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Is America in fiscal austerity yet?

The short-term importance of the budget bill which the House approved this week is that Democrats now have another vote which they can use against Republicans running in tough races this fall.

Sixteen House Republicans voted against the measure -- called the Sequester Replacement Reconciliation Act -- which would replace some of the automatic spending cuts mandated by last summer’s Deficit Control Act with reductions in spending on programs for low-income people.

Championed by Budget Committee chairman and potential GOP vice presidential candidate Paul Ryan, the bill stands no chance of becoming law but does indicate where the vast majority of House Republicans want to spend more (on the military) and spend less (on outlays for lower-income people).

From Ryan’s point of view, the bill makes sensible changes in benefit rules, such as ending the practice of sending money under the Child Tax Credit to people who are not eligible to work in the United States.

The House vote was part of the debate over “austerity” -- a term that has gained new currency this week as a Washington buzzword since voters rejected French President Nicolas Sarkozy and voters in Greece refused to back a government that is pursuing a policy of cutting public spending and selling government assets.

“Austerity” implies a government sector that’s on short rations, with programs being scrapped, and government workers being laid off.

That is not exactly what’s happening in the United States at the federal level right now.

One way to measure “austerity” or lack of it is to look at what federal spending was before the recession started at the very end of 2007.

In FY2008, which began in October of 2007, outlays were $2.98 trillion, or about 21 percent of gross domestic product. In the current fiscal year Congressional Budget Office expects that spending will be $3.6 trillion or 23.4 percent of GDP.

The CBO reported this week that federal spending for the first seven months of fiscal year 2012 “was about the same as it was during the same period last year,” accounting for shifts in the timing of certain federal payments.

So far in FY2012, the federal government has spent about 0.8 percent less than it did for the comparable period last year.

To be sure, spending in certain categories is down: Medicaid outlays fell by $26 billion, or 15 percent, because the increases in the federal government’s share of Medicaid spending – part of President Obama’s stimulus plan enacted in 2009 -- expired.

The CBO also reported that outlays for unemployment benefits dropped by more than one-fifth, compared to the same period last year, because fewer claims were filed in recent months.

Defense spending decreased by about 3 percent, compared to the same period in the prior year. But spending for Social Security and Medicare benefits were up.

As for the number of federal employees, it is hard to see austerity in the most recent available data from the Office of Personnel Management which showed 2.1 million executive branch employees as of December, an increase of nearly 3.7 percent over December of 2009 and an increase of about 13 percent over September of 2007, before the recession began.

The data from the Bureau of Labor Statistics, however, does show a reduction in the number of state and local government workers. For example, since the summer of 2008 the number of local government employees has shrunk by 3.6 percent.

“The concern about austerity is that we are still in a very, very weak economic recovery and this slashing of spending at the state level and to some extent at the federal level – we’re under a wage freeze on federal employees… that is hampering the recovery and hampering the robust creation of jobs,” said Roger Hickey, co-director of the progressive group Campaign for America's Future.

Hearkening back to his 2009 stimulus plan, which helped avert state and local government layoffs in 2009 and 2010, Obama proposed in his American Jobs Act to send $35 billion in federal funds to the states so they can hire and retain public school employees, firefighters and police officers.

He also wants to spend another $50 billion on highways, subways, railroads, and aviation.

In an election year, such spending saves the jobs of members of public employee unions who tend to be loyal Democratic allies and donors.

The debate over austerity is in large part the traditional policy struggle over what the preferred or “right” mixture of spending should be: how much should government spend on a missile defense shield for the East Coast of the United States, for instance, on which House Republicans want to spend $100 million for openers, versus medical care for poor people.

And because the Republicans control the House, they have been able to prevail in some of their battles with Obama and the Democrats over which groups should be singled out to bear the burden of less spending.

Case in point: in February as part of the deal to extend the Social Security payroll tax cut, Republicans were able to force newly hired federal employees, as of next year, to pay a higher share of their paycheck for their pensions. 

“For federal employees it feels like an attack, because no one else is being asked to do anything. When millionaires in this country, who have done very well, have not asked to put in anything more from their pay check but middle-class federal workers are asked to put in more from their paycheck, it feels like they are being singled out,” said Julie Tagen, the legislative director for the National Active and Retired Federal Employees Association.

Next Tuesday the focus will shift for a day to the long-term struggle over the federal debt and the entitlement programs, as former Commerce Secretary Peter Peterson holds his third annual fiscal summit, a kind of Woodstock for numbers crunchers, economists, and those who worry about the nation’s ability to pay for the benefits it has promised to future retirees.

The lineup of speakers includes Ryan, former President Bill Clinton, Sen. Rob Portman, R-Ohio, and Treasury Secretary Tim Geithner.

Hickey said Peterson “is trying to buy Democrats into an austerity focus.”

Hickey, Sen. Bernie Sanders of Vermont and other progressives will be on the sidewalk outside the summit protesting: “We will be there to say if you look at the polls, the American people are very, very worried about jobs… We seem to be stuck in a permanent level of high unemployment and these deficit proposals are threatening basics like unemployment insurance….”

He added, “The best way to address the short-term deficit is to get the economy growing in a robust way so that unemployment actually comes down instead of just being stagnant. A stimulus – an investment in growth through infrastructure and aid to the states, getting the growth rate up, – will in fact bring down the deficit.”

Obama does not use the word “stimulus” anymore and he hasn’t focused on his American Jobs Act in his campaign ads, but that stimulus proposal is essentially his antidote to austerity too.