Over the weekend, Speaker of the House John Boehner (R-OH) reportedly offered to allow tax rates to increase on income in excess of $1 million as part of negotiations over the so-called “fiscal cliff.” For several reasons, Boehner’s offer is little more than a joke.
Boehner’s offer signals that he expects a big deal with sufficient savings to meet his demand that any debt limit increase be paired dollar for dollar with spending cuts. That would permit him to keep a key vow to his party — and head off a potentially nasty debt-limit fight — at least until the end of next year.
“Our position has not changed,” Boehner spokesman Michael Steel said Sunday. “Any debt limit increase would require cuts and reforms of a greater amount.”
Once again, Boehner is threatening to take the creditworthiness of the U.S. — and thus the whole U.S. economy — hostage to spending cuts (even as he fundamentally misunderstands what the debt ceiling does). And he promises not to do it again for an entire year if he gets his way!
The last debt ceiling standoff initiated by the House GOP will wind up costing the U.S. more than $18 billion in elevated interest payments on its debt and one million jobs. The White House quickly rejected Boehner’s offer. As part of its opening bid in the fiscal cliff negotiations, the administration proposed changing the process for raising the debt limit in order to end the now-perpetual standoffs between the White House and Congress.
The Obama administration’s initial offer to avert the so-called “fiscal cliff” included a provision that would end the ability of Congress to use the debt ceiling — and thus the creditworthiness of the United States — as a hostage to demand other policy outcomes. Employing a process invented by Senate Minority Leader Mitch McConnell (R-KY), Congress would have to act affirmatively to prevent a debt ceiling increase, rather than having to actively increase it.
Under this set-up, Congress would still control the nation’s finances and the amount of debt it accrues through Congress’ control over taxes and spending. However, Speaker of the House John Boehner (R-OH) doesn’t seem to grasp the specifics of the matter, as he claimed during a press conference today that changing the process for raising the debt ceiling would amount to Congress giving up “the power of the purse”:
Do you think there is any chance that Senator Reid or then-Senator Obama would have done that? Zero. Congress is never going to give up our ability to control the purse. And the fact is that the debt limit ought to be used to bring fiscal sanity to Washington D.C.
The simple way to ensure that Congress does not add any more debt is to not pass bills that add any more debt. The debt ceiling does not restrict spending in any way; it merely ensures that the U.S. will actually pay for spending that Congress has already authorized. As the Government Accountability Office explained, “The debt limit does not control or limit the ability of the federal government to run deficits or incur obligations. Rather, it is a limit on the ability to pay obligations already incurred.” “We’ve already voted on spending and revenue, and so the debt ceiling is just a confirmation of what we voted on,” said Sen. Max Baucus (D-MT)
But Boehner’s fundamental misunderstanding of the debt ceiling (or his willingness to publicly lie about what it does) did not stop him from taking it hostage and threatening to use it to impose his version of “fiscal sanity.” Last year’s debt ceiling debacle ultimately will cost taxpayers $18.9 billion due to the elevated interest rates on U.S. debt issued during that period.
As part of President Obama’s initial offer on a plan to deal with the so-called “fiscal cliff,” the administration proposed doing away with requiring Congressional action to increase the debt ceiling. Instead, the debt ceiling would automatically accommodate the amount of debt Congress’ budgets accumulate, unless Congress acted to prevent an increase.
Republicans were apoplectic, with Sen. John Cornyn (R-TX) calling it “outrageous” (while displaying that he doesn’t actually understand how the debt ceiling works). Sen. Max Baucus (D-MT), though, rightly noted that the way for Congress to not increase the debt is to simply not pass budgets that increase the debt:
“It’s anachronistic,” said Senator Max Baucus, a Montana Democrat and chairman of the Finance Committee. “We’ve already voted on spending and revenue, and so the debt ceiling is just a confirmation of what we voted on.”
As the Government Accountability Office noted, “The debt limit does not control or limit the ability of the federal government to run deficits or incur obligations. Rather, it is a limit on the ability to pay obligations already incurred.” Having the debt ceiling as a separate vote that Congress must take merely gives a determined minority the ability to take it hostage, threatening the entire economy with it.
One of the key pieces of the package President Obama put forward yesterday to deal with the so-called “fiscal cliff” is a permanent end to the debt ceiling. It would make increases in the ceiling effectively automatic, subject to a veto by two-thirds of Congress.
This proposal did not just prompt howls of protestations from conservatives — it also produced a remarkable failure amongst politicians and journalists alike to understand the basics of government financing and the Constitution’s separation of powers.
In the Washington Post yesterday, Lori Montgomery called the idea “an effective end to congressional control over the size of the national debt.” Rep. Louie Gohmert (R-TX) railed against it as “a blank check.” Timothy Carney, a journalist for The Washington Examiner, lamented the legislature ceding power to the executive, effectively “castrating” Congress.
But the worst example of the theme arrived this afternoon, when Fox News host Megyn Kelly asked Sen. John Cornyn (R-TX) about the White House’s debt ceiling proposal:
MEGYN KELLY: What do you make of [the President's] request to cut the Congress out of the process when it comes to raising the debt limit? He wants a blank check now to just raise it when he needs to. Your thoughts on that?
SEN. JOHN CORNYN: Well it’s outrageous. It’s like saying we’ve maxed out our credit card, so I’m gonna get a new credit card with no limit so I can keep spending. There needs to be some accountability here. So far were spending 42 cents out of every dollar in Washington in borrowed money. And that’s money that our kids and grandkids are gonna have to pay back. It’s profoundly irresponsible. So that’s a crazy idea, and I’m amazed that Secretary Geithner had the, uh, courage to float that yesterday.
Congress has been vested with the power to tax and spend, under Article I Section 8 of the Constitution. Congress passes budgets, which decide how much revenue the government takes in and how much spending goes out. When the Treasury Department issues new debt, it’s merely carrying out the mechanical necessities of Congress’ decisions — because carrying out the law as passed by the legislative branch is the constitutionally mandated job of the executive branch.
But since the early 20th Century, Congress has also kept in place a separate law — the debt ceiling — that places a statutory limit on how much debt the Treasury may issue. That limit has been periodically raised. It is entirely separate from the decisions to tax and spend, which set the country’s debt obligations. As the Government Accountability Office put it: “The debt limit does not control or limit the ability of the federal government to run deficits or incur obligations. Rather, it is a limit on the ability to pay obligations already incurred.”
The President does not have discretionary control over how much the country borrows. Obama’s new proposal gives him no such control. It would merely make hikes in the ceiling automatic, in accordance with the debt necessitated by budgets Congress has already passed.
Rather than a blank check, Congress has been handing the President a check for a certain amount, ordering him to cash it, then threatening to punk him by draining the account before he can reach the bank. To paraphrase a previous point made by the Center for American Progress’ Seth Hanlon, Obama’s proposal simply makes sure Congress doesn’t force him to cash checks destined to bounce.
Yesterday evening, the Obama administration handed the Republicans its opening bid in the ongoing bargaining over the “fiscal cliff” — the combination of tax increases, expiring stimulus measures, and spending cuts set to begin in January. The headline number in the proposal is $1.6 trillion in new revenue, along with mortgage relief, new stimulus measures, an extension of unemployment insurance, and an extension of the payroll tax holiday.
But perhaps the most striking piece of the package is a permanent end to Washington’s cyclical stand-offs over the debt ceiling. Via Joe Weisenthal, The New York Times has a good summary of the proposal Treasury Secretary Timothy Geithner reportedly handed to House Speaker John Boehner (R-OH):
To ensure that there are no more crises like the debt ceiling impasse last year, Mr. Geithner proposed permanently ending Congressional purview over the federal borrowing limit, Republican aides said. He said that Congress could be allowed to pass a resolution blocking an increase in the debt limit, but that the president would be able to veto that resolution. Congress could block a higher borrowing limit only if two-thirds of lawmakers overrode the veto.
The ceiling is a statutory limit on the amount of debt Treasury may issue, and currently Congress must pass legislation to raise it. Historically, this has been a routine matter as the country’s debt load has increased. Majorities of both parties have dutifully passed it, while minorities of both parties have symbolically demagogued against it.
It’s important to note the White House’s proposition would not mean all bets are off when it comes to reining in the debt. While the New York Times correctly described the White House’s proposal as “a permanent end to Congressional control over statutory borrowing limits,” the Washington Post’s Lori Montgomery went with the utterly wrong-headed characterization of “an effective end to congressional control over the size of the national debt.” The distinction is crucial. Congress will retain all its constitutional authority over spending and taxation, which by definition decides the size of the debt. What Congress would lose is the ability to contradict itself by refusing to allow Treasury to borrow the money required by Congress’ own spending and taxing decisions.
When Speaker of the House John Boehner (R-OH) calls the debt ceiling an “action-forcing” opportunity, what he means is its a chance for economic blackmail.
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Anti-tax activist Grover Norquist’s hold over Republicans has slipped in the past week, as several prominent GOP senators and one congressman have signaled willingness to break from Norquist’s strict pledge to never raise taxes.
The debt ceiling fight in 2011 almost led to an unprecedented U.S. credit default because House Republicans refused to break from Norquist’s pledge and agree to any tax increase. While most Americans want to avoid another debacle, Norquist is now calling for even more frequent fights over the debt ceiling. During Wednesday’s Playbook Breakfast with Mike Allen, Norquist proposed that Congress force President Obama into monthly debt ceiling negotiations, or even weekly “if he misbehaves”:
MIKE ALLEN: This president is not going to extend [Bush tax cuts], he knows that he loses his leverage that way.
NORQUIST: Well, the Republicans also have other leverage. Continuing resolutions on spending and the debt ceiling increase. They can give him debt ceiling increases once a month. They can have him on a rather short leash, you know, here’s your allowance, come back next month.
ALLEN: Okay, wait. You’re proposing that the debt ceiling be increased month by month?
NORQUIST: Monthly if he’s good. Weekly if he’s not.
The last high-stakes fight over the debt ceiling resulted in record low approval ratings for Congress and the downgrading of U.S. credit for the first time in history. That one fight also cost taxpayers $18.9 billion. Norquist now wants to replicate this debacle 12 or possibly 52 times per year.
Congressional leaders and President Obama are currently negotiating around the so-called “fiscal cliff,” the package of automatic spending cuts and tax increases that were scheduled during last year’s impasse over raising the debt ceiling. Sometime in the beginning months of 2013, though, the federal government will hit its debt limit again, necessitating another debt ceiling increase.
Democratic leaders have hinted that a debt ceiling increase should be a part of fiscal cliff negotiations. However they choose to do it, Congress would be wise to avoid repeating the mistakes it made last year, because Republican demands for broad spending cuts (and their accompanying intransigence on taxes) that nearly led to a credit default during debt ceiling negotiations actually cost taxpayers billions of dollars, the Washington Post reports:
The irony is that another political fight over the debt ceiling could cost the government even more money. The Bipartisan Policy Center has calculated that last year’s debt ceiling fight will ultimately cost taxpayers $18.9 billion over 10 years, due to elevated interest rates between January and August 2011.
The Bipartisan Policy Center study isn’t the only estimate showing that the debt ceiling impasse ultimately cost taxpayers. The U.S. Treasury estimated that it increased the nation’s borrowing costs by $1.3 billion last year, and Scott Lilly from the Center for American Progress estimated that it cost the economy at least a million jobs. Monthly job growth was cut in half during the three-month fight, and economists Justin Wolfers and Betsey Stevenson wrote that ” “employment is likely still below where it would otherwise have been” without the GOP’s brinksmanship.
Still, Republicans have indicated that they are willing to create another debacle over the debt ceiling this winter. Politico reported yesterday that when Obama demanded a debt limit increase before the end of the year, House Speaker John Boehner (R-OH) responded, “There is a price for everything.”
Early next year, the U.S. is on pace to once again hit its debt ceiling, the statutory borrowing limit imposed by Congress. When the U.S. neared its debt limit in 2011, House Republicans took it hostage, demanding spending cuts and forcing the first credit downgrade in U.S. history due to their intransigence on taxes.
That the U.S. faces periodic standoffs over the debt ceiling is a problem entirely of Congress’ own creation. The debt ceiling didn’t even exist until 1917, and serves little practical purpose. During an interview on Bloomberg Television, Treasury Secretary Tim Geithner acknowledged as much, saying that the U.S. should abolish the debt ceiling entirely:
Treasury Secretary Timothy Geithner said the U.S. “absolutely” should get rid of the debt ceiling as soon as possible.
“It would have been time a long time ago to eliminate it,” Geithner told Bloomberg TV on Friday. “The sooner the better.”
Geithner did not commit to personally doing anything to eliminate the nation’s legal limit on borrowing. When pressed on the issue, Geithner told Bloomberg TV: “This is only something only Congress can solve. Congress put it on itself.”
As the American Prospect explained last year, “experts — including former Office of Budget and Management and Treasury officials, congressional staffers, and CBO employees — have suggested in the past, and are suggesting now, replacing the debt ceiling with debt targets for lawmakers to work under.” Certainly, in its current form, the debt ceiling does nothing but give the minority party a chance to manufacture a crisis every time it needs to be increased.
With the 2012 election over, attention has turned to the so-called “fiscal cliff,” the package of expiring tax cuts and automatic spending cuts that will hit at the end of the year unless Congress decides to avert it beforehand. The debt ceiling will also need to be raised soon, and the negotiations between Democratic and Republican leaders has already taken a familiar turn toward entitlement spending and new revenues, with House Speaker John Boehner telling ABC News that he’d be willing to consider talking about new revenues (sort of) if President Obama and Democrats get serious about entitlement reform.
“I would do that if the president was serious about solving our spending problem and trying to secure our entitlement programs,” Boehner said in an interview with ABC’s Diane Sawyer last night. “If you’re increasing taxes on small-business people, it’s the wrong approach.”
While entitlements have become a consistent focus of Republican leaders like Boehner, Majority Leader Eric Cantor (R-VA), and House Budget Committee Chairman Paul Ryan (R-WI), why they must be a part of the end-of-year negotiations isn’t quite clear. Though the media is quick to buy into the idea that Social Security is going broke, the program is fully-funded for the next two-and-a-half decades, a luxury that other importantfederal programs that are funded on a year-to-year (or budget resolution to budget resolution) never have.
Republicans in the past have ignored the easiest ways to ensure Social Security’s long-term future, proposing benefit cuts in the form of raising the retirement age or changes to the formula used to calculate benefits. Instead, raising or eliminating the payroll tax cap that funds the program could ensure its long-term viability for another 75 years, according to the non-partisan Congressional Research Service.
Medicare, meanwhile, has already been reformed, when Obama signed the Affordable Care Act in 2010. That law, which Republicans repeatedly tried to repeal, cut $716 billion from Medicare without touching benefits, making reforms to provider payments, eliminating fraud, and extending its solvency for eight years. While Republicans were quick to slam Obama and Democrats for passing those cuts during the 2012 elections, they often forget it when begging Democrats to “get serious” about entitlement reform.