Dueling Debt Ceiling Strategies

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Dueling measures to deal with America’s debt ceiling crisis were on tap in the House and Senate yesterday. The Republican-controlled House of Representatives debated and passed H.R. 2560, more familiarly known as the “Cut, Cap and Balance Act.” The legislation calls for raising the debt ceiling by $2.4 trillion in exchange for immediate spending cuts, along with the adoption of a constitutional or “similar” amendment requiring a balanced federal budget. In the Senate, members of the bipartisan “Gang of Six,” given up for dead until Tom Coburn (R-OK) unexpectedly rejoined the group yesterday, were working on a $3.7 trillion deficit reduction plan that would also raise $1 trillion in revenue. But what is likely to emerge from this 11th hour scramble?

The Cut, Cap and Balance bill is a three-part affair. The “cut” part would impose limits on both discretionary and mandatory spending or force a presidential sequester, which is “an automatic, across-the-board proportional spending cut written into law and implemented by the Office of Management and Budget (OMB).” Social Security and Medicare would be exempt from sequestering.

The “cap” part would enforce a limit on federal spending by tying it to a fixed percentage of the nation’s Gross Domestic Product (GDP). This is critically important. Most Americans are likely unaware of the fact that, despite tax rates being all over the lot, from a marginal rate as high as 92 percent in the ’50s to a low of 28 percent in the late ’80s, federal government receipts have averaged 18 percent of GDP for the last 60 years. The reason for this is simple: as tax rates change, so do peoples’ behavior, meaning they find ways to avoid tax liabilities.

Thus, while “tax the rich” may sound logical in terms of increasing revenue, it doesn’t bear out in reality. Furthermore, “rich” is a mobile concept: 60 percent of America’s taxpayers were in a different tax bracket in 2007 than they were in 1999. More importantly, 40 percent of those in the top fifth moved down, while 60 percent of those in the bottom fifth moved up. The primary reason America is running its highest deficits in history is because the Obama administration is currently spending a post-WWll high of almost 24 percent of GDP, and forty cents of every dollar is borrowed money. Cap would wind that spending back — gradually — to the historic average.

The “balance” part of the law would increase the debt limit by $2.4 trillion after Congress passed a Balanced Budget Amendment specifically tied to the above-mentioned limit on spending as a fixed percentage of GDP. Any tax increases above the fixed limit would have to be approved by a two-thirds majority in both houses of Congress.

The obvious plusses of Cut, Cap and Balance? A certain degree of fiscal sanity would be imposed on members of both parties, whose level of fiscal insanity has brought this nation to the brink of bankruptcy. The bill would be a mechanism for dealing with the reality that statesmanship, as in the idea of doing something for the good of the country without regard for personal gain, is dead. Furthermore, the two-thirds vote threshold required for raising taxes would largely curtail frivolous spending initiatives engendered by phony “crises.”

The obvious negatives? The required Balanced Budget Amendment, constitutional or otherwise, in exchange for raising the debt ceiling. A constitutional amendment could take years. Even a simple amendment bill would be next to impossible to pass before the August 2nd deadline, and whether Republicans realize it or not, such an unrealistic expectation undermines the rest the bill’s credibility. The bet here is they know it, but choose to get Democrats on the record rejecting the amendment. Perhaps just as telling, two out of the three revenue-eating behemoths, namely social Security and Medicare (the military is the third), remain immune to automatic cuts administered by the OMB. This could make the still-necessary reforms of both even harder to achieve.

The biggest negative? A next-to-nothing chance of passing in the Democratically-controlled Senate, and a promised presidential veto by Mr. Obama in the event of a miracle. There will be no miracles.

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  • http://bestdigitalslrcamerasinfo.net hugo

    I had to sell my Best Digital SLR Cameras just to keep up with it. So wrong.

  • whitesheperd

    The Senate RINO'S are part of the Obama Administration

    • Iron Yank

      Mconnell needs to be primaried & removed when his term is up, this guy is weak & pathetic. Coburn is Obama's buddy so its no surprize that he threw him a lifeline. Thank god he is done after his next term.

    • BLJ

      I agree. These guys run scared in front of Comrade O. They seem to be so afraid of being called "racist" if they stand up to the creep. Let the young guns from the Republican party call the shots.

      • Jim_C

        Just because YOU are a racist doesn't mean every Republican runs around scared of being called "racist."

      • Supreme_Galooty

        The Imposing Intellect of JC once again reprimands a fellow for racism. Oh, the ignominy of it, BLJ!

      • Fred Dawes

        it reallu means nothing the reups and the dems both own it all to the bankers.

  • Rifleman

    I hope not, because I'd like to see real spending cuts, and so far they aren't even cutting the additional spending that was added over the last two years.

  • WildJew

    The 2012 election will indeed be the ultimate referendum on America’s fiscal future. What may be implied in this piece but is not explicitly said is this. The November 2012 election could be Obama's if he is seen as the victor. The one thing Obama internalized from Osama bin Laden is that people like a strong horse. "When people see a strong horse and a weak horse, by nature they will like the strong horse." If House Republicans cave and opt for the Senate bi-partisan (gang of six) plan or the McConnell plan, little doubt the public will rightly see in Obama the strong horse – the winner – and the will learn to despise Congressional Republicans even more than they are despised now. Obama challenged House Republicans to call his bluff. Will they?

    • Fred Dawes

      We may not have a future as a nation.

  • alexander

    NEW YORK – A top Democrat, apparently operating with the full approval and cooperation of the president, has been directing a team of up to 100 who are paid to publish disinformation on a wide variety of websites to discredit "birthers," according to anti-Obama researchers.

    Read more: White House operative heading 'birther' smear campaign? http://www.wnd.com/?pageId=323913#ixzz1SdvJqywd

    • Fred Dawes

      we are so raped as a nation its almost funny.

  • Asher

    Its about time the Democrats got off their buts and did something to improve the economy, create jobs, and be fiscally responsible….The Republicans have at least been working on legislation and solutions!

  • StephenD

    What happened to "Transparency?" How about you show your cards to us; the American Taxpayers? You promised we would be able to see how and on what you negotiated. Of course, you can't show us that until you actually have a plan from which you will negotiate but even so. Why these "back room" meetings? There isn't one of you that we can trust now. Present your plan, both sides, negotiate openly. We, the people you are representing, will watch and judge accordingly if you are doing right by us. Pretty simple really. Marco Rubio, whom I'm proud to say I had campaign signs in my yard for, is the only one calling for the Democratic Plan to be shown. Where is it? How the hell do you negotiate from an invisible position? WHERE IS YOUR PLAN?

    • Fred Dawes

      The plan is to keep china going and to pay the world bankers off with our pay checks and to sell all are parklands and anything you can think of.

  • dana jones

    This is nothing more than political theater and the American people think it's enough!

    A Coup d'etat took place during the 2008 presidential election.

    Obama is not the president, he’s the acting president. He disappeared for 2 weeks after his election win only to reappear looking exhausted sitting next to John McCain, with a bad poker face, for a press photo shoot. Obama is now a Pentagon puppet.

    Here’s what Obama, Osama, Biden, Bin Laden, the FBI’s Most Wanted Terrorists, and Sarah Palin had to do with the last presidential election and the military’s overthrow of our government. Thousands of people are learning about this and sharing it everyday. Help us restore our democracy now.
    http://electnomorespys.blogspot.com/

    • Fred Dawes

      we know that, let us all hope we don't get totally Raped by the world Bankers to much.

  • Supreme_Galooty

    There is no dichotomy here. There is no argument. One side says "no" to raising the debt ceiling, the other side says nothing at all. I don't see the conflict. Simply do nothing, and your intermediate goals are achieved automatically. As for the dunderhead in chief, he is appearing more and more infantile by the day: "I want what I want WHEN I WANT IT!!! Waaaahhh……"

  • Fred Dawes

    Let us all hope for the best, for one reason if it hit's the fan we all will be living in mexico.

    Understand one fact its all about the bankers and who will get our money.

  • http://www.moneydailynews.com/ Jerald Gootee

    So seniors get paid social security this time but there is a “super comittee” that will look into slashing medicare and social security. Makes sense.