Is Irish-Style Austerity OK with Americans?

ANALYSIS | Could an Ireland-style austerity budget be on its way to the United States?

In a series of votes beginning Tuesday night and continuing through Friday, Ireland's Dáil enacted stringent debt-cutting measures proposed by Finance Minister Brian Lenihan that would slash the country's budget by 4 billion euros and (about $5.2 billion) and impose about 2 billion euros in tax increases. While deemed necessary to qualify the financially troubled nation for a badly needed infusion of 67.5 billion euros in aid from the European Union and International Monetary Fund, the budget measure is notoriously unpopular.

Banging pots and holding flares, protesters outside the parliament building shouted their disapproval of the prime minister, the IMF and the austerity budget as the parliament voted.

Despite the budget's unpopularity, lawmakers voted it in. Some of the key provisions of Ireland's austerity budget include an additional 14,000-euro pay cut for the prime minister on top of the 76,000-euro pay cuts previously implemented in the two-year battle to rein in out-of-control government debt. Other ministers pay cuts have been about two-thirds of that of the prime minister.

But it's not the pay cuts for government leaders than are creating unrest in the Irish republic. New taxes and revenue raising will impose a 5-billion-euro burden on cash-strapped citizens, while the minimum wage will be slashed by 1 euro per hour, social welfare spending will decrease by 2.8 billion euros, public pensions will be cut and student fees will increase. The 45 percent of the population currently exempt from income taxation based on low earnings will begin paying taxes under the austerity plan.

According to Reuters, Ireland's solvency rating was slashed to BBB+ by Fitch despite the austerity measures. The rating is one notch above junk status.

Ireland is not the only country in fiscal crisis. This year has seen a wave of fiscal austerity measures imposed across Europe, and the United States is facing its own brand of budget woes. In the U.S. however, it's government spending and not budget cuts that have created the most controversy. The U.S. budget deficit of $1.29 trillion and $13.7 trillion national debt are viewed as evidence of a government out of control by a vast segment of the American public. Anger over government spending fueled the birth of the Tea Party movement, resulting in the election of several congressional representatives chartered to stop the spending.

But polling by Bloomberg shows that while Americans want the deficit reined in and the debt paid down, they oppose Irish-style austerity measures. Instead, Americans want to see the deficit brought down while preserving spending on Medicaid, Medicare, Social Security, and defense; nor do the majority of Americans approve the discontinuation of tax breaks like the home-mortgage deduction. The prevailing belief that corporations and the wealthy hold a disproportionate share of the nation's wealth in combination with hardship imposed by high unemployment and record foreclosures creates intense resistance to the suggestion that Americans should sacrifice to bring the budget under control.

While the U.S. deficit commission came up 14 votes short of the number necessary to send its proposal to increase taxes and cut spending to Congress, its ideas are still likely to form a significant segment of the blueprint for budgetary reform. The panel's recommendations include capping discretionary spending at the 2011 level until 2020, a graduated 15-cent hike in the gasoline tax, cuts to government programs, and a new national sales tax, among other provisions.

If history is a guide, such proposals will have limited appeal on Capitol Hill due to populist opposition and will fall prey to gridlock long before anyone shows up banging pots and pans.