For better or worse the debt ceiling debate has turned into a horse race story. The closer any political event can be framed into a horse race context the better most of the media likes it … Boehner has a plan, talks break down, Reid has a compromise, tea toddler Republicans pull back. So ABC’s report of a tentative debt ceiling compromise might mean something for the next few hours and then disappear into the news ether, Congressional Sources: Republicans and Democrats Reach Tentative Debt Deal
Here, according to Democratic and Republican sources, are the key elements:
A debt ceiling increase of up to $2.1 to $2.4 trillion (depending on the size of the spending cuts agreed to in the final deal).
They have now agreed to spending cuts of roughly $1.2 trillion over 10 years.
The formation of a special Congressional committee to recommend further deficit reduction of up to $1.6 trillion (whatever it takes to add up to the total of the debt ceiling increase). This deficit reduction could take the form of spending cuts, tax increases or both.
The special committee must make recommendations by late November (before Congress’ Thanksgiving recess).
If Congress does not approve those cuts by December 23, automatic across-the-board cuts go into effect, including cuts to Defense and Medicare. This “trigger” is designed to force action on the deficit reduction committee’s recommendations by making the alternative painful to both Democrats and Republicans.
A vote, in both the House and Senate, on a balanced budget amendment.
Democrats won’t like the fact that Medicare could be exposed to automatic cuts, but the size of the Medicare cuts is limited and they are designed to be taken from Medicare providers, not beneficiaries.
Keep the concept of the “triggers” in mind and that most of the immediate cuts are going to come from savings on Iraq and winding down Afghanistan. Whether any future decreases in the deficit are from revenue increase is debatable as of today. Other sources are reporting that new taxes are off the table, but we have to put on our special decoder rings to parse even that aspect of the deal – Outlines of Debt Compromise Emerge
Other component parts of the tentative deal include:
$2.8 trillion in deficit reduction with $1 trillion locked in through discretionary spending caps over 10 years and the remainder determined by a so-called super committee.
The Super Committee must report precise deficit-reduction proposals by Thanksgiving.
The Super Committee would have to propose $1.8 trillion spending cuts to achieve that amount of deficit reduction over 10 years.
If the Super Committee fails, Congress must send a balanced-budget amendment to the states for ratification. If that doesn’t happen, across-the-board spending cuts would go into effect and could touch Medicare and defense spending.
No net new tax revenue would be part of the special committee’s deliberations.
I do not see Democrats in the House agreeing to some kind of Rube Goldberg switch which automatically sends a balanced budget amendment to the states – with the possibility that spending would freeze and we’d be right back to defaulting on the debt ceiling. Since we’re playing the horse race game I wouldn’t bet on that provision being part of any final deal. I’ll get back to the balanced budget amendment bunk in a minute. Republicans like this deal. So that means there is some element of crazy about it. Conservatives like to be thought of as serious. They know everything there is to know about economics, wars, culture, the Constitution. Combine that with a complete lack of humility and their uncanny knack for turning the things they are experts on into boondoggles and you have one of the reasons The Daily Show and Stephen Colbert never run out of material. Republicans both ran up historic deficits and increased the debt ceiling 7 times during the Bush administration. The economy tanks, Obama becomes President, he increase spending slightly as a response to the recession, but also because of the spending programs that Republicans had already voted for in 2008. 2010 the tea fanatics come to the House. The tea fanatics are the adult conservatives who like to pretend they were too busy to notice that Republicans were running up trillions in debt with two wars and not paying for them, passing Medicare part D – again not paid for until Obama in 2009, cutting taxes again for millionaires and were letting Wall Street run wild with the nation’s wealth. To prove how really really serious they are now, those same conservatives decide to hold the economy hostage using the debt ceiling because of all this spending that they voted for years before. These very serious nutters have rejected President Obama’s Grand Bargain even though it cuts twice as much as the compromise as reported today. These ever so astute and intellectual honest have rejected the plan worked out on by Republican House leadership and Vice President Biden which put us closer to a balanced budget sooner with about the same cuts. One of the reasons Cantor walked away from the Biden talks was pressure by farm state tea nutter Congress reps to preserve ethanol subsidies. House majority leader Eric Cantor once demanded that all the cuts – meaning all the sacrifices come from things like student loans, Medicaid and veterans benefits. he stood there with his serious straight face claiming his was a great proposal. No mention of tax reform for corporate jets and other write-offs used by millionaires, instead asking only sacrifices from those who have nothing to sacrifice. So the debt ceiling zealots were not asking for diamond ransoms from millionaires, they were asking for hip replacement surgery for grandma as ransom. They were asking that disabled veterans living from pay check to pay check find ways to cut back, not that the Koch brothers chip in a few million for the society that made their billions possible. The new improved conservatives are serious all right. They seriously lacking a moral compass.
A couple very short trips in the way back machine – The Truth About Federal Spending
So what’s the truth? I’ve written about this before, but here’s another take.
The fact is that federal spending rose from 19.6% of GDP in fiscal 2007 to 23.8% of GDP in fiscal 2010. So isn’t that a huge spending spree? Well, no.
First of all, the size of a ratio depends on the denominator as well as the numerator. GDP has fallen sharply relative to the economy’s potential; here’s the ratio of real GDP to the CBO’s estimate of potential GDP:
A 6 percent fall in GDP relative to trend, all by itself, would have raised the ratio of spending to GDP from 19.6 to 20.8, or about 30 percent of the actual rise.
That still leaves a rise in spending; but most of that is safety-net programs, which spend more in hard times because more people are in distress.
This table from the Office of Management and Budget is also helpful by way of putting the spending bump of 2009 in perspective:
Larger version. The yellow shows spending outlays as a percentage of GDP from the Bush years until the projected 2012 budget. Spending shot up a few percent in 2009 and went back down to historical averages in 2010. Did that happen because president Obama, who has submitted a deficit reduction plan so far to the Right it that makes Ronald Reagan look like Karl Marx. No. It happened because of the economy serious conservatives helped trash and because of spending programs that Republicans voted for – Republican Leaders Voted for Debt Drivers They Blame on Obama
Yet the speaker, House Majority Leader Eric Cantor, House Budget Chairman Paul Ryan and Senate Minority Leader Mitch McConnell all voted for major drivers of the nation’s debt during the past decade: Wars in Afghanistan and Iraq, the 2001 and 2003 Bush tax cuts and Medicare prescription drug benefits. They also voted for the Troubled Asset Relief Program, or TARP, that rescued financial institutions and the auto industry.
Together, according to data compiled by Bloomberg News, these initiatives added $3.4 trillion to the nation’s accumulated debt and to its current annual budget deficit of $1.5 trillion.
So welcome to the crisis conservatives created and the B-movie sequel in which they try to convince the audience and the media they are the good guys. Jonathan Chait gets into how the press, especially the WaPo, helped sell the debt ceiling drama. The Debt Ceiling Crisis And The Failure Of The Establishment
Republicans also seem to feel deeply in their serious dried up black hearts that passing a balanced budget amendment would be the road to utopia. A Constitutional Balanced Budget Amendment Threatens Great Economic Damage – Raises Host of Problems for Social Security and Other Key Federal Functions
Beyond the economy, the balanced budget amendment would raise other problems. That’s due to its requirement that federal spending in any year must be offset by revenues collected in that same year. Social Security could not draw down its reserves from previous years to pay benefits in a later year but, instead, could be forced to cut benefits even if it had ample balances in its trust funds, as it does today. The same would be true for military retirement and civil service retirement programs. Nor could the Federal Deposit Insurance Corporation or the Pension Benefit Guaranty Corporation respond quickly to bank or pension fund failures by using their assets to pay deposit or pension insurance, unless they could do so without causing the budget to slip out of balance.
[ ]…Over the years, leading economists have warned of the adverse effects of a constitutional balanced budget amendment. For example, in congressional testimony in 1992, Robert Reischauer — then director of the Congressional Budget Office and one of the nation’s most respected experts on fiscal policy — explained: “[I]f it worked [a constitutional balanced budget amendment] would undermine the stabilizing role of the federal government.” Reischauer noted that the automatic stabilizing that occurs when the economy is weak “temporarily lowers revenues and increases spending on unemployment insurance and welfare programs. This automatic stabilizing occurs quickly and is self-limiting — it goes away as the economy revives — but it temporarily increases the deficit. It is an important factor that dampens the amplitude of our economic cycles.” Under the constitutional amendment, he explained, these stabilizers would no longer operate automatically.
I have gotten into the habit of calling the Great Recession the second largest downturn in our history. The current economic train wreck is probably worse just in terms of the nation’s lost wealth. The reason it does not look as bad as the Great Depression is because of programs like Social Security, unemployment insurance, Medicaid and Medicare. Even the Republicans who should be most acutely aware of this are not. They are like the Republicans at the health care reform protests with the signs that said keep the government’s hands off my Medicare.
One last excerpt from the same report on a balanced budget amendment:
The potential effects on the banking system also are cause for concern. The Federal Deposit Insurance Corporation (FDIC) holds substantial reserves, in the form of Treasury securities, to insure the savings of depositors. These reserves are called upon when banks fail. Similarly, the Pension Benefit Guarantee Corporation (PBGC) has assets to draw upon if a corporation’s defined-benefit pension plan goes bankrupt.
Here, too, the balanced budget amendment would make it unconstitutional for the FDIC and the PBGC to use their assets to pay deposit or pension insurance since doing so generally would constitute “deficit spending.” Such payments could be made only if the rest of the budget ran an offsetting surplus that year (or if Congress achieved the necessary three-fifth supermajorities to override the balanced budget requirement).
Who can predict what crazy will think. But having just had three years of bank closing do Main St Republican really want to cripple the The Federal Deposit Insurance Corporation (FDIC). A situation where you show up one day to take money out of the bank where your entire or even half your liquid assets are in checking and savings accounts; and hey tough luck they went out of business. There is no insurance for your accounts because Republicans had bizarre fantasies about the sugary cream filled goodness of a balanced budget law. If conservatives are so sure that a balanced budget amendment is perfection on wheels, than I for one will agree to support it if they support a an amendment that average Americans will never have to suffer through a another recession.