U.S. Default Wouldn't Be Carmageddon II

· Tuesday, July 19, 2011

If Washington fails to raise the $14.3 trillion debt ceiling and default follows, the results won't mirror that of L.A.'s "Carmageddon" weekend (when Angelenos stayed home in response to a major freeway closure and then blamed the media for over-hyping the story). A default on the federal debt means interest rates will rise, the cost of borrowing will balloon -- and the only sure outcome will be that voters will blame Republicans.

Hence, the House Republicans' debt-ceiling package -- the Cut, Cap and Balance Act of 2011 -- is the bonehead play of the year.

It's not the first bonehead play this year. President Obama threw a poison pill into negotiations on raising the $14.3 trillion debt when he insisted on including about $1 trillion in tax increases in the package. That was a mistake because this Republican House is not going to pass a measure that raises taxes and imperils the recovery -- and the administration knew it.

Alas, in Washington, one poison pill begets another. House Republicans had a chance to push for a cuts-only debt-ceiling increase, but they, too, poisoned the well.

The "Cut, Cap and Balance" plan promises stiffer spending cuts than those found in the budget plan written by Rep. Paul Ryan (R-Wis.). In May, the Senate rejected the Ryan plan in a 40-57 vote. Now I think the Senate was wrong to reject the Ryan budget, but it tanked, so there's nothing smart in proposing stiffer cuts.

And if you want a plan to succeed, you do not toss in a Balanced Budget Amendment for "balance." Amending the Constitution, after all, requires a two-thirds vote in the Senate. That's 67 votes -- 27 more than the Ryan plan won.

The Republicans could have put together a solid cuts-only package. Instead, they went for the showy vote, which will deliver no spending cuts, so that GOP members of Congress could pose as tough on spending.

Now Congress will vote. The House will pass the deal, the Senate won't, and President Obama won't even have to veto the package. Then, maybe, Washington will get down to business.

Last week, Senate Minority Leader Mitch McConnell proposed a backup plan that would allow the president to raise the debt ceiling in three stages and require the White House to propose nonbinding spending cuts. Senate Majority Leader Harry Reid is working with McConnell to craft legislation. That legislation probably won't result in meaningful deficit reduction, but with default looming, it looks better every day.

A year after the administration's first "Recovery Summer," Obama will have won the debt-ceiling PR war. But when he has to produce his own big-deal cuts -- all by his lonesome -- the glow may not last.

In pushing for tax increases, Obama overplayed his hand. In pushing for a spending cut, the House Republicans overplayed their hand. Deficit reduction will have to wait.

It turns out that White House economic guru Austan Goolsbee was right when he warned that it would be insane to tie deficit reduction to a vote to raise the debt ceiling. That was back in May, and most of the Beltway agreed.

But then Obama proposed to tie the debt ceiling to tax increases, and in crazy Washington, somehow it all made sense.

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Comments

Gelio

What is wrong with a balanced budget amendment, considering every man woman and child in the USA is currently on the hook for $46,000, and with the debt expected to double in ten years? Therefore, conservatives must act boldly and proactively. Not only must we sit at the bargaining table and demand cuts, but there must be cuts in all levels of government which amount to an immediate reduction in the deficit. There must be a tough statuary cap which will tie the hands of future politicians from spending beyond the historical, pre-Bush average of 18% of the Gross Domestic Product. Politicians in both parties have proven themselves untrustworthy to reduce spending, so breaking that limitation would mandate simultaneous spending reductions. We must have Congress approve the Hatch-Lee Balanced Budget Amendment, and send it to the states for ratification. Not only would it mirror most states which have their own requirements for expenditures equaly revenue, but it additionally requires a 2/3rds supermajority to approve tax increases. And once the amendment is official, it would be quite impossible in the modern era to ever repeal it.

Posted July 19, 2011 at 1:18:07 PM


Rob in FL

I can't speak for everyone, of course, but my vote last November was intended to send a Congressional representative to Washington, who would work to reduce both the deficit and government spending, especially on so-called "entitlement" programs, but not raise taxes. I'm tired of liberal politicians creating "entitlement" programs designed to create a class of people dependent on the federal government for their income (and who, in turn, vote to help perpetuate the careers of liberal politicians). I don't mind helping the truly needy, but I don't trust the federal government to manage those programs, because there's just too much waste and corruption in federal giveaway programs. Frankly, I'm fed up with having to pay for it and I want a change of mindset in Washington. If the Republicans and Democrats want to play "business as usual" in Washington, then I'll support a third-party candidate.

Posted July 19, 2011 at 1:56:03 PM


RedCar

There is nothing wrong with a balanced budget amendment. There is something wrong with trying to tie it to the current debt ceiling debate and that something includes 1) that it cannot get done before the debate reaches its climax and 2) that it will make a satisfactory resolution of the current issue more difficult to achieve.

There is no magic bullet in the budget/debt issue. There are myriad spending cuts that need to be made - some large, some small, but all important philosophically - and it will be the product of a long, hard process to make real progress. To have a balanced budget amendment included at this time will make any cuts much harder to achieve. When the political will can be generated (or forced) to set in motion the process (and it is a process, not a silver bullet) to make some meaningful cuts then a balanced budget amendment will make political sense (it makes philosophical sense already).

Posted July 19, 2011 at 2:01:14 PM


Gelio

@RedCar - But that is the problem, outside of the Pauls (Ryan and Rand) no one from either party has put forth any meaningful cuts. They have all been hocus pocus magic show cuts. Obama and Boehner's cuts are basically "instead of buying 100 dozen eggs, I will buy 80 dozen instead. Look at the money I saved!" bs. and they call that a savings, it i smoney earmarked to be spent already, and their "cuts" come to $200 million a year when we are expected to spend $45 trillion in that same ten year period. Congress needs to either adopt real meaningful cuts (like the Rand Paul or Paul Ryan budgets) or resign and go home and let someone who cares about America do teh job. They all need to read their oath of office again, as this is not about political affiliation, but what is best for the country. Deep budget cuts, balanced budget amendment, and term limits are looking real good right now

Posted July 19, 2011 at 4:07:41 PM


Aaron Stovall

There isn't anything wrong with a balanced budget amendment, per se, but there is a lot wrong with the proposed amendment. They should scrap it and start over. If they would simply restrict themselves to the enumerated powers authorized by the Constitution the budget would already be balanced--estimates on non-authorized spending by the Federal Government range around 60% of the total expenditures, while borrowing only accounts for only 40%.

Of course they can't fairly pull the plug on unlawful programs without consequences, but a phase-out could be achieved over twenty or thirty years that would mitigate the impact on current recipients.

Posted July 19, 2011 at 6:49:45 PM


Howard Last

I have two questions concerning the Balanced Budget Amendment. What happens if Congress does not pass a balanced budget, will the supremes order a tax increase? Why should the crooks and/or mental midgets in Washington follow a Balanced Budget Amendment when they don't follow the Constitution now?

The simple thing to do is eliminate or repeal every law, regulation, rule, department, bureau, agency, etc. not specifically authorized by the Constitution.

If the Republican Big Shots (you can't call them leaders) increase the spending limit they will go the way of the Whigs. Also remember Bush the Elder and his no new taxes? That got him a second term when he forgot it, NO.

Posted July 20, 2011 at 12:52:34 AM


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