Debt Limit Comes Closer as Congress Begins to Move
The U.S. House of Representatives, on a bipartisan basis, approved Tuesday the Cut, Cap and Balance Act that provides for an increase in the U.S. federal debt limit — but only on the condition that next year’s deficit is substantially reduced, that real and enforceable spending caps are adopted, and that the Congress approve and send to the states for ratification a balanced budget amendment to the U.S. Constitution.
The vote was 234 to 190, a remarkable outcome for an idea that many observers did not think had a chance of even coming to the floor just one month ago.
Democrats voting for the measure were Dan Boren of Oklahoma, Jim Cooper of Tennessee, Jim Matheson of Utah, and North Carolina’s Mike McIntyre and Heath Shuler, all of whom — save Boren, who is not running fro reelection — are likely to be in much more Republican leaning districts after the 2010 redistricting is completed.
The GOP also had a handful of members voting “No,” presumably because they are opposed to raising the debt limit under any circumstances: Minnesota’s Michele Bachmann, Paul Broun of Georgia, Texas’ Ron Paul and Francisco Canseco, Tennessee’s Scott DesJarlais, Florida’s Connie Mack, Walter Jones of North Carolina, Virginia’s Morgan Griffith, and California’s Dana Rohrabacher.
The impact of Cut, Cap and Balance cannot be underestimated. Its progress through the House has forced serious consideration in the Senate of several measures that will also allow for an increase in the debt ceiling, none of which, however, are being embraced by conservatives whose primary concern is spending.
Speaking from the White House hours before the vote, President Barack Obama dismissed the measure as partisan gamesmanship while nonetheless acknowledging it was, for the GOP, politically necessary.
The problem, as Obama sees it, is that the Republicans in the House have taken the position — one that the vote on Cut, Cap and Balance reinforces — that the reason the U.S. is approaching the debt limit is that spending is out of control and needs to be cut. The president, by comparison, would prefer to address the issue with some grand design that is a combination of spending cuts, new revenues, and, unbelievably enough, new spending.
The problem with that approach, as the nation has seen time and again since Ronald Reagan was president, is that the tax hikes and new revenues go into effect immediately, putting a drag on the economy, as does the new spending. The cuts, which are always scheduled to go into effect in the so-called “out years,” never seem to materialize.
Obama said Tuesday he would prefer to operate along the lines of what a bipartisan group of senators want to do, what he called “a proposal that is broadly consistent with the approach I have urged,” one where there is “shared sacrifice and everybody is giving up something.”
The problem with that approach, say several analysis that have studied its framework, is that it won’t address the problem that has created the current crisis.
Anti-tax activist Grover Norquist was particularly blunt in his criticisms of the new proposal.
“The ‘Gang of Six plan’ is not written in legislative language,” Norquist said in a statement. “It is an outline. It punts many decisions to the Senate Finance Committee. It deals in ranges rather than specifics. When it is eventually written down in legislative language and every American can read it, taxpayers will then learn whether the ‘plan’ raises taxes or cuts taxes and seriously reduces spending or fails to mandate spending reductions.”
“It is a mistake,” Norquist continued, “to invest one’s hopes or fears while the ‘plan’ remains unclear and subject to change by a Senate Finance Committee selected by Democratic leader Senator Harry Reid.”
I have always thought a chinese menu approach would work well in the current standoff. The Republicans controlling the House could specify raising the debt limit by enough to fund the government for, say, one month. The increase should be in relative terms, specifying that the debt limit is now higher by two months worth of funds than its current value. Attached to this would be a spending cut — for example, the age of social security eligibility is now one year later when those who are now 55 or younger reach retirement. Make the bill just that, nothing more. Then repeat, authorizing another month’s raise in relative terms attached to means-testing social security for those under 55 when they reach retirement. Note that now the Democrats could get one month more borrowing for raising the age of retirement or for means testing, and accepting both gives them two months. If they don’t like either, let them move on to the rest of the Chinese menu as Republicans in the House keep giving them more options. Note that these options should keep getting passed regardless of what the Democrats do, or say to the media. You could make Medicare means-tested for those under 55 when they reach retirement age in return for another month’s borrowing. Some of the Chinese menu could be non-entitlement, for example, cutting the EPA budget by a large fraction in return for an extra month of borrowing, cutting the HUD budget by a large fraction in return for an extra month, and so on. You could try cutting all Federal salaries by a large fraction (10% for example) in return an extra month. Trying to gore everyone’s ox at the same time is a losing strategy; you have to force the Democrats to choose, month by month, which of their oxen they like least, then second least, etc. Get them fighting with each other over who gets thrown to the wolves and who stays on the sleigh and the game is won.
Your proposals are eminently wise. We need you at the helm of advisers.
Your idea also contains the principle that its better to deal in smaller amounts of budget than in a single grand scheme. Anytime we hear “comprehensive”, that’s the signal to turn around and bend over. The house should start passing the 2012 budget, $100B at a time, and let the Senate do its job or not.
One would have to presume a favorable Tea party motivated majority congress be static for some very extended period of time. Otherwise, no congress is bound by the works of its predecessors. Given the ratios of the national ideological divide and historical party capacity and voting trends data, that is not very likely.
McConnell is a progressive, nuff said.
The major thing I don’t like about C,C, and B is this notion that the Feds will have to survive on 18% GDP budget. In 1900, before the progressives took charge under Teddy Roosevelt the budget was 3.8% of GDP.
We need a return to a government at the fed level more in line budget wise with the 3.8% number.The welfare state needs to be dismantled and the states need to be back in charge. 18% doesn’t get us there. It permanently establishes federal socialism and repudiates the vision of the founders. It permanently weakens the states in our federal system.
Think very carefully about the consequences of adopting C,C, And B. It has an enormous downside.
Samizdat has it right. I would quibble on the edges but a budget of less than 10% of GDP is called for. The military may need from 2% to 6% of GDP but this is the answer. The Welfare State is a disaster. It has been proven a disaster yet the solution for Socialism always seems to be more Socialism. Even most elected Republicans can’t seem to grasp this. If we could get all to agree, then over the next 10 years the return to a free market economy could be rationally accomplished with the unavoidable pain somewhat mitigated. But I am afraid it will take a complete economic collapse to educate the politicians and public on the nature of reality.
Cut, Cap, and Balance was our last best hope at getting some sort of order out of this fiscal mess. I will NOT support any RINO Republican that falls for any of the other so-called “plans” out there, simply because all they do is kick the can down the road some more without anybody taking any responsibility for the problem. Obama keeps screaming that we can’t make any more major cuts. Really? We’re still wasing money on NPR and PBS and we STILL can’t cut anymore? There are literally hundreds of cuts that can be made, and quickly too.
How about getting rid of the Department of Energy, a department that didn’t even exist until the Carter administration came along. They do NOTHING and certainly don’t find any alternate forms of energy, that’s for sure! Just by getting rid of that one department alone would save hundreds of billions of dollars over 10 years, not to mention all of the salaries and benefits and pensions you would NOT have to pay its many workers. And the few defense responsibilities the Department of Energy DOES have can be given right back to the Pentagon, where they should be. There is plenty of money that can be saved. You just have to look around a bit.
A nice start. How about the Department of Education – they certainly don’t educate people. The Department of Commerce (minus the Patent Office) and the Dept of Labor could go too and nobody would notice.
After that maybe the Republicans will have developed the guts to take on the real monsters: the Department of Health and Human Services, the EPA, Interior, and Agriculture.
Maybe we don’t need 2 million federal civil servants.
The only point of McConnell’s plan is to be sure the Democrats get the blame. The only point of any of Obama’s speeches (he doesn’t do plans) is to make the can that he kicks down the road really, really big, and C, C and B is just a can with lipstick. All three plans are just promises from congenital liars.
If, at the beginning of the 2008 meltdown, we had never bailed out anybody, we’d probably have had a tremendous crash, some real pain. But we’d be recovering now; reality would have returned, and we’d be on sound footing. We didn’t do that then, and the problem is much bigger now. It’s time.
No kidding! He’s letting the house burn down to teach kids not to play with matches!
Think “Fahrenheit 451″ Obama is the Fire Marshall intentionally burning the house down to teach the children not to disagree with him.
Indeed, much like his college transcripts, I have not seen a fiscal plan from Obama yet.
How can you believe in his ability to handle this self imposed situation when you have no proof of his intelligence in either case.
Oh yeah, and don’t forget to add the soundbite of Steve Green imitating Obama, “Being President is hard”.
Exactly – the only problem with McConnell’s plan is that it will cost $3 Trillion we don’t have. My kids will be paying for his cowardice their entire lives (unless they are smart and start a bloody revolution).
I, too, am conflicted about this but facts are facts.
The situation will deteriorate until Reid’s a backbencher and Obama’s retired. Until then we will suffer. Sorry, it’s baked in the cake. One half of one branch just can’t deliver the goods.
It’s possible that the best thing to do is to let them govern (they are elected, too, after all) but to make it clear that the sorry state of the union is the result of their Democrat’s policy choices.
“We didn’t obstruct. We couldn’t! Remember Stimulus? Obamacare? We just gave you enough rope to de-legitimize your world view.”
I don’t know about YOU, but I don’t think that we gave the House of Representatives all those New People, so that 3 RINOS in the Senate, could have the final say on these things.
They wanna act like Democrats? I think it’s time that we showed them how to act like Democrats.
I’m SERIOUS, when I say this: It’s time to FILL THE BUSES, and pay these people a VISIT, at their HOMES. Not where they live in the Beltway. At their REAL HOMES. Where THEIR Families live. That’s what Democrats do, ALL THE TIME.
I am SICK of all this double dealing, and these people living in ONE AMERICA, while we eat DOG FOOD, in the other one.
We’ve done everything RIGHT. Played by the rules. Did our civic duty. And, look what it’d gotten us.
NOTHING!
Every Republican in this GANG OF SC*MBAGS, needs to hear from US, at their HOMES.
Every Republican who VOTED for this Indonesian Muslim’s MARXIST PLANS, needs to be paid a VISIT.
That’s what the Democrats would do.
It’s high time these self serving SOBs were MADE TO LISTEN!
I’m not digging the mob idea….that’s what libs do.
Hey, I’ve got a wild and crazy idea to fix the debt limit, and the budget crisis, and everything! Let’s follow the Constitution! Crazy, I know, but it just might work! 95% of the Fed apparatus would disappear, from EPA to OSHA, from SocSec to Medicare, from the Dept of Labor to the FDA. Businesses would boom. Workers would be in demand. Wealth would mushroom. Freedom would reign. The ‘debt limit’ controversy would become a quaint thing of the past, as Fed revenue would far exceed the much reduced Fed expenses.
Oh, and another benefit: if we actually followed the Constitution we wouldn’t have the SCOTUS pretending that the Constitution actually required every state to allow its citizens to have their unborn babies killed w/o meaningful restriction until the moment of birth. I know, I’m such a dreamer.
But we won’t do that. ‘We the People’ have been a wicked and lazy sovereign for some decades know, hiring venal, corrupt, and/or incompetent ministers, allowing and encouraging them to trample over our own foundational Law, granting Congress king-like powers as the rot spreads and the poor cry out. This does not end well.
["Let’s follow the Constitution!"]
The nation has followed the constitution but for one area…redefining the intent of the commerce clause. The constitution gives to congress the authority to legislate and they have. Though all to many folks are in denial, it is the people who sent folks to Washington to govern on their behalf….again, a constitutional mandate.
Don’t like government and how they represent and legislate? Blame the people!
The reality of the situation is that to get our house truely in order we would have to make cuts that most people (particularly those at all reliant on the government – e.g. medicare, jobs, research grants, soc. sec. ) can’t even contemplate. So its not going to happen, and even if it did the backlash would be so great that those changes would be reversed within an election cycle. Face it people the game is most likely probably already over, and most people just havent realized it yet (not that I advocate giving up…).
The worst part about this whole debate is that ALL of the politicians are assuming that historically low interest rates continue roughly where they are today. This is the sort of assumption that brouhgt down the housing finance market – i.e. A REAALLLY BAD ONE. If rates tick up in the slightest, all of our “budjet savings” go out the window and are used to pay interest. This then snowballs and we have to cut more which will likely (combined with the increase in rates) lead to lower GDP and tax revenues and on and on and on… There are also the losses that will result from the Federal Reserves portfolio of bonds acquired during QEI and II (for those unitiated in bond math – price moves inversly to rates – ie. rates up –> bond prices down) which will be put back onto the US Gov’s balance sheet in the case that the Fed needs recapitalization (BTW they are levered approx 54:1 – Lehman was levered 31:1 when it failed). FWIW, the change in value of the Fed’s bond holdings is approximately negative $1.5 billion for every 1/100th of a percent (i.e. 0.01% NOT 1%) increase in rates. They have capital of about $114 billion so a 1% increase in rates makes them technically insolvent. Good times, no?
FWIW my name is not Jack and during the day I am a senior manager at a global macro hedge fund. I called the PIIGs and housing right for my fund and while I don’t think the US collapse is imminent (ie, I’m not short the USD and US Treasuries today), I don’t have much faith in the US electorate’s (who the politicians simply reflect) ability to grapple with these problems.
Good luck.
Whatever they do in congress needs to be clear and concise. No more 10 year and no vague goals or promises. What they propose needs to be for next year’s budget only, be it cuts or spending or caps. No more smoke and mirrors please. Let’s bring something forward we can all read and understand so we can decide if we like it or not.
What Charles said is correct. The Liberals game is not to let a crisis go to waste. A bonus if created by the Liberals. Conservatives MUST promote fearlessly the baseline of limited gov’t. Have a 1 year goal in mind & stick to it. Then follow through by winning the PR game. We seem to forget that the Constitution & Bill of Rights is our FOUNDATION!!!
Legislation should not be allowed to pass if it is extended beyond your term in office. Including term limits.
The most amazing thing is the underlying premise that cutting money directly reduces service on a 1:1 basis. That’s just proof that government, lacking a profit motive, can’t innovate or improve processes on its own, and a reason they should yeild to the private sector.
Now, I’m a fan of reducing regulatory drag as well, so I’d prefer deep and departmental cuts to really streamline things, but I think people would be amazed by the savings that would come from issuing an ultimatum to every agency and department: Cut your budget by 10% or we’ll have people come in and cut it by 20%, and if there’s a dropoff in the level of service provided (in terms of actual accomplishments, not Federal Register pages), you better have a damned good explanation. The administrators will respond to a threat to their feifdom or their continued employment.
The most important thing about this round of negotiations is to secure immediate cuts, since absent special conditions, government will always grow.
The historical reality of how Washington plays, will probably conclude with their “kick the can down the road” ploy, as well as a large measure of blame game and self-promoting chest beating. Bold action goes off of the table, and economic reality is to be covered by accounting ploys. Cynical only begins to describe the way politicians work at good governance.
Economic Freedom & Quality of Life
http://www.youtube.com/watch?feature=player_embedded&v=v1U1Jzdghjk#at=63
“based on dishonest Washington budget math.”
Can anything be done about this? Isn’t this all based on the CBO and it’s scoring instructions which are based on rules set by congress? Is it set by both houses? Can the house republicans change these rules and call an increase an increase? I’d also like to see them get rid of the 10yr rule. While this was originally done to more accurately gauge spending, I think it’s backfired, and now whenever someone talks about cutting spending 2T, it’s really only a small amount in the next budget that this congress actually controls – on top of the fact that it’s not even a real cut!
A lot of valid, thoughtful comments here. What no one has mentioned is the RISK, as we add to the debt, that our already nervous creditors will demand higher interest rates. They’ve been telling us to cut the spending, stop the borrowing, because we have borrowed too much (implicitly, they are saying to start paying on the principal).
We’ve been paying more than $400 billion per year INTEREST at 3%, but what if we had to pay 10%? We would have to run the federal government, including the military, on about $500 billion. There would be no more “world leader” role for the U.S. We would be competing with Namibia. (Personally, I think this is what BO wants.) And, of course, we saw 20% interest rates not that long ago.
The most revenue Uncle Sam can raise nowadays is about $2.2 trillion (when the economy is healthy), because States, counties and local governments are absorbing the rest of our “national product.” The private sector is left with nothing for new product development, productivity improvement, etc., which is why the economy is stagnant, at best. (BO probably thinks that is just fine.)
And, of course, we have federal taxes as an average of 26% of our prices, and we can’t rebate or waive those taxes when we export (the WTO won’t allow it), so American companies have a VERY tough time selling in world markets. Their competitors in other countries ship their products here tax-free and Uncle Sam doesn’t tax them. That’s why we are exporting jobs and have a $1.5 trillion trade deficit.
We have no choice but to take a CHAINSAW to federal spending. Sell Amtrak, Conrail, the Post Office, TVA, and such. Then close down the Commerce Dept. (except for the census), the Education Dept., the Energy Dept. (except for nuclear regulation), the Labor Dept., and-so-on, plus virtually all the ‘alphabet soup’ agencies, from BATF and DOT to the EPA and NIOSH. When we’re through with that, THEN we tell the remaining operations to reduce their budgets by 10%, as described by AZ above.
The goal needs to be a budget of $2.0 trillion or less, so any surplus can be applied to the debt. We can’t cut defense, because we need to build UP our military to face Red China in 2020, when she says her military will be 200 million strong, for her “recovery” of what she calls her “lost territories.”
By that, she seems to mean any real estate that was ever part of any Chinese empire, or of any country subservient to China. That could mean everything from eastern Europe to Alaska. Assuming a coalition of all those countries gets together, the confrontation will be “unprecedented.” This “recovery” is a direct challenge to U.S. “leadership.” Hazardous times are coming, folks! China is emboldened by our spending and DEBT.
Pete…another good piece of writing. However, I know you must have intended and just forgot to address the ‘jobs’ and global economy variables in what you suggest.
To me, the GOP looks unable to go in front of the Country and explain that if we don’t cut the expenses in a radical way NOW, there will be NO “social protection” net in the future for ANYBODY, because the dollar will fall catastrophically.
The GOP lets the democrats play their usual (and false) role of “protectors of the poor”, when quite the contrary is true: the marxists who control the democratic party KNOW that they are sending America down the cliff.
Marxists want to destroy the economy because they NEED masses of poor desperate people that they can maneuver as pawns.
Sadly, who controls the Lion’s share of the media? Time to go back and revisit the movie, Mr Smith goes to Washington. The manipulation of the media within Mr. Smith’s state correlates pretty much to the braying dolts that pass as journolists today.
“We can’t cut defense, because we need to build UP our military to face Red China in 2020, when she says her military will be 200 million strong, for her “recovery” of what she calls her lost territories.”
Why is this a concern of the United States at all? What vital U.S. interest is at stake, even if what you say is true?
Real conservatives and libertarians ought to support the Coburn debt reduction proposal.
http://www.weeklystandard.com/blogs/over-1-trillion-defense-cuts-coburn-deficit-reduction-plan_576982.html
Why is everybody calling the House “Cut, Cap and Balance” proposal a PLAN? The rhetoric of cut, cap and balance has been around in government before most all your grandparents and their parents were born. A statutory ‘debt’ limit has restricted total federal debt since 1917….and increased how many times since then? Seems rather logical to a twig that if congress controlled spending within a ‘balanced budget’ there would not be the need to cap debt….but congress has a long history of being irrepsonsible and thus, the ‘catch-22′ hole we’re in today. On the other hand, the short of 200 cap increases may be history telling us that even the government has no control over much of the nations circumstances and events.
The CCB is a waste of time and is certainly not a plan! A plan is comprehensive…definitive…..written in legislative language not some political motivated resolution at best. Its only purpose was to ‘float’ a constitutional amendment which has zero chance of passing and could NOT be followed even if granted.
I’m not sure that, that wasted paper even passes the validity test to be considered a ‘budget bill’ for which the Senate can attach their own real legislative budget bill to presuming they come up with one. That leaves only the House passage of the Ryan bill (which is dead in the water) for the Senate to attatch to.
Regardless, its all political rhetoric and jockeying and will NOT be binding upon the next congress.
It’s certainly more than what we have seen from Obama.
The hypocrisy of this President and his party is tangible. He’s decided to VETO
CCB and he hasn’t even read it. Yet old Nancy tells us we have to pass Obamascare so we can see (how it screw us)whats in it.
The Dems haven’t proposed a budget in over 800 days but talk about the irresponsibility of Conservatives
The Dems controlled both houses for 5 yeras racking up all this debt and still no proposals.
Todays Demos believe the only reason Socialism has failed in the past is because they weren’t in charge… insanity is repeating the same actions expecting different results.
Getting things done in Washington as we have been witnessing over the years, is getting about half of what you really want. What the Senate decides(they are the wise ones, as inferred by the Constitution)might pass it and let the President veto and take the blame for being an obstructionist. What is so distressing about it all is that how can one veto a plan when he has not offered up a plan of his own?
The issues are clear enough … America has a debt problem, or else its gonna go Greek. The Left thinks raising taxes will solve it all, leaving Obama free to spend in the run-up to the election. The Right thinks spending must be curbed now to solve it all.
In the meantime, Moody says even if the debt ceiling is raised, it will not absolce the US from a future default. Obama does not care. He just wants to get re-elected. Defauls etc will be dealt with 2013-2016.
For those who are still unclear, the President initially did have a plan and his proposal was that, if Congress would agree to a $2.5 trillion debt ceiling increase, he would agree to $3 trillion in spending cuts but added that the Republicans must compromise on $1.3 trillion in new tax revenues within this decade to tackle the national debt. He stressed that there must be shared sacrifices amongst every class of Americans. If this plan could be agreed upon, the specifics would be drawn up and voted in the House and the Senate. Does this sound familiar?
As far as the Cut, Cap, and Balance Act are concerned, although I am a major advocate for spending cuts, this bill is very unfair in that there is a major imbalance of shared sacrifices amongst all classes of Americans. In order for the debt ceiling to be raised, this bill requires that $111 billion in spending cuts would be made immediately in FY 2012. Where will this $111 billion in spending cuts be made specifically? I will put my money that it will be made mainly on Social Security, Medicare, and Medicaid. Why do the Republicans feel the need to throw America’s most vulnerable in this bad economic time, such as the elderly, under the bus just to protect the richest 2% of America from this shared sacrifice? Not all of us need their protection in this sense.
The top earners of this country, myself included, are currently paying 35% income tax rate annually, due to the Bush tax cuts. It was at 39% income tax rate annually during the Clinton Administration. It is a difference of 4% annually and this is where the President would like to bring it back to. If you are making $1 million annually, you would pay $40 thousand more annually, which is $3,333 more monthly on income taxes, with the 4% difference. At $1 million of annual income, which is $83,333 of monthly income; is $3,333 more in monthly taxes affordable? I would gladly pay this than throw my parents under the bus. Who else?
The saddest thing about this country is that we are all so patriotic yet when this country is facing a major crisis, the first thing that comes to mind is, “This is not my problem. Why should I have to pay for this? Let someone else pay for this.” The problem with this kind of thinking is that someone else does pay for it every single time, including our love ones and our closest inner circles. In this case, it’s the most vulnerable in this country, the elderly, who will pay the ultimate price, while we enjoy the sun under some tropical island.