Speaker John Boehner is engaged in an epic struggle to pass some sort of compromise plan to raise the debt ceiling while cutting spending, moving forward with desperation and a certain amount of bullying to push through a plan which has now been modified and reduced to the point where it can only be described as absurd. Feeling the pressure from the endless fearmongering of President Obama and Timothy Geithner, Boehner seems to have gone off the rails with a plan which actually offers fewer cuts than the Democrats and no spending cap at all.
It’s a very heated issue in which some of the facts are being lost, so let me straighten them out.
Boehner’s current proposal is being described in some quarters as an increase in cuts from his earlier proposals, but in fact the cuts included are bizarrely inadequate. The plan currently includes $1.2 trillion in cuts over 10 years with another $1.8 trillion in unspecified cuts to be implemented by a special committee at some point in the future, in exchange for a $2.7 trillion increase in the debt ceiling.
There are a number of problems with this proposal.
The first phase of cuts only comes out of discretionary spending and all cuts to entitlements are left to the bipartisan committee at some future date. Whether this committee or its cuts will ever happen is highly debatable when the balance in Congress shifts next year and plans get rewritten.
The cuts are spaced out over a 10 year period, amounting to only $300 billion a year, and with more than half the cuts still in abeyance, the real cuts in the first year are only $120 bilion or likely even less. In fact, the way the cuts are structured the cuts in the next year may be as low as $6 billion. And because the cuts are not enough to offset increases in debt just from interest, spreading them out over 10 years means that they will be outpaced by debt increase and never come close to catching up. Ten years of small cuts to offset an immediate debt limit increase only works if there are not more debt limit increases down the road, and with cuts so small further increases are unavoidable.
The total cuts over a 10 year period, assuming even the entitlement cuts happen is less than the proposed budget deficit for the next two years, leaving 8 years worth of further debt increase in the next 10 years adding up to an increase of almost $10 trillion in the national debt. So the net result of the plan is a massive increase of the debt, not any real reduction.
The current Boehner plan also includes no provision to pass a strong Balanced Budget Amendment as a prerequisite to any debt limit increase. Every Republican in the House and Senate signed on to the Cap, Cut and Balance pledge and Boehner’s plan fails to meet its requirements. It also puts no caps on federal spending except for discretionary spending which makes up about a third of the budget.
Boehner’s plan is so bad that Sen. Harry Reid can actually make an argument that his proposed plan has more real cuts than Boehner’s does, because Reid’s plan includes substantial cuts to military spending and more overall cuts per year. It still results in a huge net increase in spending, and it raises taxes on those who already shoulder most of the tax burden, but in total it’s just a different bad plan, not really any worse than Boehner’s.
Perhaps the biggest lie in this whole melodrama is the claim coming from the White House and from Tim Geithner that the US will default and have our credit rating downgraded next Tuesday if we don’t raise the debt ceiling. These claims are nothing but an irresponsible intimidation tactic.
As Senator Rand Paul eloquently points out, and as I explained in detail in a previous article, there is absolutely no need to default on our debt if the debt ceiling is not raised. By prioritizing spending we can easily meet the requirements to servie the debt and provide for entitlements out of incoming revenue and we could probably keep doing that for 6 or 8 more months before it became a real problem.
Of course, this would put a lot of pressure on the administration because Obama and Geithner would be the ones who would have to make those spending decisions and they would get the blame for cutting subsidy programs, furloughing federal workers, closing down national parks and the other small short-term austerity measures necessary to meet obligations. They’d rather scare us with empty threats than admit the truth that we’re broke and need to tighten our belts – even in the federal government.
The other big lie here is that raising taxes on the “wealthiest among us” will actually solve the problem. If we were to raise taxes substantially on the top 1% of earners that would not be enough to balance the budget. Even raising taxes to the 70% rate of the Reagan era – almost double the current rate – would only raise about $300 billion more a year at a huge cost to the economy. So when Obama talks about raising taxes on the rich, he’s mostly making an argument for a symbolic act of class warfare.
What they also don’t point out is that we’re just as likely to have our credit rating downgraded if either of the current proposals passes. Because both Boehner’s and Reid’s plans are so inadequate they don’t represent the kind of real solution to the long term debt problem which international credit agencies are looking for, so they’re really worth nothing at all.
The reality is that we need to put all this bickering aside and pass a real plan which actually addresses this problem in a substantive way. We’re not getting out of this mess without major cuts and a real cap on spending along with some policy changes which will spur economic growth.
- Pass a Balanced Budget Amendment and cap spending at a level tied to a percentage of GDP like the 18% proposed in the Cap, Cut and Balance pledge. Only by capping future spending can you make long-term cuts offset short term debt increases.
- Make cuts equal to or greater than any increase in the debt limit and make them take effect more quickly so that they reduce debt faster than interest increases it. A minimum of $600 bilion a year for 5 years would be a responsible proposal. And to do this you would need to go beyond the Boehner proposal to go after both military spending and entitlements. Just ending our current foreign deployments would take care of most of these cuts.
- If a tax increase is what it takes to get President Obama on board for real cuts, then let him have an increase of 10% on those earning in the top 1% (over $380 million a year), but offset that increase with a 10% cut in capital gains, which would have a great stimulative effect on the economy.
- Do the only thing which will really spur the economic growth which will get us out of a recession relatively painlessly. Cut corporate taxes. They don’t bring in that much money and that revenue is going down as companies offshore to avoid what is now the highest corporate tax rate in the world. Cut the rate substantially or eliminate all corporate taxes so that they will come to the US as a tax haven instead of fleeing and taking jobs and money out of the country with them. Short of lowering wages – which is not at all popular – cutting taxes on businesses is the easiest way to create jobs and grow the economy.
At this point the melodrama surrounding this issue is becoming embarrassing. Real problems need real solutions, not pandering, fearmongering and passive-aggressive walkouts on negotiations. Boehner, Reid, Geithner and Obama need to start acting like grown-ups, make serious proposals and work out compromises which give up more than either side wants for the good of the people and the nation.
This article appeared previously on Blogcritics Magazine.