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Saturday, July 23, 2011

Fiscal Fracas: Now It's Getting Serious.

By now, you've probably gotten sick of all this fuss about the debt limit without anything substantial being accomplished. I know I have. Things came to a head Friday when it came out that House Speaker John Boehner (R-OH) had given up on trying to negotiate a "grand bargain" with the White House. Apparently, Boehner sent a letter to Republican House members saying that he had "decided to end discussions with the White House and begin conversations with the leaders of the Senate in an effort to find a path forward."

Then, a visibly angry President Obama called a press conference and spent more than half an hour at the podium, explaining his version of what had happened and answering questions from the press corps. Shortly thereafter, Speaker Boehner took to the airwaves and said that talks with the White House had collapsed for two reasons:

First, they insisted on raising taxes. ... secondly, they refused to get serious about cutting spending and making the tough choices that are facing our country on entitlement reform.

Obama claimed Republicans walked from an "extraordinarily fair" deal, while Boehner said the President "moved the goalposts" after a deal had been reached. Despite this apparent stalemate, however, both men met at the White House earlier today, along with House Minority Leader Nancy Pelosi (D-CA), Senate Majority Leader Harry Reid (D-NV), Senate Minority Leader Mitch McConnell (R-KY) and, for some reason, Joe Biden. I wasn’t there, so I can’t say for sure what transpired, but this photo should tell the tale:

Unsurprisingly, no deal was reached.

So, where do we go from here? I'm no soothsayer, but it looks like each side is going to present their own proposals for what to do going forward, and their surrogates in the media will argue about it while the country moves closer and closer to the brink of chaos.

Few things are certain in life, let alone in politics, but I think it's fair to say that the nation's debt limit will only be raised if the legislation authorizing it is attached to significant curbs in spending. Without getting into the complexities of the federal budget and the CBO scoring criteria, I'd like to offer my take on a few of the plans that have been put forward:

The "Gang of Six" Proposal

We still don't have all the details of this underwhelming product of months of negotiations between three U.S. Senators from each party; you can read their own thumbnail report on it here. Frankly, I think G-6 is a good start. It reduces or eliminates a lot of costly deductions and reduces individual and corporate income tax rates, much like the Tax Reform Act of '86. However, it needs some major tweaks. First off, the reductions in spending should be much greater (but I understand there's only so much a group of six men that includes the notoriously fiscally irresponsible Kent Conrad and Dick Durbin can agree to). Also, this concept of scrapping deductions and tax credits and lowering rates works much better with corporate income taxes than the individual income tax. For one, the charitable deduction should not be altered (even though it benefits higher-income taxpayers more). To make up for this, the Mortgage Interest Deduction, which the G-6 plan reduces but does not eliminate, ought to be phased out.

Cut, Cap & Balance

So far, this is the only package both the House and Senate have voted on. It passed the House late Tuesday evening and was rejected by the Senate, in a party-line vote, on Friday. I read through this bill (It's only 12 pages), and I have to say, while it's a good, straightforward way of tackling this impending debt crisis, I'm not sure I would like to have seen it become law. For one, it places too much power in the Executive Branch (an especially dangerous thing to do with this administration in charge). Title II of the bill–the "CAP" in "Cut, Cap, and Balance"–caps government spending as a specified percentage of GDP for each fiscal year through FY2021, but it defines "GDP" for any fiscal year as "the gross domestic product during such fiscal year consistent with Department of Commerce definitions." What's more, § 319, entitled “Enforcing GDP Outlay Limits,” calls for using the OMB estimates for projected GDP. In other words, the entire “CAP” part of the bill would be executed using the Commerce Department's definition of GDP and the OMB's projections of what that GDP will be! This and the next administration would be in a position to manipulate the numbers and undermine the spirit of the law.
Another problem with H.R.2560 is the Balanced Budget Amendment. In Friday's Wall Street Journal, Yale Law School Prof. Peter H. Schuck points out a downside to amending the Constitution to require a balanced budget, as many states have done: it would empower judges to exercise more political and policy-making discretion than any other law. He lays out a persuasive argument, but getting thirty-four state legislatures to approve a federal BBA is such a hurdle that it's hardly worth having this discussion right now, and at any rate we know it won't even get out of Congress with the current Senate.

McConnell's Debt Ceiling Fix

This is a crafty way of shifting the power/responsibility to raise the debt ceiling from Congress & the president to just the president. Essentially, McConnell's proposal would allow the president to raise the debt limit by $2.5 trillion, provided he does it in three installments through the end of next year. The president would request each debt-limit increase, which would be subject to what McConnell called "a resolution of disapproval." Then, all the president would have to do is veto that resolution, and if Congress didn't override his veto (which it wouldn't do), then Presto! He's got his debt-ceiling increase.
Do I even have to explain why this is a bad idea? Maybe I do, seeing that unimpeachably conservative commentators such as George Will and Ann Coulter have voiced support for it. Like Cut, Cap & Balance, McConnell's plan places too much power in the hands of the president. Also, it doesn't include any spending cuts. But Harry Reid seems to like it, so maybe it can pass the Senate. Just don't count on it making it through this House of Representatives.

Whatever solution they come up with, it won't be the optimal one. There are too many unreasonable people in Washington. I have more to say - much more - but I'm finding it very hard to think stragiht and focus. Maybe it's because it's late, and I'm tired. Or, maybe it has something to do with that third Gin & Tonic I downed half an hour ago. Either way, good night, and God bless.

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