James Pethokoukis

Politics and policy from inside Washington

Debt ceiling update: What Wall Street thinks is happening

Jul 22, 2011 16:15 UTC

One reason financial markets have been relatively sanguine about the debt ceiling negotiations is that investors have been almost certain that something gets done by August 2. Here is what one bank lobbyist told me today:

1-1.5T in spending cuts and an equal 1-1.5T on debt ceiling lift (a short term reprieve) — with the next 120 days battling over the Grand spending/revenue Deal (that uses Bowles/Simpson – Gang of 6 as the starting point).

And this is what BankofAmericaMerrillLynch is saying:

We expect a deal to come in two stages: a smaller up-front deal of possibly $50-100bn per year in deficit reductions (relative to the President’s initial budget offered in February 2011) over the next decade, combined with a more comprehensive deal to be passed either at the end of the year or early next year. The comprehensive deal would include both tax and entitlement reform and cuts to discretionary spending. However, our concern is that policymakers struggle to come up with a credible longer-term plan before year-end, particularly since it is an election year. This would mean we could face the risk of another debt ceiling crisis and ultimately rating agency downgrades.

With this plan, we believe the debt ceiling will be raised before August 2nd, but probably by only $500bn to give Congress six months time to write and pass the new legislation. Any agreement to raise the debt ceiling by a much larger amount in the future would likely be conditioned upon passage of the more comprehensive legislation.

We expect the US credit rating to remain on negative outlook and for a downgrade to AA to occur only when the rating agencies believe there will be no serious follow through. This means a downgrade would not likely occur until after the six month period of negotiations which puts us in early next year. Following any federal downgrade, we would expect downgrades of insurance companies, government related enterprises and state governments that depend heavily on federal funding. S&P has taken a more aggressive stance then the others, and may downgrade to AA+ as early as August if there remain significant risks to implementing a $4 trillion longer term fiscal plan.

Also, my pal Phil Klein had this takeaway from his chat with House Speaker Boehner today:

I asked Boehner whether some sort of short-term agreement would be necessary given that they’re closing in on the Aug. 2 deadline, and even if a late deal were struck, it would have to be written, scored by the Congressional Budget Office, and passed by the House and Senate.

“It is not what the goal here is,” Boehner responded. “As I said, there are two challenges here that we have to overcome. We have to raise the debt ceiling, and we have to have a serious down payment on reducing our budget deficit and our debt.”

Saying it isn’t the goal is different than saying it isn’t going to happen. Some sort of short-term extension seems inevitable, if nothing else but to give them time to do all the procedural things if they’re close to a bigger deal. There’s nothing ideologically preventing either side from this, and as I’ve noted, both chambers have already voted for deficit spending through Sept. 30, so there’s an easy argument for extending it at leas through then.

Read more at the Washington Examiner.

 

COMMENT

The British minister was correct in stating that “right-wing nutters” in the House of Representatives are responsible for the position we find ourselves in as tea-party Republicans are trying to implement their far right-wing agenda by holding the American economy, and working American men and women, hostage with actions that could seriously damage the economy and the middle class and poor. To those of you who voted for these nuts, I hope you’re satisfied with what you got because the bottom line is the actions of these fools will hurt you too unless you happen to be part of the 2% that hold most of our country’s wealth. To the rest of you, I ask that you consider the proposition that there needs to be a redistribution of wealth in this country by making the wealthy pay their fair share of taxes. We cannot keep going the way we’re going or we’ll end up an extremely polarized country wherein 98% of the citizens live at a third-world level and 2% live a life of unimaginable luxury. This country will then become completely dysfunctional as we’re close to being right now, and there will be violence as the 98% take wealth from the rich whether they like it or not. Don’t think it can’t happen because it has happened many times throughout history. And, it will soon happen in this country, if Republicans continue their nonsense.

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The impact of U.S. credit rating downgrade

Jul 20, 2011 17:22 UTC

It does not appear to be as frightening as I might have assumed. Here is a bit (via Business Insider) from a Goldman Sachs conference call this morning where the impact of a AAA downgrade is discussed

11:23 It has to do with the magnitude of the downgrade. If we went to AA, directionally it would be negative but it’s suprising the modest effect it could have on, IE:

– Money market mutual funds are front of mind when thinking about a downgrade. Reqired to hold 97% of their assets in AAA

In terms of the rating that matters – it’s the short-term rating, not the long-term rating. And the S&P has implied that it would only downgrade the long-term, so money market funds wouldn’t be affected. They hold between 300 and 350 billion in treasuries. Probably not as much of a risk

– Financial sector- banks — didn’t want to be too specific, but under Basel I there wouldn’t be any affect. under basel II, 0-risk to anything AA and above, so not really an issue

The complicated factor comes in with some of the larger firms, there could be a slight uptick in the calculated capital required to be set aside related to holdings. But a very minor change in capital requirements

– Insurers – obvious. those three bring the $ up to $1 trillion

– Pension funds – not much of an issue

11:28 Rest of the question becomes what the rest of the world would do, how much selling, but they might have more flexibility than holders in the U.S.

11:31: On august 3rd we have a social security checks due. On August 15, we have a coupon due. The treasury will have to decide what it will do to make those payments

Perhaps the bigger impact will be political if Obama or Republicans get the bulk of the blame for losing America’s gold-plated credit rating.

 

COMMENT

McBride, your credit works in a similar manner. When you have credit obligations and are paying them, your credit will strengthen. When you stop paying them your credit weakens. Whether you choose to borrow more or not does not impact your credit rating. However, your credit rating will determine how much you are able to borrow. Please make a better effort to understand the current political and economic climates.

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How would U.S. react to a debt crisis?

Jul 20, 2011 17:20 UTC

If the U.S. doesn’t get a handle on federal debt, there will be a financial and economic crisis. By 2035, debt as a share of GDP could be 250 percent, though a panic would surely happen long before that point was reached. But if a crisis came, how would Washington react? What drastic measures would be taken? I think there would be a huge push for a massive tax increase, probably via a value-added tax. Here is some of what the Comeback America Initiative sees happening:

Social Security

• The higher retirement eligibility ages for Social Security would be increased to 70 for normal retirement and 65 for early retirement, and fully implemented by 2030 and 2020, respectively.

Most of the proposed reforms under the Preemptive (Prudent) Framework would be retained with the following significant differences:

• Repeal the Affordable Care Act of 2010.

• Repeal the Medicare Modernization Act of 2003.

Defense:

Most of the illustrative reforms under the Preemptive (Prudent) Framework would be retained with the following significant differences:

• Accelerate the planned draw down of U.S. troops from Southwest Asia from the end of 2014 to the end of 2012.

• Accelerate the reduction of U.S. overseas military and civilian presence.

Taxes and Revenues:

• Impose temporary deficit reduction revenue increases in fiscal 2013-2014 to accelerate deficit reduction and debt/GDP stabilization efforts.

• Phase-in the special income and payroll tax exclusion on employer provided and paid health care by 2018.

• Take any other actions needed to comply with annual revenue targets.

And the result:

The result is a balancing of the total budget by 2015, and reduction of debt/GDP to about 51 percent of GDP in 2021 and declining rapidly, versus about 76 percent of GDP and increasing rapidly under CBO’s current law baseline, and to about 28 percent and declining in 2035 versus about 91 percent and rising under the baseline.  … Overall spending under the framework would be reduced to 20.1 percent of GDP in 2021, from 23.9 percent under the current law baseline, and to 21.8 percent of GDP and leveling in 2035 from 28.3 percent and rising under the baseline. Nominal public debt would be less in 2023 than 2015 and essentially stable.The Reactive (Crisis Management) Framework also involves having to impose a temporary deficit reduction revenue increases to accelerate deficit reduction and debt/GDP stabilization, while maintaining an overall cap on federal revenues at 21.5 percent of GDP

 

COMMENT

Re healthcare – As long as we’re in simplification mode, why not simply put the entire US population into a single risk pool? Then let insurance companies compete for customers and the providers to serve them. As it stands, each state sets its own regulations and the result is that insurers play the system by cherry picking markets, charging higher premiums in states where they can get away with it, and dictating how providers are compensated. Tear down the barriers and prices will fall.

The only thing certain about repealing Romneycare and not replacing it with another plan is that healthcare costs will soar off the charts and ever increasing numbers of people will be denied access.

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Americans still think raising debt ceiling a dodgy idea

Jul 20, 2011 14:34 UTC

These results from a survey by Northwestern’s Kellogg School of Management (via its Financial Trust Index site) are sure to get noticed in Washington:

Why the House GOP will deep six the Gang of Six

Jul 20, 2011 13:33 UTC

Will the House GOP play ball on the Gang of Six debt reduction plan? The Paul Ryan-led House Budget Committee is giving members all the ammo they need to take a pass (bold is mine):

Heavy Reliance on Revenues. The plan claims to increase revenues by $1.2 trillion relative to a “plausible baseline.” It also claims to provide $1.5 trillion in tax relief relative to the CBO March baseline. The CBO baseline assumes the expiration of tax relief, resulting in a $3.5 trillion revenue increase. As a result, the plan appears to include a $2 trillion revenue increase relative to a current policy baseline. If the $800 billion in tax increases from the new health care law are included, the plan appears to increase revenues by $2.8 trillion, without addressing unsustainable health care spending that is driving our debt problems.

Elusive Spending Restraint. It is unclear how much the plan achieves in spending savings. Based on released documents, it appears to primarily rely on cuts in the defense budget through $886 billion in reductions from the President’s budget for “security programs.” In the security category the Gang of Six reduced the security category by $886 billion. Department of Defense (DOD) spending comprises approximately 85% of the security category. The Gang of Six also proposes a firewall that requires this $886 billion is cut from security spending.

Lack of Entitlement Reform. The plan does not address the $1.4 trillion in spending expansions in the new health care law. The health care law increases eligibility for the Medicaid program by one-third and creates a brand new health care entitlement. It does not appear to include reforms to the Medicare program. While it appears to pursue Social Security reform, it could end up creating barriers to enactment of these reforms.

I mean, the stunningly massive tax hike alone is a deal killer, I would think. Now there are some parts Team Ryan seems to like, and maybe they could get added to the McConnell-Reid plan, such as repealing the CLASS Act and various budget reforms. But more than that? I doubt it.

COMMENT

I concur Mr. Pethokoukis. If one considers the ordinary baseline is revenues of 18% of GDP, that would translate into about 2.7 trillion dollars. That is 27 trillion over 10 years. Increasing taxes by 2.8 trillion dollars means an increase of over 10% of all federal tax collections. That is an enormous tax increase in times of good economy and probably a disastrous increase in times of bad economic news. Gallup just came out yesterday with news unemployment in creased in the first half of July. If that persists it means unemployment in early August will increase. Another potential problem few people realize is that the extra 280 billion dollars will probably not come from the “rich”. Recall the expiration of the tax cuts is thought to bring only 70 billion dollars a year. Either we will soak them by increasing their rate not by 4.6% but rather 18.4% or there will be tax increases for all the 53% of people who indeed pay income taxes or a massive increase in corporate taxes.

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Will coming debt ceiling deal save America’s AAA credit rating?

Jul 15, 2011 11:34 UTC

Keeping America’s gold-plated credit rating may take both a deal to raise the debt ceiling (which will happen) and a meaningful deficit reduction plan of around $4 trillion (which is not happening). Moody’s says it wants a  ”deficit trajectory that leads to stabilization and then decline in the ratios of federal government to GDP and debt to revenue beginning within the next few years.” And here is Standard & Poor’s in a report released last night:

If a debt ceiling agreement does not include a plan that seems likely to us to credibly stabilize the U.S.’ medium-term debt dynamics but the result of the debt ceiling negotiations leads us to believe that such a plan could be negotiated within a few months, all other things unchanged, we expect to affirm both the long- and short-term ratings and assign a negative outlook, If such an agreement is reached, but we do not believe that it likely will stabilize the U.S.’ debt dynamics, we, again all other things unchanged, would expect to lower the long-term ‘AAA rating, affirm the ‘A-1+’ short-term rating, and assign a negative outlook on the long-term rating.

Looking at the most likely scenario out there right now, Goldman Sachs has its doubts (bold is mine):

Using our baseline projections as a starting point, the $1.7trn agreement we outline would represent substantial progress, but would probably fall short of Moody’s criteria. That said, we view any agreement that is reached this year as a first step; tax and entitlement reform efforts look likely following the election in 2013. With a cyclically-adjusted primary deficit of around 6% of GDP in 2011, additional consolidation clearly will be necessary, and thus we view this as the first round of what will ultimately need to be multiple deficit reduction measures over the next few years.

Here is the deal  Goldman is looking at (from its report):

1) An agreement that involves primary deficit reduction of $1.5trn to $1.7trn

2) Roughly $1.1 trillion in savings from the discretionary budget, which would be achieved through spending caps; roughly $350 bn in health-related savings, mainly from Medicare; and around $250bn in savings from other areas of the “mandatory” budget such as agricultural subsidies, federal retirement benefits, and fees charged by the GSEs.

3) $2.4trn debt limit increase structured in a similar manner to what Senate Minority Leader McConnell proposed earlier this week.

4) Our hypothetical agreement assumes that the 2% payroll tax cut will be extended through next year, at a cost of $111bn spread over FY2012 and FY2013, and that that a small amount of “tax expenditures” are eliminated, raising $55bn.

– We assume a package in which a good deal of the total savings occur in the last few years.  …  This assumption, combined with other spending cuts and the tax provisions noted above, results in a roughly budget neutral package in 2012 (as compared with current law), rising to savings excluding interest of nearly $300bn by FY2021. Compared with our own forecast, which assumes a payroll tax cut extension and modest spending cuts in 2012, this would increase the structural deficit reduction we assume by 0.2% to 0.3% of GDP.

Bottom line: “The upshot is that against either our projections or the official baseline projection from CBO, the hypothetical $1.7trn agreement we sketch out would meaningfully reduce the debt-to-GDP ratio over the next ten years. The debt reduction would reduce interest expense by more than $300bn, for a total of around $2trn in deficit reduction. Likewise, it would reduce the primary fiscal balance (i.e. the deficit excluding interest expense) by nearly 1.5% of GDP toward the end of the decade.”

Certainly this will only be the first of many deals, with a much bigger one likely in 2013. Hopefully, the credit raters will take that into account. But certainly it seems as if a loss of the AAA ratings is possible even with a debt ceiling deal. And that would be bad. What might happen? We at Reuters have looked at this:

1) When Moody’s Investors Service revised its outlook on Japan’s AAA-rated sovereign debt to negative from stable in 1998 — similar to what S&P did to the United States on Monday — the yen sank to its lowest level in six years and government bond prices fell sharply.

2) If the dollar did weaken, it could boosts export sales of U.S. manufacturers, but also put upward pressure on inflation by making imports more expensive.

3) The greater threat might be higher borrowing costs if investors demand a greater reward to take on more risk from a less credit-worthy nation. The knock-on effect would be felt in sectors sensitive to interest rates such as housing and automobile sales, both of which were floored by the Great Recession of 2007-2009.

4) Skeptics downplay the significance of a potential S&P downgrade. Tom Porcelli, chief economist at RBC Capital Markets, found that sovereign yields on four countries that lost AAA status actually fell six basis points on average 12 months after a downgrade. However, three of those examples — Spain and Ireland in 2009 and Italy in 1991 — hardly compare to the United States, and the fourth, Japan in 1998, has yet to see significant economic growth.

5) Thomas Lawler of Lawler Economic & Housing Consulting is among those who discount S&P’s negative outlook, saying he would look at hard data on jobs and income for guidance. ”Who cares what they think? These are the same people who rated (subprime) bonds,” Lawler said. “I don’t view it as a BFD — a big financial deal.”

Oh, and 7,000 U.S. municipal ratings might also be downgraded, says Moody’s

Moody’s Investors Service has placed the Aaa bond rating of the government of the United States on review for possible downgrade given the rising possibility that the statutory debt limit will not be raised on a timely basis, leading to a default on U.S. Treasury debt obligations. On June 2, Moody’s had announced that a rating review would be likely in mid July unless there was meaningful progress in negotiations to raise the debt limit.

In conjunction with this action, Moody’s has placed on review for possible downgrade the Aaa ratings of financial institutions directly linked to the U.S. government: Fannie Mae, Freddie Mac, the Federal Home Loan Banks, and the Federal Farm Credit Banks. We have also placed on review for possible downgrade securities either guaranteed by, backed by collateral securities issued by, or otherwise directly linked to the U.S. government or the affected financial institutions.

Not good.

 

 

 

COMMENT

Here is an interesting site (probably not owned by Goldman Sachs):
http://www.usdebtclock.org/

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The roof is on fire! A mid-day debt ceiling update

Jul 14, 2011 17:47 UTC

A brief rundown on what’s happened so far today in the Mother of All Budget Battles,  and what folks are saying about it:

– Obama, lawmakers face fresh doubts on debt deal -Reuters | Key bit in the piece is a warning from JPMorgan CEO Jamie Dimon that a deal needs to get done

– Harry Reid And Mitch McConnell: ‘Hybrid’ Solution To Debt Standoff -HuffPo | Another way of trying to get $1.5 trillion in cuts through Congress.

– Nancy Pelosi, John Boehner reject Camp David – Politico | But it is unclear whether the WH was even going to suggest this.

– Few Americans Fear ‘Economic Catastrophe’ If Debt Ceiling Not Raised: Poll – HuffPo | Just 22 percent, but a lot more bankers and businessmen are extremely worried

– Gang of Six talks heat up as White House debt-limit talks melt down -The Hill |  Can  (now) Big Five pull out a $4 trillion deal? I really doubt it.

Reid slams Cantor – Roll Call | The Majority Leader couldn’t pay enough for great headlines like that one

China urges U.S. to protect creditor by raising debt -NYTimes |  I don’ t think the House GOP are going to be swayed by China’s foreign ministry wants

– S&P: U.S. Debt Could Reach ‘Junk’ Rating by 2030, Absent Entitlement Reform – CNSNews | Actually way before then because there will be a financial crisis if nothing is done.

Mark Dayton offers deal that could end Minnesota shutdown – WaPo | Dem chief exec gives in to GOP legislators. Definitely a must read today on Capitol Hill

Tea party vs. big Business in debt debate — WaPo |  This in an interesting bit:

The problem for McConnell is that the tea party wing of the party isn’t all that interested in giving the GOP nominee the best chance in 2012. It wants cuts, first and foremost, and damn the torpedoes. That’s the attitude the tea party was essentially founded on.

McConnell’s proposal and justifications amount to an acknowledgement that the political endgame has gotten away from the GOP. Whether through any fault of their own or not, Republicans are in a corner when it comes to a default, and as his colleagues suggest, McConnell is ceding major ground.

It’s becoming clear that he can’t please both sides of his party’s new coalition. The question is how it gets resolved, and how deep the wounds will be going forward.

The Great Debt Ceiling Gambit – The Weekly Standard | Tough stuff from Fred Barnes who accuses Obama are pushing a crisis for political gain.

 

 

 

 

COMMENT

Undeniably believe that which you stated. Your favorite justification seemed to be on the web the easiest thing to be aware of. I say to you, I certainly get irked while people think about worries that they plainly don’t know about. You managed to hit the nail upon the top and also defined out the whole thing without having side-effects , people could take a signal. Will likely be back to get more. Thanks

Maybe Cantor should have stormed out instead

Jul 14, 2011 12:44 UTC

Here is how Reuters delicately describes the tense budget meeting:

The U.S. talks on Wednesday lasted nearly two hours and were the stormiest yet. They ended with Obama telling Republicans that “enough’s enough.”

Politico adds a bit more of the flavor:

When Cantor said the two sides were too far apart to get a deal that could pass the House by the Treasury Department’s Aug. 2 deadline — and that he would consider moving a short-term debt-limit increase alongside smaller spending cuts — Obama began to lecture him. “Eric, don’t call my bluff,” the president said, warning Cantor that he would take his case “to the American people.” He told Cantor that no other president — not Ronald Reagan, the president said — would sit through such negotiations. Democratic sources dispute Cantor’s version of Obama’s walk out, but all sides agree that the two had a blow up. The sources described Obama as “impassioned” but said he didn’t exactly storm out of the room.

And here how a GOP aide describes it to me:

Over the last several days the White House has been walking back the savings on the Biden number.  Thursday it was $2 trillion, Monday it was $1.7-1.8 trillion, Tuesday it was $1.6-1.7-1.8 trillion.  This morning our staff met with White House folks and the wrap up from that meeting said that the WH is now at $1.5 trillion.

Given those figures, [Cantor] pointed out that wherever we are-  it’s a long way from the $2.4 trillion needed to meet House GOP goals of dollar for dollar so he suggested a possible short-term goal in order to avoid default.  He then said to the President that since we can only reach so much in savings and you (President) keep moving the goalposts, I will move off my position of only doing one vote in order to avoid default.

And that’s when Obama started to “lecture” the House Republican majority leader. But either way, it sounds to me like  a final deal might be $1.5 trillion in cuts for a debt ceiling extension through the election. In exchange for no tax hikes, Republicans give on their “dollar for dollar” demand. Maybe this even gets somehow combined with the McConnell plan. Good enough to pass the spending-hawk House Republicans? Given the growing Republican perception that they are dealing with a president with no interest in cutting debt — or even one who wants a debt crisis to help him win reelection in a repeat of 2008 — I think  they just might.

 

 

 

COMMENT

It is about time that the President shows some passion. His negotiating tactic has met a recalcitrant Republican, and he needs to change tactics. A little bullying cannot hurt.

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Can the Ryan plan rescue Republicans?

Jul 13, 2011 20:42 UTC

So what are Republicans, particularly those in the House, going to do? Debt ceiling deadlines are fast approaching. And many in the GOP leadership, particularly in the Senate, think the party’s anti-tax resolve will dissolve if markets start to tumble, resulting in a deal far less appetizing than any discussed during the Biden talks. Certainly no hard spending caps or structural changes to entitlements or any other of the big things on the tea party wishlist.

It now looks like somewhat of a strategic error for Republicans to have pushed for so much in exchange for a hike in the debt limit. The Obama White House seems perfectly willing to take negotiations right up to — and past – the Aug. 2 deadline because it thinks it can win the political fight. And certainly many GOP leaders agree, including Mitch McConnell who told Laura Ingraham today:

[W]e knew shutting down the government in 1995 was not going to work for us. It helped Bill Clinton get reelected. I refuse to help Barack Obama get reelected by marching Republicans into a position where we have co-ownership of a bad economy. …  What will happen is the administration will send out to 80 million Social Security recipients and to military families and they will all start attacking members of Congress. That is not a useful place to take us. And the president will have the bully pulpit to blame Republicans for all this disruption. If we go into default he will say Republicans are making the economy worse. … My first choice was to do something important for the country. But my second obligation is to my party and my conference to prevent them from being sucked into a horrible position politically that would allow the president, probably, to get reelected because we didn’t handle this difficult situation correctly.”

Not only did the GOP likely overplay its hand – Republicans control just one house of Congress, after all – but it opened the door for Obama to push for a “grand bargain” that almost resulted in agreement on a big tax increase. House Speaker John Boehner and Majority Leader Eric Cantor deserve great credit for standing firm against those tax hikes.

But perhaps it’s not too late for Republicans to salvage something significant. Stop pushing unpopular – for the moment – entitlement reform and out-year spending cuts that may never happen. (All of which will get relitigated in 2013 anyway.)

Instead, just try to sharply cut discretionary spending next year. House Budget Chairman Paul Ryan’s bold and visionary Path to Prosperity calls for non-security discretionary spending cuts of $1.8 trillion over ten years, starting with an $76 billion cut in 2012 vs. the CBO’s baseline. Those cuts would then be incorporated in the CBO baseline, helping create big savings as the years go by and an institutional bulwark against new Democratic spending plans. (As of right now, remember, the Obama White House is proposing just $2 billion in cuts for 2012.) Certainly plenty of Democrats wants to be seen as tough on spending, too, in exchange for raising the debt limit which is highly unpopular. Indeed, “just 37% of Americans favor raising the debt ceiling vs. 56% opposed, according to the July IBD/TIPP poll.”

And perhaps Republicans could go even further. The Ryan plan calls for a total of $111 billion in 2012 cuts. Up that by $1 billion and you have a slogan: “Let’s cut $112 billion in 2012!”

 

 

 

 

 

 

COMMENT

The so-called ‘big tax increases’ being talked about are actually just a return to normalcy, i.e. rolling back the ill conceived Bush tax cuts. Bush claimed his tax cuts were going to stimulate the economy so much that it would more than make up for the lost revenue. It’s the old Reagan scam; Supply side economics don’t work. If you cut taxes, you run up deficits. It happened under Reagan, it happened under Bush, and its still happening now. Besides, no one is talking about raising taxes on the poor, only people making over $250 thousand a year. So, please, before you throw around phrases like ‘big taxes increases’ like your hair is on fire, please give some perspective on the matter.

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The McConnell Plan and the GOP House

Jul 13, 2011 17:30 UTC

So just how hostile  is the GOP House toward McConnell’s new debt ceiling gambit (not to mention tax increases)?  Here are some excerpts from a chat I had early yesterday evening with a GOP Hill source with good knowledge of the caucus. I think it gives some pretty good color:

Members are really, really dug in. Even a deal with $2 trillion in cuts would be a tough sell.  Obama going on TV and repeatedly and being the champion of America’s debt crisis has resulted in members getting frustrated. They have sort of latched onto Obama’s $4-5 trillion [debt cut] number, they just don’t want to do it with tax increases. They longer Obama plays that, the more likely it is we end up not getting anything done.  It might have been possible to sell members on the [$2-2.5 trillion] deal two weeks ago but I don’t think that is the case right now.  He raised the stakes. The White House does not seem to be taking [Boehner and Cantor] at their word when they say tax increases won’t pass the House.  They think it’s a negotiating ploy.

The [McConnell plan] is shrewd but it doesn’t help the House majority. I don’t see how members could vote for that — tough enough selling them on a $2 trillion cut with no tax increases. If markets start reacting, it’s more likely Republicans  will get blamed. But even in that scenario, there would be trouble getting a tax increase through the House. Someone will blink if markets start tumbling, but I don’t see House members voting for a tax increase. If Obama puts out a detailed policy proposal, his own party will revolt against him.

But the ball is now in the House’s court. What will it do? Bill Kristol sees some options:

Plan A: They pass their optimal version of a debt ceiling increase—some version of the Cut/Cap/Balance proposal, with major domestic discretionary and entitlement spending cuts, spending caps, and at least a vote on a balanced budget amendment to the Constitution. Voting for this, like passing the Ryan budget, puts House Republicans in the position of claiming to have a serious and comprehensive governing plan

Plan B: The House (also?) passes a short-term debt ceiling increase of “only” several hundred billion dollars, accompanied by several hundred billion dollars of domestic discretionary cuts.  …

Plan C: The problem with both Plans A and B is that they do involve voting for an increase in the debt limit, which many House Republicans don’t want to do in the first place. … So why, some of them will say, ever vote for any debt ceiling increase at all? What’s in it for Republicans to be part of any process whose ultimate effect will be to authorize the federal government, under the management of President Obama, to plunge the nation ever deeper and more dangerously into debt?

One could answer that voters did send House Republicans to Washington to at least try to govern responsibly, and that Plans A and B embody such an effort. And that in voting for the Ryan budget, the House GOP has in effect voted to raise the debt ceiling. But that leads us to Plan C, which could either stand alone (i.e., one could skip Plans A and B) or be a follow-on to Plans A and B if they fail.  … House Republicans could allow Democrats to pass a no-tax-hike, no-gutting-of-defense version of a debt ceiling hike in the House. Speaker Boehner would have to round up (if I’ve done the math correctly) 48 Republican members who would agree to vote present on such a debt limit increase. The other 192 GOP members would vote no. The 193 Democrats would be welcome to vote yes and to pass the bill.

 

COMMENT

Defense is a CORE responsibility of government per the Constitution. Education, health care, Social Security, Medicare, all the various bloodsucking departments and agencies (NEA, EPA, Energy, most cabinet positions/depts., etc., ARE NOT. Make cuts in defense but only if making commensurate cuts in all other areas. And survival of the republic likely will require defunding and abolishing most of the Death Star size of the socialist state created in the past 80+ years.

Your entire dogma is crumbling and you along with it, Unsympathetic. I was probably far more lefty than you for 26 years. It’s a fraud and a nihilistic way to live, and its endgame is elimination of humanity. But none of you is willing to live in reality and SEE what you are doing. We are.

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