temperaments returning from August recess and what they have been hearing from constituents back home,” says Juliane Sullivan, senior policy adviser at Akin Gump. “One interpretation of the S&P downgrade is the need for Washington to demonstrate its ability to govern and get things done.
“That may give traction to those who choose to focus the next fiscal fight more on the supercommittee’s efforts, rather than refighting the top-line discretionary number, ” Ms Sullivan adds.
Others are not worried about the chance of a government shutdown in the autumn. “There will be a lot of noise from conservatives but the chance of a real fight that brings the spectre of shutdown back on the radar is low,” says Sean West, an analyst at the Eurasia Group.