Well, people, it's August 1, just hours away from the deadline for raising the debt-ceiling and avoiding a disastrous U.S. credit default. As this story has unfolded, we've had some laughs, shared some disappointments and frustrations I'm sure, as well as a renewed our appreciation for the nuances of the English language. But now Congress seems ready to strike a deal. So let's take one more debt-ceiling drive together, shall we? This is kind of a long read, but stick with me on this one! What's going on right now will affect us all for years to come.
The plan being considered right now has not yet been signed into law, and the particulars of the plan vary depending on who you ask (White House, Senate, Dems, Repubs, etc.). So the following figures are a rough estimate based on available information. My colleague Chris has a more detailed analysis of the numbers.
PART I: Immediate Cuts
The current proposal would raise the debt limit by at least $2.1 trillion through the end of 2012, while cutting the deficit by $2.1 – $2.4 trillion over the next 10 years (according the Congressional Budget Office). There will be an initial “down payment” of approximately $900 billion in discretionary spending cuts to both defense and non-defense programs, but not entitlement programs.
PART II: Another Bipartisan Committee
To offset the other $1.1 – 1.4 trillion of the debt-ceiling hike, the plan calls for a bipartisan commission (6 Democratic and 6 Republican Senators and Representatives) to identify commensurate deficit reduction measures over the next decade, to be voted upon by the end of this year. For now it seems that both discretionary spending and mandatory spending (entitlements) would be on the table. If the commission fails to find (or Congress fails to enact) at least $1.2 trillion in additional deficit reductions, then the difference will be made up through across the board spending cuts, called sequestration. This includes cuts to domestic and defense programs, and some entitlement programs like Medicare. Social Security, Medicaid, and SNAP (food stamps) would be exempt. According to the National Women's Law Center, expenditures in the tax code (tax breaks) would also be exempt from these sequestration cuts.
What About Revenues?
Speaking of the nuances of the English language, if you think I'm being a deliberately vague policy-wonk when I say “deficit reduction measures,” it's because I am. Unapologetically, I might add. I simply don't know exactly what that bipartisan commission's recommendation will entail: spending cuts or added revenues (taxes), or some combination of both. But here's what I do know. House Speaker John Boehner has been adamant in saying the bipartisan commission should not even be allowed to consider raising revenues. The White House has given a tepid “definite maybe” on the revenue question. But if present trends continue, revenues will most certainly not be a part of the commission's recommendations.
Here's my thinking on the matter. The debt-ceiling debate can be characterized as such: Republicans standing firm on “no new revenues,” with Democrats capitulating all the way. If the current spending-cuts-only plan is passed, it's a Republican win. And we can reasonably expect that the bipartisan commission will not recommend tax hikes, or even if they do they won't be passed by Congress.
So what does a future without added revenues (or revenues even keeping pace with inflation and population growth) look like? Well...bleak might be one word for it. The plan calls for an immediate $900 billion in cuts over the next 10 years. And if the bipartisan commission does not include revenues, the other $1.1 - $1.4 trillion will have to come from even more spending cuts (the plan mandates that raising the debt-ceiling be met with greater than dollar-for-dollar deficit reduction).
Think about that. (IMPORTANT! Read this if nothing else.)
That's no new money for things like Pell grants or education (sorry kids who can't afford a college education and now face limited economic mobility); no new investment in renewable energy technology — or any technology for that matter — to keep us globally competitive; no new investments in infrastructure like the electric grid, high-speed internet or rail (again to keep us globally competitive); limited funds for extending unemployment benefits during a prolonged recession; even cuts to entitlement programs like Medicare; and on and on and on.
You may so "so what?" But in a recent Time Magazine article, John Sununu (former conservative Senator from New Hampshire) pointed out that nearly 75% of the population benefits in some way or another from federal spending! (Unfortunately the article is behind a paywall so I can't link you to it.) Whether or not you like the fact we're on the dole,a future of spending cuts will affect most, if not all of us in some way or another.
The Big(ger) Picture
First up, this debt-ceiling debate is simply political theater. It has been raised dozen upon dozens of time in the past as a matter of course. There is no legal requirement mandating that a debt-ceiling hike be met with commensurate deficit reductions. This debate is the first of its kind.
Secondly, it's not over. Sure the immediate concern of a U.S. credit default will be averted if this plan passes, but the battle will continue in the bipartisan commission that will be created. No one is happy with this plan. Conservative want more spending cuts and entitlement reform. Progressives and liberals would like to see added revenues and tax reform. And this plan doesn't even talk about the Bush tax cuts that are set to expire at the end of 2012. This debate will continue though at least this year and probably into next. And what about the next time the debt-ceiling needs to be raised?
Furthermore, this debate over the debt-ceiling is because of things that happened in the past. Money that we spent in the past. Spending that was approved by many who are still in Congress today. But what about the weak manufacturing report that was just released causing the stock market to drop? What about unemployment being on the rise again? What about this recession that technically ended a while ago but just doesn't feel like it? What about all the people pushing off retirement because their 401k is still recovering from 2008? The debt-ceiling is just one part of the picture. But lately, it's been the only piece we've seen. We need to think more broadly and more proactively. Are spending cuts the best way to solve these problems? There are people out there who will argue both sides. But this, my friends, is the discussion we need to have and one that's largely been missing from the dialogue.
There's been a lot of broad talk in the past few weeks about policy, credit ratings, economic conditions, ideology and rhetoric (something which even your humble narrator is guilty of), but there has been very little talk of how Washington's inability to legislate has been affecting you and me. And that, I think, is crucial perspective that's been overlooked in this debate.
I'll tell you a quick story about my neighbor that sums up this point. He's 85, subsisting largely on his Social Security benefits. He's planning on going to Ireland next week with his wife, kids, and grandkids. I had chance to talk to him the other day, and although he's looking forward to the trip he expressed some concern and anxiety. “What if my social security check doesn't come next month? Maybe I shouldn't be going on this trip,” he wondered aloud. He was also worried about a potential air traffic shutdown due to Congress's inability to renew a tax code that funds the FAA (the people who direct air traffic...y'know non-essential stuff like that).
For me, that's what I'll remember from this debt-ceiling debacle: an elderly man who's scrimped and saved his whole life, contemplating canceling what could be his last trip with his whole family because he's just that skeptical about our government's ability to get things done.
Apologies Dear Reader: I know you've come to expect a certain degree of levity and humor from me. But there's simply none to be had here. - K
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