Dueling Debt Ceiling Strategies

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Moving on to the Senate, a strategy characterized as a “bipartisan, comprehensive and balanced plan consistent with the Bowles-Simpson fiscal commission” is being contemplated. This proposal would immediately impose cuts of $500 billion, “stabilize” our public debt by 2014, and reduce it to 70 percent of GDP by 2021. The process would take two steps to accomplish: an initial bill mandating the immediate $500 billion in cuts, and a “process” to enact comprehensive reform afterwards.

Some of the comprehensive reforms listed include “dramatic” cuts to discretionary spending, “careful” strengthening of entitlement programs, “fundamental” tax code reform, “strict tightening” of government budget processes, and Social Security “reform.” The details include fully funding the Sustainable Growth Rate mechanism used to pay physicians, eliminating the Alternative Minimum Tax, which had originally targeted the rich, but whose levels are increasingly encroaching on middle class earners, and making Social Security solvent for the next 75 years. And despite a revenue increase of $1 trillion, the bill calls for a “CBO [Congressional Budget Office] scored plan” of $1.5 trillion in “net tax relief.” It would also impose a “67-vote threshold” (do they mean two-thirds vote?) on a “stand-alone” resolution, in order to circumvent spending caps or add to the debt.

Tax reform would include tradeoffs. Personal and corporate income tax rates would be lowered, but some deductions would be eliminated, with estimates “tailored” to provide $1 trillion in additional government revenue. Deficit reduction plans include committees set up to “report legislation” aimed at delivering “real deficit savings in entitlement programs over 10 years” in several government departments, including Homeland Security, Commerce, Agriculture, Energy and Defense.

The positives? First and foremost, the Senate getting involved in the debt ceiling effort, albeit indirectly. A senior Senate Democratic aide noted that “there are no discussions” on bringing this legislation into the debt ceiling negotiations. But Senate Budget Committee Chairman Kent Conrad (D-ND) who told reporters that the response by the 50 senators briefed on the legislation was “very favorable,” also posed the possibility the plan could “get married” to the debt ceiling debate. Second, the president expressed his support. “I think we’re now seeing a potential for a bipartisan consensus,” he told reporters. Third, the plan involves some level of bipartisanship, although how much is currently unclear. Republican Sen. Coburn, who had quit the group in May following a sharp disagreement regarding Medicare cuts, had proposed his own plan on Monday with $9 trillion in deficit cuts and $1 trillion in tax increases over ten years. How his particular agenda has been addressed also remains unclear.

The negatives? A distressingly familiar theme: a “definite” $500 billion in immediate cuts followed by a “process” with some pretty good ideas, all of which could be “re-negotiated” once the immediate crisis is in the rear-view mirror. For Republicans who remember being burned before by Democrats’ “bait and switch” tactics, most notably under Ronald Reagan in 1982 and George H.W. Bush in 1990, both of whom raised taxes in return for spending cuts that never materialized, it may be especially galling.

Two other troubling details emerge in the opening statement of the plan. The first detail calls for deficit reductions of $3.7/$3.6 trillion over ten years, or $4.65/$4.5 trillion if president Obama’s 2011 budget request of $3.7 trillion is used as the “starting point for discretionary spending.” This is the budget that was so ridiculous it was defeated by a 97-0 vote in the Senate. It contains $1.65 trillion in immediate deficit spending which would be “offset” by as little as $450 billion per year for a decade. That’s bait and switch on steroids.

The second detail is for sophisticates. The proposal will ostensibly stabilize “publicly held” debt by 2014 and reduce “publicly held” debt to 70 percent of GDP by 2021. Sounds swell as long as Americans remain unaware of something called “intragovernmental debt.” Intragovernmental debt is money the government borrows from itself.  The best example is Social Security. Despite the myth that funds used to pay for it are in a “lock box,” in reality the only thing in a lock box are government IOUs in the form of Treasury bonds. Bonds which eventually have to be paid off the same way publicly held debt gets paid off, which is by raising taxes, reducing services, or creating new money via the Federal Reserve system. Our current intragovernmental debt stands at over $4 trillion. There is nothing in this proposal which addresses it.

Chances of this package passing? Better than Cut, Cap and Balance, at least in the Senate. But a plan like this is likely just as DOA in the House as Cut, Cap and Balance is in the Senate. Thus two realities are emerging. First, America is still in need of something that will satisfy the financial markets and the ratings agencies by August 2nd. The bet here is that some kind of “kick the can past the 2012 election” proposal, one that each side hates and will blame the other for, will be adopted. Probably at 11:59 PM on August 1st.

The second, and far more important reality: the 2012 election will be the ultimate referendum on America’s fiscal future. This may in fact be an unexpected cause for optimism, as the public will be the ultimate arbiter of this long, bitter, tiresome debate.

Arnold Ahlert is a contributing columnist to the conservative website JewishWorldReview.com.

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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.

    • 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.