History and Consequences

With all of the information that is available, the public remains confused. It may have to do with the sources of their information, but the latest polling data says that 47% of Americans say their greater concern is that raising the debt limit would lead to higher government spending and make the national debt bigger, while 42% say their greater concern is that not raising the limit would force the government into default and hurt the economy. Additionally, 74% of Republicans and GOP leaning independents who agree with the tea party faction of the party say their bigger concern is that raising the debt limit would result in more spending, compared to 58% of those who do not agree with the faction.

According to the Congressional Research Service, the debt ceiling has been raised 74 times, since March 1962, and 10 of those times have occurred since 2001. Theoretically, the debt ceiling limit is supposed to help Congress control spending. In practice, the debt limit has been ineffective in controlling spending and deficits because politicians and reality remain as strangers to one another. History shows that it has been that way for quite a while.

The fact is that the debt ceiling doesn’t regulate anything, believe it or not. The Budget Control Act of 1974 created a process that requires Congress to vote on aggregate levels of spending, revenue and deficits every year. That makes the debt limit redundant.

Five years after the 1974 Budget Act passage, a combination of a failure to increase the debt limit in time and a breakdown of Treasury’s machines for printing checks caused a two-week technical default and a short term failure for the government to meet its obligations. That raised interest rates by six-tenths of a percentage point. Over time that percentage hike translated into billions of dollars in increased interest payments on the nation's debt, which became a cost passed on to taxpayers.

In other words, default increases the debt service which increases the deficit.

President Franklin Delano Roosevelt (FDR) questioned the meaning of a legal debt limit, according to Time Magazine on January 20, 1941. The President “hinted that there should be no legal limit.” In its coverage of the FDR’s Budget for the fiscal year 1941-42, Time noted, “Last July's Democratic platform made no mention of that fiscal dodo, that old museum piece: a balanced budget. Franklin Roosevelt held to precedent—he didn't mention it, either.” The Newark News remarked, “Like the budgets of Mr. Average Citizen, it was full of unjustifiable errors of judgment, of expenses borne out of habit, of big installments still being paid on past mistakes.”

FDR signed the first Social Security Act into law in 1935. Thirty years later, that part of FDR’s “New Deal” became part of the President Lyndon Baines Johnson (LBJ) “Great Society” and established Medicare when LBJ signed the Social Security Act of 1965 into law.

Only half of American's 65 and older had any health insurance at the time. The bill LBJ signed also created Medicaid, the public health insurance program that today covers over 60 million people, including one in three children, eight million people with disabilities and nearly six million low-income seniors. Each state administers its own Medicaid program. Republicans have scorned the entitlement programs of the Great Society ever since, now more so than ever.

Here is how we pay for those programs. Social Security and Medicare entitlements are paid for by the FICA [Federal Insurance Contributions Act] tax. The rate is 7.65% of our pre-deduction [gross] earnings. 6.2% goes for OASDI [Old-Age, Survivors, and Disability Insurance]. 1.45% goes for Medicare. The Social Security system pays for old-age, survivors, and disability. Hospital insurance is funded by Medicare. Income tax funds the government. It is called revenue and is a separate and different issue. Republican rhetoric obfuscates that point.

While the public may be somewhat divided about the debt ceiling, they are not so confused when it comes to entitlements. “The public decisively supports maintaining the status quo,” according to the Pew Research Center. “Six-in-ten (60%) say it is more important to keep Social Security and Medicare benefits as they are; only about half as many (32%) say it is more important to take steps to reduce the budget deficit.”

LBJ argued that helping the poor was in the best interest of business by providing stability to society. GOP disdain for Johnson’s Great Society and its War on Poverty continue. Republicans demand sharp cuts to Medicare and Social Security. Programs for the poor and the aging are the “reckless spending” recitations of Republican rhetoric that compound the deficit conundrum that confronts House Speaker John Boehner.

At a recent press conference Boehner said, “I agree with the president we cannot allow our nation to default on our debt.” He added, “But to prevent a default, a bill must pass the Congress.” For that to happen, “the bill must include spending cuts in excess of the increase in the debt ceiling.” He faced a similar challenge in April with the government shut-down threat. He also faces factional opposition within the Republican House majority and its fame-seekers, like Representatives Cantor and Ryan.

"I don't think the majority of Congress is so stupid as to visit an actual default on the United States," said David Kelly, chief market strategist at JPMorgan Asset Management. "Their constituents would never forgive them for playing fast and loose with the credit-worthiness that it took 230 years to build up." Meanwhile, Standard and Poor's told Reuters last week it would “waste no time cutting the top-notch U.S. credit rating” if Treasury missed a $30 billion debt payment on August 4.

The consequence of default would crank up borrowing costs for consumers and businesses, and flush the vulnerable US economy back into the toilet of recession.

The Speaker of the House is responsible for ensuring that the House passes legislation supported by the majority party, in this case the majority of the majority. Mr. Boehner was a teenager when LBJ ushered in the Great Society in 1965. [President Obama was 4.] Majority leader Eric Cantor (R-VA) was a 2-year-old. GOP Budget author Paul Ryan (R-WI) wasn't even born. . It is their short-sighted ignorance of history and consequences, coupled with the ideological intransigence of the freshman tea party faction, which threatens Boehner’s speakership, the Republican Party and the United States.

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Article first published as History and Consequences on Blogcritics.

The Deadline Gambit

Vice President Joe Biden's debt ceiling talks stopped when the opposition party representatives, House Majority Leader Eric Cantor (R-VA) and Senate Minority Whip Jon Kyl (R-AZ), walked out in a dispute over the idea of raising taxes. Cantor left first. Somehow he told his colleagues what he was going to do but did not tell the Speaker of the House, if we are to believe that. Kyl couldn’t do much else but recite the GOP “job killing” mantra and participate in the display. It is much easier to strike a pose than to negotiate a deal, anyway.

Before his walkout on Thursday morning, Cantor told The Wall Street Journal, “As it stands, the Democrats continue to insist that any deal must include tax increases.” Cantor said in a statement, “Regardless of the progress that has been made, the tax issue must be resolved before discussions can continue.” The tax increase idea means the elimination of Bush era tax breaks to which the Republicans are married. It does not mean tax increases for individual US taxpayers, but that is just GOP semantics.

During the Biden debt ceiling talks, Democrats argued that Republicans should at least join them in eliminating corporate tax breaks for chief executives with private jets. Republicans also rejected consideration of eliminating even temporary tax breaks, such as those for NASCAR tracks and Puerto Rican rum. As a result, a new Washington Post-Pew Research Center poll found that more people say they would blame Republicans in Congress than President Obama if the debt-ceiling talks broke down.

Politicians deal in factoids, not facts. They live and breathe strategic ambiguities so that blocs of voters like the tea party can panic and over react. For example, “It's time to force our elected officials to stop spending cold turkey, and we can start by making sure they do not raise the debt ceiling,” announces Representative Michele Bachmann’s website. Never mind the fact it cannot be done.

Even one of her more staunch supporters William Kristol, editor of the conservative Weekly Standard, says such an idea is not only silly but irresponsible. “I've seen no plausible plan that would enable us to go "cold turkey" (to use her term) fast enough or dramatically enough that we could reduce the deficit to zero in a few months--which is what would be required if Congress were not to authorize an increase in the debt ceiling.”

Here is a quick review of some of the facts being ignored. For one thing, the government officially hit the federal debt limit on Monday, May 16. That forced the Treasury Department to make moves to avoid a default, like reducing government investments in two federal employee pension funds. For another thing, it is the Treasury Department that set an August 2 deadline to raise the country’s $14.3 trillion debt limit before the country risks defaulting on its debt obligations. For yet another thing still, although they don't admit it, every time Congress votes for a spending hike or a tax cut, lawmakers are agreeing to raise the debt ceiling whether they say so or not.

"Congress has already passed and the president has already signed legislation that increases spending or decreases revenues. Those decisions have already been made," said Susan Irving, director for Federal Budget issues at the Government Accountability Office. So arguing over the debt ceiling is like arguing over whether to pay the bills the country has already incurred. This is the United States. Its obligations will be paid. That is why they are called obligations.

The US Treasury Department says, “Since 1960, Congress has acted 78 separate times to permanently raise, temporarily extend, or revise the definition of the debt limit – 49 times under Republican presidents and 29 times under Democratic presidents. In the coming weeks, Congress must act to increase the debt limit. Congressional leaders in both parties have recognized that this is necessary.”

Just for the record, “Between 1980 and 1990, the debt more than tripled,” the Treasury reports. “The debt shrank briefly after the end of the Cold War, but by the end of FY2008, the gross national debt had reached $10.3 trillion, about 10 times its 1980 level.”

Remember the Ryan Budget passed by the Republican House majority? The Congressional Budget Office and House Budget Committee estimates that “the spending included in the House Republican Budget Resolution would necessitate a nearly $2 trillion increase in the debt limit by the end of FY2012. Moreover, it would require trillions of dollars in additional debt limit increases beyond that amount for the next several decades.” But these are only government estimates, not facts.

As to the Cantor walkout the morning after his boss met with the president, it would be underestimating the Speaker to believe he did not know what his Number 1 was going to do. It would be more characteristic of Boehner to believe that he said, “Eric, you can go, now.” It’s a chess move where you sacrifice a Rook to a Queen.

"In the Bush years the Republicans said that tax cuts will produce jobs. They didn't. They produced a deficit," House Minority Leader Nancy Pelosi (D-CA) said. "Leader Cantor can't handle the truth when it comes to these tax subsidies for big oil, for corporations sending jobs overseas, for giving tax breaks to the wealthiest people in our country while they're asking seniors to pay more for less, as they abolish Medicare," Pelosi said.

Congress and the Treasury seem to have a problem with the concept of a deadline. Showmanship seems to be paramount for the GOP. But it is the absence of any sense of urgency that gives the deadline gambit away. The Biden talks may be “in abeyance” after the Republicans pulled out, but Boehner's office says he's leaving town for an 11-day House recess, swaggering all the way to the golf course.

Article first published as The Deadline Gambit on Blogcritics.

Another Fake Debate: Raising the Debt Ceiling

Time Magazine used the word “zoom” with respect to the “public debt” in a 1941 article and said, “The President questioned the meaning of a legal debt limit, hinted that there should be no legal limit.” There were only newspapers, magazines, movie theatre newsreels and radio to report that the 1940 Democratic platform “made no mention of that fiscal dodo, that old museum piece: a balanced budget. Franklin Roosevelt held to precedent—he didn't mention it, either.”

Bear in mind that the idea of a federal budget was relatively new. Up until 1921, the president did not have much of anything to do with hashing out budget, other approving or disapproving it as the head of his political party. The Budget and Accounting Act of 1921 created the U.S. General Accounting Office (GAO) as part of the Legislative Branch. Its job was to audit federal books and prevent fraud. In the Executive Branch, the 1921 legislation created the Bureau of Budget to coordinate budget submissions by various departments and agencies.

Former Treasury Department economist Bruce Bartlett wrote in Forbes, “Deficits primarily resulted from wars, and strenuous efforts were always made to pay them off as soon as possible afterward. On those occasions when the Treasury needed to sell bonds, each individual bond issue had to be specifically authorized by Congress.”

The federal budget is actually on automatic pilot, anyway. The reality is that neither Congress nor the presidents have anything so say about it. “If you take all the earmarks, unnecessary weapons systems, waste, fraud and abuse and everything else you can think of that deserves to be cut, it still adds up to drops in the ocean compared to Social Security and Medicare,” Bartlett says. “As long as those programs are off limits the president's budget will continue to decline as a matter of political and economic importance.”

As to the meaning of the debt ceiling that President Roosevelt questioned, since March 1962 the debt ceiling has been raised 74 times. According to the Congressional Research Service, 10 of those times have occurred since 2001. Theoretically, the debt ceiling limit is supposed to help Congress control spending. However, in reality, the debt limit is ineffective in controlling spending and deficits. Politicians and reality continue to be strangers to one another.

Here is where the appearance of a showdown gets legs. “Administration officials say even GOP firebrands won’t risk a national default and an international financial meltdown,” according to Politico. “There is a growing sense among all parties that President Barack Obama won’t be able to extend the credit limit without making significant new concessions to congressional Republicans.”

Democrats have leverage, however. “There are obviously divisions in the GOP among the leaders and the people pursuing their dumb notions of linking [cuts] to the debt vote,” said Representative Barney Frank (D-MA). Speaker John Boehner (R-OH) has repeatedly said the limit needs to be raised. Representative Eric Cantor (R-VA), Boehner’s number 2 in the House, is keeping with his alliance with tea party conservatives and taking taken a tougher line. But that’s all it is – a line.

Conservative strategists are warning that the GOP should not push the debt ceiling debate too close to the breaking point. According to the Huffington Post, “If there is a vote on raising the debt ceiling and it fails, there will be a significant market reaction,” said Tony Fratto, a former Treasury and White House official in the Bush administration. “Investors already believe that Congress doesn’t understand the financial markets. A failure to raise the debt ceiling will confirm this to them."

The country is already sour on congress. Gallup reports, “Congress' approval is at 17%, essentially unchanged from last month's 18%, and identical to where it was just after last November's midterm congressional elections. The current rating is just four percentage points above the all-time low of 13% from December.”

Gallup also reports that neither the budget nor unemployment is Americans' top overall concern. “That distinction belongs to the economy, by a significant margin over any other issue. The economy has placed first or second on the list each month since February 2008.” Even so their polling shows that “Independents and Republicans are both twice as likely as Democrats to say the budget is the most important problem. In turn, Republicans are less likely than Democrats and independents to view unemployment as the top problem.”

Pew Research March survey found that 34% of Americans said the economic issue they found most worrisome was “the job situation,” followed by rising prices (28%) and then the budget deficit (24%). The survey also said, “The number citing the deficit as their top economy worry had increased from 19% in December. Concern over rising prices increased even more dramatically -- from 15% in December to 28% in March.”

Pew Research also found that with respect to Obama’s handling of the federal budget deficit, 33% approved and 59% disapproved. However, when asked whether the GOP or President Obama has the better approach on the deficit, “most Americans (52%) say there is not much difference between the two sides -- and Republicans have lost ground on this measure, among their own base, since November.”

Not surprisingly the New York Times/CBS poll finds pretty much the same results. Of Barack Obama’s handling the federal budget deficit, 33% approve and 59% disapprove. Of the way the Republicans in Congress are handling the federal budget deficit, 27% approve and 63% disapprove. As to the way Congress is handling its job, 16% approve and 75% disapprove. Congress beats the president in disapproval.

H.L. Menken said, “The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary.” The recent House Republican habit of creating fake debates and backing losing legislation would seem to confirm Menken’s observation. However, its Barney Frank who calls the raising the deficit ceiling debate best. “In the end, the Republicans are not going to be able to withstand the pressure from the business community, the guys who finance their campaigns. … In the end, they have to do this.” Posturing about the debt ceiling is another fake debate.

Article first published as Another Fake Debate: Raising the Debt Ceiling on Technorati.