According to Treasury Secretary Timothy Geithner, the U.S. government will reach its legal borrowing limit–the debt ceiling–on August 2. What will happen if the White House and congressional Republicans don’t reach an agreement before then? Will the U.S. be forced to default on its debt? In her latest appearance on Bloomberg TV, Reason columnist and Mercatus Center economist Veronique de Rugy explains the facts about the debt ceiling by separating economic myth from economic reality.
Myth 1: If a deal is not reached by August 2, the U.S. will default on its debt.
Fact 1: The Treasury Department can prioritize payments in order to avoid a default.
Myth 2: If the debt ceiling isn’t raised the government won’t be able to pay Social Security benefits.
Fact 2: There are approximately $2.6 trillion dollars in the Social Security Trust Fund. Those assets can be used to pay benefits. Furthermore, there is already trillions of dollars of interagency debt that counts toward the $14.29 trillion debt limit. Treasury Secretary Timothy Geithner could convert that interagency debt into publicly-held debt, preventing not only a technical default but also preventing any delay in government payments.
Myth 3: The Treasury cannot use the Social Security Trust Fund to delay a default past August 2.
Fact 3: While the Treasury can’t use money from the Social Security Trust Fund, it can “disinvest” from other trust funds to pay for benefits.
When I hear all these big numbers that the Republicans want to cut trillions out a long time from now but very little out this year. It appears to me that they are cowards. Ron Paul is different though. President Obama is scared to cut too.
Jagadeesh Gokhale is a senior fellow at the Cato Institute, member of the Social Security Advisory Board, and author of Social Security: A Fresh Look at Policy Options University of Chicago Press (2010).
President Obama’s dire alarms over the approach of the federal debt ceiling, and subsequent calls for $4 trillion in debt reductions over 10 years, are starkly lacking key ingredients: substance and coherence as to what such a fiscal package should contain.
House Republicans, by contrast, have a program for long-term economic stewardship — Cut, Cap and Balance — that would deliver much larger savings than anything the president has put on the table. Before appreciating why such a program would be better, one must consider why a deal to achieve $4 trillion in savings over the next decade — whatever its contents — would be insufficient.
Given the weak economy, budget savings of $4 trillion will not be implemented immediately, but will be back-loaded with a multiple-year lag. However, estimates made by the Social Security and Medicare trustees and actuaries suggest that those two programs face cumulative, inflation-adjusted, long-term (75-year) fiscal gaps totaling $39.2 trillion. This implicit debt will accrue interest and grow larger over time. The cumulative interest cost of that shortfall over 10 years, under a conservative, inflation-adjusted interest rate of 2.9 percent per year (the rate used by the Social Security actuaries), amounts to $13 trillion — implying that not making any fiscal adjustments for the next 10 years will increase the budgetary imbalance to $52.2 trillion. Thus, scheduling a heavily back-loaded reduction of those costs by just $4 trillion through 2020 is unlikely to improve the federal government’s fiscal condition.
The alternative to increasing the debt limit without sufficiently large spending reductions will amount to kicking the deficit can ahead, to just beyond the 2012 elections.
These are conservative estimates, because they include only shortfalls in entitlement programs and assume that the recent health care reform (the Patient Protection and Affordable Care Act of 2010) will appreciably reduce Medicare’s net unfunded obligations. But these estimates exclude the sizable increases in non-entitlement shortfalls and increases in future state Medicaid costs resulting from health care reform — not to mention the fact that Congress is likely to strike the proposed future reductions in Medicare, as it has routinely done for decades.
Thus, for a 10-year, $4 trillion budget deal to significantly reduce the nation’s long-term fiscal imbalance, we will have to stick to fiscal discipline well beyond 2020, which means not enacting new unfunded entitlement benefits or rapidly increasing spending. The fate of the 1990 Budget Enforcement Act, which was abandoned as soon as budget surpluses emerged, does not bode well for a similar deal now unless it is accompanied by constraints against reversals by future Congresses — constraints that the Cut, Cap and Balance program would introduce.
In order to prevent lawmakers from initiating new entitlement (or “investment”) programs with inadequate funding schemes, those constraints should be an integral part of the next budget deal. And such a budget process constraint should itself be protected from repeal except through a large supermajority in Congress. The political price of voting for tax increases to fund new benefits would dampen lawmakers’ enthusiasm to expand entitlements — in contrast to the adoption of the Medicare prescription drug benefit in 2003 or last year’s health care reform, where lawmakers were shielded from the political costs of actually paying for the new programs.
The alternative to increasing the debt limit without sufficiently large spending reductions will amount to kicking the deficit can ahead, to just beyond the 2012 elections. We’ll then tolerate fierce campaigns soliciting support for liberal and conservative visions of a long-term budget fix. Chances are, however, that a polarized electorate won’t yield an unambiguous mandate for the direction of fiscal adjustments beyond 2012.
President Obama is exhorting legislators to swallow bitter medicine now because doing so will only become more difficult as the 2012 election draws closer. But had he seized the pro-budget-reform momentum generated by his own Simpson-Bowles deficit reduction commission last year, things may have turned out better for him politically and for the nation economically. Now we may remain in the current policy limbo until after next November, caught between the irresistible force of entitlement spending and the immovable object of Republican opposition to tax increases.
Along the way, we’ll increase the debt limit, one back-loaded bit at a time, without much prospect of avoiding an even larger fiscal calamity down the road. Maybe it’s time for the one sure way of curing this disease: to shred and discard the federal credit card by enacting Cut, Cap and Balance.
During his third news conference on the debt crisis, President Obama says Congress does not need a constitutional amendment to do its job, the constitution “tells us to do our job.”
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The problem with President Obama’s comments above is that he really does not see the tremendous increase in federal spending as the problem. He blames everything else!!!! He says we do not need the balanced budget amendment but uncontrolled federal spending is the reason we need it!!!
The White House is quietly encouraging the Reid-McConnell talks.
Meantime, there is talk of pandering to the tea party radicals in the unwieldy House by letting them pursue referral of a balanced-budget amendment to the Constitution.
Ratification would take years. If enacted, such an amendment would amount to the same abdication of political responsibility to make wise and responsible cuts in spending as has been evident in the debt-ceiling debate.
It is obvious to me that the Balanced Budget Amendment is needed because of the “abdication of political responsibility to make wise and responsible cuts in spending” that Brummett is talking about and we have all seen for decades.
Abstract:Republicans in the House and Senate have announced that they will force votes on balanced budget constitutional amendments. While the Senate and House versions of the current BBA are similar, there are some important differences that Members of Congress and the American people need to understand. For example, the Senate version makes it more difficult to enact revenue-neutral tax reform, while the House version would waive its tax limitation in times of military conflict. How Congress resolves these differences could determine whether future Congresses and Presidents balance the budget without increasing taxes.
Congress is preparing for a historic debate over what role—if any—a balanced budget amendment (BBA) to the U.S. Constitution should play in relation to the United States’ statutory debt ceiling. Some conservatives in the U.S. House of Representatives and the U.S. Senate have demanded a vote on a balanced budget amendment. Other conservatives have gone as far as to demand passage of a BBA in the House and Senate as a precondition to passing a debt limit increase.
If the Senate and House were to pass identical versions of a BBA, the constitutional amendment would then be sent to the states for ratification.[1]
Republican leaders in the House and Senate have declared that a vote will be scheduled in both chambers on their respective versions of a BBA. The differences between the two versions are significant: Clearly, not all BBAs are created equal.
The provisions that vary between the House and Senate versions of the BBA may have dramatic policy implications for federal spending. For instance, the two versions of the BBA diverge significantly on such threshold questions as how each amendment’s provisions apply during times of “military conflict” and the number of votes required to waive the constitutional mandate that the budget be balanced during a fiscal year.
According to Roll Call, Republicans in the House and Senate have announced that they will force votes on balanced budget constitutional amendments.[2] The Senate is expected to vote the week of July 18, 2011, while the House is expected to vote on another version of the BBA during the same week.
While the Senate and House versions of the current BBA are similar, there are some important differences that Members of Congress and the American people need to understand. How Congress resolves these differences could determine whether future Congresses and Presidents balance the budget without increasing taxes.
The Senate BBA
Senator Mike Lee (R–UT) and Senator Jon Kyl (R–AZ) introduced a BBA that would cap spending as a percentage of gross domestic product (GDP), require supermajority votes to increase the debt limit or raise taxes, and prohibit the judiciary from using a BBA as authority to unilaterally order tax increases to balance the budget.[3]
Senator Lee’s version of the BBA included the following three pillars:
Requiring a balanced budget for each fiscal year;
Limiting federal spending to no more than 18 percent of GDP; and
Requiring a supermajority vote in both Houses of Congress in order to increase taxes, raise the debt ceiling, or run a specific deficit in a particular year.[4]
This version of the BBA, Senate Joint Resolution 5 (S.J. Res. 5), departed from the Contract with America version in that prior incarnations of the BBA did not include a spending cap.
Senator Orrin Hatch (R–UT) drafted a BBA that garnered unanimous support from all 47 Republican Senators. Senator Hatch introduced this BBA, referred to as Senate Joint Resolution 10 (S.J. Res. 10), on March 31, 2011.[5]
On June 29, 2011, Senate Minority Leader Mitch McConnell (R–KY) introduced an identical measure, Senate Joint Resolution 23 (S.J. Res. 23),[6] which was then read onto the Senate Calendar on June 30. The McConnell BBA contains the following provisions:
Section 1.Total outlays for any fiscal year shall not exceed total receipts for that fiscal year, unless two-thirds of the duly chosen and sworn Members of each House of Congress shall provide by law for a specific excess of outlays over receipts by a roll call vote.
Section 2.Total outlays for any fiscal year shall not exceed 18 percent of the gross domestic product of the United States for the calendar year ending before the beginning of such fiscal year, unless two-thirds of the duly chosen and sworn Members of each House of Congress shall provide by law for a specific amount in excess of such 18 percent by a roll call vote.
Section 3.Prior to each fiscal year, the President shall transmit to the Congress a proposed budget for the United States Government for that fiscal year in which—
total outlays do not exceed total receipts; and
total outlays do not exceed 18 percent of the gross domestic product of the United States for the calendar year ending before the beginning of such fiscal year.
Section 4.Any bill that imposes a new tax or increases the statutory rate of any tax or the aggregate amount of revenue may pass only by a two-thirds majority of the duly chosen and sworn Members of each House of Congress by a roll call vote. For the purpose of determining any increase in revenue under this section, there shall be excluded any increase resulting from the lowering of the statutory rate of any tax.
Section 5.The limit on the debt of the United States shall not be increased, unless three-fifths of the duly chosen and sworn Members of each House of Congress shall provide for such an increase by a roll call vote.
Section 6.The Congress may waive the provisions of sections 1, 2, 3, and 5 of this article for any fiscal year in which a declaration of war against a nation-state is in effect and in which a majority of the duly chosen and sworn Members of each House of Congress shall provide for a specific excess by a roll call vote.
Section 7.The Congress may waive the provisions of sections 1, 2, 3, and 5 of this article in any fiscal year in which the United States is engaged in a military conflict that causes an imminent and serious military threat to national security and is so declared by three-fifths of the duly chosen and sworn Members of each House of Congress by a roll call vote. Such suspension must identify and be limited to the specific excess of outlays for that fiscal year made necessary by the identified military conflict.
Section 8.No court of the United States or of any State shall order any increase in revenue to enforce this article.
Section 9.Total receipts shall include all receipts of the United States Government except those derived from borrowing. Total outlays shall include all outlays of the United States Government except those for repayment of debt principal.
Section 10.The Congress shall have power to enforce and implement this article by appropriate legislation, which may rely on estimates of outlays, receipts, and gross domestic product.
Section 11. This article shall take effect beginning with the fifth fiscal year beginning after its ratification.
The Senate is expected to commence debate on S.J. Res. 23 during the week of July 18, 2011.
—Brian Darling is Senior Fellow for Government Studies in the Department of Government Studies at The Heritage Foundation.
Classic Ron Paul: “I expect deficits to explode, not come down” 4/9/1997, C-SPAN Steve Brawner in his article “Safer roads and balanced budgets,” Arkansas News Bureau, April 13, 2011, noted: The disagreement is over the solutions — on what spending to cut; what taxes to raise (basically none ever, according to Boozman); whether or not […]
U.S. Sen. Mark Pryor at the 2009 DPA J-J Dinner U.S. Sen. Mark Pryor at the 2009 Democratic Party Jefferson Jackson Dinner, Arkansas’s largest annual political event. (Did you notice that besides Mike Ross, EVERY OTHER DEMOCRAT THAT PRYOR MENTIONS DOING SUCH A GREAT JOB IN WASHINGTON IS NO LONGER IN OFFICE, SNYDER, LINCOLN, and BERRY)
Constitutional Balanced Budget Amendment Steve Brawner in his article “Safer roads and balanced budgets,” Arkansas News Bureau, April 13, 2011, noted: The disagreement is over the solutions — on what spending to cut; what taxes to raise (basically none ever, according to Boozman); whether or not to enact a balanced budget amendment (Boozman says yes; […]
It’s Simple to Balance The Budget Without Higher Taxes Steve Brawner in his article “Safer roads and balanced budgets,” Arkansas News Bureau, April 13, 2011, noted: The disagreement is over the solutions — on what spending to cut; what taxes to raise (basically none ever, according to Boozman); whether or not to enact a […]
Debunking White House Pro-Tax Increase Propaganda This Center for Freedom and Prosperity Foundation mini-documentary debunks White House pro-tax propaganda with a point-by-point rebuttal of a video narrated by Austan Goolsbee of Obama’s Council of Economic Advisers. http://www.freedomandprosperity.org Steve Brawner in his article “Safer roads and balanced budgets,” Arkansas News Bureau, April 13, 2011, noted: The […]
Steve Brawner in his article “Safer roads and balanced budgets,” Arkansas News Bureau, April 13, 2011, noted: The disagreement is over the solutions — on what spending to cut; what taxes to raise (basically none ever, according to Boozman); whether or not to enact a balanced budget amendment (Boozman says yes; Pryor no); and on […]
Some say the world will end in fire and some say in ice.
But in Washington, a lot of people say it will end if we don’t continually raise the debt ceiling.
The statutory debt limit, or debt ceiling, represents the maximum amount of debt the federal government can carry at any given time. The limit was created in 1917 so that Congress wouldn’t have to vote every time the government wanted to increase the amount of debt (which was becoming a more and more frequent occasion). Since then, the Treasury Department has had the authority to issue new debt up to whatever the limit is to fund government needs. Last year, the limit was raised to $14.3 trillion, an amount that is about to reached.
As it approaches, Federal Reserve Chairman Ben Bernanke has said failing to raise the limit would likely mean the U.S. would default on its debt, creating “real chaos” in place of the fake chaos that’s out there now. Treasury Secretary Timothy Geithner has said that failing to raise the limit would be “deeply irresponsible” and and Austan Goolsbee, President Obama’s chief economic adviser, has said that not raising the limit would create “the first default in history caused purely by insanity.”
Eh, maybe.
As Reason columnist and Mercatus Center economist Veronique de Rugy, has pointed out, we’ve maxed out the nation’s credit card in the past without such dire results. In the mid-1980s, the mid-1990s, and in 2002, for instance, the debt limit wasn’t raised for months at a time and the government got along just swell. The government has a big bag of tools it can use, ranging from playing around with the amount of spending that is liable to the limit to prioritizing interest and debt payments over other outlays. Interest on the debt for this year is projected to be about $225 billion and government revenue is expected to be around $2.2 trillion, so the government can easily pay the vig and avoid defaulting.
What it shouldn’t do is simply keep piling on the debt. The limit has been raised no fewer than 10 times in the past decade. When Republicans ran the White House and the Congress, they voted overwhelmingly to charge it and Democrats, including Sen. Obama, hollered bloody murder. In 2006, he called the need to yet again increase the debt limit “a sign of leadership failure.” Now that Dems run the show, the GOP has suddenly rediscovered its inner cheapskate.
So it goes.
The boldest plan to rein in spending and debt comes from newcomer Sen. Mike Lee (R-Utah), a Tea Party favorite who dispatched Republican incumbent Bob Bennett in the primaries before coasting to victory in the general election last fall. Lee has vowed to block passage of a debt-limit increase unless Congress signs on to his balanced-budget amendment which would cap annual federal spending at 18 percent of Gross Domestic Product (GDP). The amendment would require a super-majority of two-thirds in the Senate and House of Representatives. Lee’s bill is competing with another Republican proposal from Sens. Hatch (Utah) and Cornyn (Texas) to cap spending at 20 percent of GDP. The Hatch-Cornyn bill has weaker rules on its higher cap as well.
In 2010, spending came to about 24 percent of GDP and it’s expected to come in around 25 percent of GDP in 2011. Since 1950, total federal revenues have averaged 17.8 percent and have reached higher than 20 percent exactly once. Spending over the same time has averaged just under 20 percent.
Whether Lee’s proposal carries the day — and there’s a strong case that its passage would do more to calm financial markets than simply bumping up the federal credit line — neither the Democratic nor the Republican leadership has yet to advance a serious proposal to cut spending and reduce outstanding debt. Indeed, both the president’s budget proposal for 2012 and the generally non-existent Republican response are not only deeply irresponsible but clear signs of insanity.
That ain’t right. But it does help explain why a government that has increased spending over 62 percent in real dollars can no longer get by on a $14 trillion debt ceiling.
Many of the laws covering today’s workforce were written more than seven decades ago during the New Deal. Collective bargaining and the unemployment insurance system, for example, were both established in 1935. Since then, the U.S. labor force and industrial structure have vastly changed, which creates an opportunity to update the laws to better suit the modern economy.
Let’s look at unemployment insurance. UI has aided millions of laid-off workers during the recent recession, but the system has also created problems. For one thing, high unemployment and expansive benefits have drained UI funds in most states, and now most states — including Maryland and Virginia — are jacking up UI taxes on businesses to replenish their reserves. But the economic recovery is still very shaky, and higher UI taxes will dampen business hiring at a time when unemployment is still very high.
Another problem is that UI pushes up the unemployment rate because it dissuades laid-off workers from reducing their wage demands, moving or making other tough but needed decisions. Harvard University’s Robert Barro estimated last year that recent expansions in UI benefits pushed up the U.S. employment rate by about 2.7 percentage points.
Collective bargaining is out of step with today’s individualistic culture.
There is a better way. In 2002, the nation of Chile created personal UI savings accounts funded by payroll contributions. When workers lose their jobs, they draw on their UI accounts, giving them a strong incentive to find a job quickly and not deplete their funds. A detailed study of the Chilean system found that, indeed, workers using the new accounts had shorter spells of unemployment. A side benefit of Chile’s system is that when workers retire, they have an additional pot of savings to enjoy.
We should also reform labor union rules. Workers have generally rejected the current system of collective bargaining, which amounts to monopoly union control of a workforce after a majority vote. The share of private-sector workers in labor unions has plunged from a peak of 35 percent in the 1940s to just 7 percent today — despite the pro-union tilt of federal laws.
Collective bargaining is out of step with today’s individualistic culture. The system is inconsistent with the right to freedom of association, and it effectively silences workers who disagree with union heads. Collective bargaining also creates rigid work structures in companies, which is damaging to firms competing in the dynamic global economy.
A better alternative is voluntary unions or worker associations. In Virginia, for example, collective bargaining is outlawed in the public sector, but the state has voluntary associations of teachers and other government workers. That voluntary approach should be the rule for both the private and public sectors nationwide.
The Cato Institute in Washington looks out over Samuel Gompers Park, named after the founder of the American Federation of Labor. Gompers was strongly against a federal UI system because he thought it would restrict freedom and undermine the union role in providing unemployment benefits, which was commonplace before 1935.
Today, unions based on voluntary membership — rather than forced collective bargaining — could work if they provided useful services to their members such as UI benefits. As for UI, policymakers should explore nonfederal options such as union plans and private insurance, and they should study the advantages of Chile’s savings-based system.
It appears the USA will become Greece. Even the Republicans are not willing to offer major cuts in spending. Ted Dehaven hits the nail on the head.
Washington is the only town where the circus never leaves. Elephants, donkeys, clowns and a ringmaster residing at 1600 Pennsylvania Avenue — our nation’s capital has it all. And what a show they’re putting on for the American people over raising the debt ceiling for the umpteenth time in recent years.
On one side we have a president whose surrogates warn of economic Armageddon if the debt ceiling isn’t raised, despite the fact that he himself voted against raising the limit in 2006 as the junior senator from Illinois. On the other side are congressional Republicans, tasked with negotiating spending cuts in exchange for raising the debt ceiling — the same guys who happily voted for big-spending legislation when it was their guy in the White House.
In short, the two sides have a credibility gap on debt reduction that makes the Grand Canyon look like a pothole. That begs the question: What sort of deal will they ultimately agree to?
The president doesn’t want to have to rehash this debate before the November 2012 election. That means that the debt ceiling will have to be increased by $2 trillion in order to create enough space through the end of next year. House Speaker John Boehner has drawn his line in the sand: Republicans will only agree to increase the debt ceiling if spending is cut by at least as much. Thus, it is generally assumed that the two sides will have to negotiate a deal to cut spending by $2 trillion.
Here’s the problem: The $2 trillion in cuts would be over ten years, or about $200 billion a year. Suddenly, $200 billion in annual spending cuts in exchange for increasing the debt ceiling by $2 trillion through the end of 2012 doesn’t sound so great — especially when one considers that lawmakers have a storied history of changing their minds about promised future cuts. Therefore, it is imperative that any debt ceiling deal contains real spending cuts.
“Real spending cuts” means terminating programs or reducing entitlement benefits — for example, eliminating programs at the Department of Education and repealing the underlying program authorizations, or changing entitlement laws to reduce the benefit levels of programs such as Medicare. Future policymakers could reverse these cuts, but it wouldn’t be easy given that the government’s finances will probably remain in a precarious state.
Unfortunately, there’s little evidence to suggest that real spending cuts are on the table. Were that the case, we would probably be reading countless articles on the consequent suffering of those who would be separated from the federal teat. Instead, there is a growing indication that the cuts will merely be amorphous reductions against the Congressional Budget Office’s spending baseline, which projects spending over the next 10 years based on current law with an adjustment for inflation.
For example, negotiators could agree to freeze discretionary non-security spending for 10 years, which would “save” about $1 trillion compared to the baseline. However, making sure that future policymakers adhered to the freeze would require a strict budget enforcement mechanism. Such mechanisms haven’t held up well in the past for the simple reason that when it comes to spending, the legislative fox is guarding the budgetary henhouse.
Even if we knew for certain that a $2 trillion reduction in spending compared to the baseline would be achieved, again, we’re still looking at a relatively small sum of money. According to the CBO’s latest baseline, the federal government is projected to spend $46 trillion over the next decade. Regardless of whether the federal government proceeds to spend $44 trillion or $46 trillion, the government will remain on an unacceptable spending trajectory.
Unfortunately, the current state of the debt ceiling negotiations indicates that the stakes holding up the big tent in Washington aren’t going to be pulled anytime soon. On the bright side, perhaps this latest spectacle will cause more of the electorate to question why we’ve allowed so much of our collective well-being to be placed in the hands of so few. If so, there’s a chance we can at least get the animals back in their cages before it’s too late.
Shame on the Politically Motivated McConnell Plan to Hike Borrowing With No Spending Cuts
The McConnell Plan to hike the debt limit has only one thought behind it — fade the political heat. The Plan purportedly makes the Democratic President bear the political burden for increases in the debt limit to the benefit of Republicans, but the Plan does nothing for the good of the country.
The McConnell Plan, if enacted, would immediately raise the amount of money the government can borrow by $100 billion above the current debt ceiling of $14.294 trillion. The McConnell Plan would then allow the President to make this year and in the coming year a total of three requests for further increases of $700 billion, then $700 billion more, and finally $900 billion more. Each of those presidential requests would take effect automatically, unless a law is enacted to reject the presidential request. Because President Obama is highly likely to retain the support of at least one-third of one House of Congress (the number of votes it takes to sustain a presidential veto of legislation), the real effect of the McConnell Plan is to raise the debt limit by more than $2 trillion.
The McConnell Plan would put America deeper into debt and achieves nothing toward the vitally important objective of getting federal overspending and overborrowing under control. All the McConnell Plan requires the President to do is submit a list of suggested spending cuts that exceeds the dollar amount of the requested hikes in the debt ceiling. The McConnell Plan does not give those spending cut ideas or any alternative ideas any legal effect or even specify an accelerated procedure for congressional consideration of such ideas — the McConnell Plan just requires the President to submit a piece of paper.
If the outcome of the current presidential-congressional negotiations over how to get spending under control is the McConnell Plan of just letting the President have the freedom to go on borrowing another $2 trillion, then Senator McConnell and every congressional Republican who votes for it will bear as much political responsibility for this action as President Obama and the Democrats.
Senator Jim DeMint was right to describe the McConnell Plan to the newspaper The Hill as “like leaving the jail door open and looking the other way, then saying it’s not our fault.” And Representative Jim Jordan was even more succinct with his view on the McConnell Plan on the website Politico.com: “I’d say ‘no way.’” Conservatives should follow their lead.
Conservatives in Congress need to focus on what is good for the country. That starts with a clear understanding that this is the moment to put the country on the path toward getting federal overspending and overborrowing under control. The guiding principle is simple: Don’t raise the debt limit, without getting spending under control. Use the legislation on the debt limit to put America on the path to driving down federal spending and borrowing, while preserving our ability to protect America, and without raising taxes.
I am not happy at all with developments on this latest compromise. It appears we are not going to get true meaningful cuts to this 1.6 trillion deficit.
Treasury Secretary Timothy Geithner said on Monday there’s progress on the debt talks and he is “absolutely” certain that President Barack Obama and congressional Republicans will be able to reach a deal to raise the ceiling ahead of the August 2 deadline.
“Despite what you hear, and this is a complicated place, Washington, people are moving closer together,” Geithner said in a morning interview on CNBC.
Though there were no meetings between the president and congressional leaders over the weekend, he stressed that there’s “a lot happening” to push both sides toward a deal.
“You’ve seen the leadership of the Republican Party, in the Senate and the House, definitively take default off the table as leverage for a deal — that’s encouraging,” Geithner said.
Geithner noted that House Speaker John Boehner (R-Ohio), House Majority Leader Eric Cantor (R-Va.), Senate Minority Leader Mitch McConnell (R-Ky.) and Senate Minority Whip Jon Kyl (R-Ariz.) have all individually said “default is not an option.”
But, he added, “It’s not enough, because we still need to find some way to make progress” and reach a deal.
Though the Treasury Department has looked for ways to stay on top of its bills beyond August 2, Geithner said there are “no other options available to give Congress more time” to raise the debt ceiling “and they understand that.” Republican leaders, he said, “are not going to play around” on this issue.
Some Republicans – particularly tea party-affiliated House members – have said that the United States could keep operating without raising the debt ceiling, but Geithner cautioned that “there’s no plausible way to run a country … for an extended period of time” without raising the credit limit.
“We’re not paying our obligations — it’s not feasible. Everybody that had my job before looked at this question and reached the same conclusion. That’s why you’ve seen the leadership of the Republican Party take that opening off the table, take default off the table.”
Geithner said there is no backup plan. “We looked to see all the feasible options” but there aren’t any, he added.
And, as he has for months, Geithner issued warnings. “If the United States of America were to default, it would be catastrophic for the American economy, for the American financial system for the average American people,” he said.
“It would be a substantial, unfair tax on all Americans, and it would bring the world economy, again, because of the critical role we play in the global economy to the edge of recession again,” he continued. “Again, it’s not an option we can consider. There’s no alternative for congress to raising the debt limit. Again, that’s why you’ve seen Republicans as well recognize that reality and take default off the table.”
“I’m not going to make any news for you on that today,” he said. “And it won’t surprise you to hear I’ll be doing this for the foreseeable future. I’ve got a lot on my plate.”
Asked if he’d be there through the end of the year, he repeated: “For the foreseeable future.”
I am upset at all the lies I hear coming out of President Obama’s mouth and below I put some facts that Nick Gillespie of Reason Magazine out there to straighten things out.
All anybody in Washington can talk about these days is the debt limit or debt ceiling — the total amount of money the federal government is authorized to borrow at any given time. After a decade in which spending increased by more than 60 percent in inflation-adjusted dollars and the debt limit was raised no fewer than 10 times, the government is about to max out its $14.3 trillion credit line, leading to fears that Washington is going to default on its bonds, stop cutting Social Security checks, and destroy the economy more than it already has.
But the current debate over the debt ceiling is full of malarkey for at least three reasons.
1. August 2 is a phony deadline. Treasury Secretary Timothy Geithner has pushed back the drop-dead date when the U.S. finally reaches its limit a bunch of times already: March 31, April 15, May 31 were all cited as deadlines before August 2 was inked in as Armageddon. But this time, he means it, man, really.
2. Reaching the debt limit is not the same as defaulting on our debt — which would indeed be catastrophic.
Think about it: You can max out your credit cards but as long as you keep paying the minimum amount due each month, your creditors don’t go crazy. Interest on the debt is a small fraction of total outlays and the government has a series of tools — from using cash on hand to selling assets to scrimping on nonessential payments — to make sure interest payments are made and seniors aren’t put on an all cat-food diet.
3. Legislating-by-Panic is no way to run a country. The reason we’re in this mess is because government can’t stop spending. And the government can’t even pass a budget on a year’s notice. But we’re expecting them to come up with a good plan for the country’s borrowing in a couple of weeks? Trying to force through an expansion of the country’s credit line by promising cuts in spending down the road is exactly why we’re in this situation to begin with.
It makes far more sense to do something like sell some TARP assets — the government is sitting on $320 billion in outstanding direct loans and equities investments — to cover interest payments through the end of the fiscal year then force Congress and the president to come up with a budget that cuts spending — and borrowing — for real, next year, not is some distant future.
Produced by Nick Gillespie and Meredith Bragg, edited by Joshua Swain.
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In the press the Republicans are getting hit over the head constantly with the popular explanation that President Obama is ready to compromise and provide real deep budget cuts. However, is that the truth? Michael Tanner exposes the real proposal by President Obama.
Democrats go hardball on tax hikes while Republicans play softball.
Last Friday, House minority leader Nancy Pelosi held a press conference to announce that House Democrats should oppose a debt-ceiling agreement that included any cuts in Medicare or Social Security. Meanwhile, over in the Senate, Sherrod Brown (D., Ohio) and Bernie Sanders (I., Vt.) announced that they would filibuster any deal that included changes to those programs, and possibly Medicaid as well.
So, of course, you saw the deluge of media stories blaming Democratic intransigence for threatening to throw the country into default. Neither did I.
Republicans have clearly drawn a line in the sand, opposing any tax increase. But Democrats have been even more unbending, resisting any serious structural reform of entitlements or deep spending cuts, while insisting on huge tax hikes as part of any deal.
Why the insistence on tax hikes? Democrats know that, according to the Congressional Budget Office, tax revenues will return to their historic average of 18 to 19 percent of GDP by the end of the decade. They know this will happen even if the Bush tax cuts are extended and the alternative minimum tax is fixed. The only reason, therefore, for tax increases would be to enable more government spending.
The president is now calling for a “big” deal that would reduce the debt by $4 tillion over ten years, while we’ll borrow more than a third of that this year. Â In fact, over those ten years, we are expected to run up more than $13 trillion in new debt.
It’s also important to remember that the president is not offering $4 trillion in spending cuts. The deal he has proposed includes more than $1 trillion in tax hikes. Another $1 trillion is assumed savings on interest payments. Thus, what is really on the table is barely $2 trillion in actual spending reductions. What the president is really offering is closer to $2 in spending reductions for every $1 in tax hikes, not the 4:1 ratio reported by the media. Moreover, that is over ten years, meaning the cuts would actually be just $200 billion per year. We will pay more than that this year in interest on what we have already borrowed.
As minimal as these cuts are, they are actually even less than they appear. Most people assume that a spending cut means spending less next year than we spend this year. Then again, most people don’t understand Washington. Washington operates under “baseline budgeting,” meaning that if Congress plans to spend $2 billion more on a program than it spent this year, but only spends $1 billion more, that is a $1 billion “cut.” Thus, the $2 trillion in spending “cuts” currently being discussed would actually allow government spending to increase by $1.8 trillion.
Of course, the president also has expressed a willingness to put Medicare and Social Security on the table, despite opposition from the Democrats in Congress. But here too the proposals are far less than they appear. They would do nothing to change the structure of these programs, instead offering a grab bag of future benefit trims that may or may not ever occur, such as further squeezing reimbursements to hospitals and physicians.
So the deal that the Republicans are currently offering would actually allow federal revenue, federal spending, and the national debt all to increase over the next decade. They have abandoned structural changes to entitlement programs — anything like Paul Ryan’s Medicare reform is off the table — and appear to have dropped calls for a balanced-budget amendment or a spending cap.
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