The House Republicans are contemplating a new budget-hostage strategy, the the Washington Post reports in a story that is both highly useful and inadvertently Onion-esque. The hallmark of Onion news reporting is conveying insanity as if it were sane in a completely deadpan way. The news contained within the story is that the House GOP is thinking of tying the next increase in the debt ceiling to tax reform. Under this proposed strategy, the Post reports, “The debt limit might be raised for only a few months, with the promise of another increase when tax reform legislation passes the Senate.”
If you didn’t fall out of your chair when reading that apparently anodyne sentence, let me explain why you should have. In 2011, House Republicans undertook a novel and radically new dangerous political tactic of using the debt limit as a political bargaining chip. Before, the opposition party had treated the debt limit increase as a necessary step, though one they would posture over and use to flay the administration. (Senator Barack Obama followed this pattern.) The Republicans instead decided to actually threaten not to raise the debt ceiling unless Obama granted them policy concessions. This was extraordinarily risky. By mixing together a vote that was needed to prevent economic calamity with inherently contentious debates over the size of government, it turned routine budget disputes into a financial Cuban Missile Crisis.
The official party rationale for this extraordinary tactic was that, risky though it may be to fail to lift the debt ceiling, failing to reduce the debt was even riskier. An extreme imminent crisis justified extreme tactics. The risk of becoming Greece outweighed the risk of a debt-limit snafu (though it was not, of course, high enough to justify even a partial repeal of the Bush tax cuts).
President Obama has taken these arguments at face value, offering to meet the opposition halfway, or more than halfway, in order to strike a deal. He has publicly offered significant cuts to spending on retirement programs. But some Republicans don’t want that deal, the Post reports, because “The proposals, included in the president’s budget request, outraged seniors, and some Republicans fear that embracing them would be political suicide.”
Oh! So you threaten to melt down the world economy unless Obama agrees to cut spending on retirement programs, and then he offers to do that, and then you decide it’s too unpopular?
Where did the whole idea of sequestration originate? It goes back to 1985. The tax cuts of Ronald’s Reagan early years, combined with his aggressive defense buildup, produced a growing budget deficit that eventually prompted passage of the Gramm-Rudman-Hollings Act. GRH set out a series of ambitious deficit reduction targets, and to put teeth into them it specified that if the targets weren’t met, money would automatically be “sequestered,” or held back, by the Treasury Department from the agencies to which it was originally appropriated. The act was declared unconstitutional in 1986, and a new version was passed in 1987.
Sequestration never really worked, though, and it was repealed in 1990 and replaced by a new budget deal. After that, it disappeared down the Washington, DC, memory hole for the next 20 years.
What about the 2013 version? Where did that come from? In the summer of 2011, Republicans decided to hold the country hostage, insisting that they’d refuse to raise the debt ceiling unless President Obama agreed to substantial deficit reduction. After months of negotiations over a “grand bargain” finally broke down in July, Republicans proposed a plan that would (a) make some cuts immediately and (b) create a bipartisan committee to propose further cuts down the road. But they wanted some kind of automatic trigger in case the committee couldn’t agree on those further cuts, so the White House hauled out sequestration from the dustbin of history as an enforcement mechanism. It would go into effect automatically if no deal was reached.
In the end, no immediate cuts were made, but a “supercommittee” was set up to propose $1.5 trillion in deficit reduction later in the year. To make sure everyone was motivated to make a deal, the sequester was designed to be brutal: a set of immediate, across-the-board cuts to both defense spending and domestic spending, starting on January 1, 2013. The idea was that everyone would hate this so much they’d be sure to agree on a substitute.
Needless to say, no such agreement was reached. So now we’re stuck with the automatic sequestration cuts.
More: The Sequester, Explained
I have a problem that I hope some you can help me with. I read an editorial in the Washington Post this morning about the upcoming budget sequester, which the editors appear to be very concerned about. Evidently, the editors think Obama should “lead” on this budget sequester thing of which they are very concerned, by cutting entitlements. Or something.
The editorial contains some very DC boilerplate “both sides are at fault” material, but specifically the editors claim that the sequester is or was “Obama’s idea” and that it is up to the president to “lead” his racalcitrant party in cutting entitlement spending, which the editors at the Washington Post have long been very concerned about.
The funny thing is, I searched through this editorial carefully for some mention of how we got to this sequester point in the first place. You know, the Tea Party Republican debt-ceiling hostage fight of 2011. As we remember, after the Tea Party elections of 2010, the new Republican leadership in the House threated to make the government default on its debts if the president did not agree to deep, long term spending cuts. The debt ceiling was ultimately raised, and the default was prevented, by an agreement between the president and congress that first called for a congressional bipartisan Super Committee to come to an agreement on a mix of cuts and tax increases to Fix The Debt. The second part of the agreement was that if said Super Committee failed to agree on a deficit cutting package, then the deficit target would be met through budget cuts implemented across the board, including to defense spending. These automatic cuts are what we know today as the sequester.
Now, surely if we are going to talk about the implications for the country of the looming budget sequester cuts, scheduled to begin Friday, March 1, we should probably have before us the information about how the sequester came to be, if we are to discuss options to alleviate it.
But try as I may, I am unable to locate in the Post editorial any mention of the 2011 debt ceiling hostage-taking fight that precipitated the need for the sequester scheduled to begin Friday, which the Post editors say they are very concerned about.
Perhaps some of you with better vision or more caffeine this morning can find it for me. Here the editorial’s opening graphs. Follow the link for the whole thing.
This week Washington is having a stupid fight over a stupid budget issue. The so-called sequestration of $85 billion in federal spending would weaken the economy just as an increase in the payroll tax appears to be giving consumers pause. It would force the government to make mindless cuts across the board, instead of allowing reasoned choices. According to Mr. Obama’s senior military advisers, it would endanger national security. Yet nobody seems inclined to prevent it.
In the petty arguments over this self-inflicted wound, there are merits, or demerits, on both sides. The Republicans are right when they say that the sequester was Mr. Obama’s idea, in the summer of 2011, and that he agreed to a deal that was all spending cuts, no tax hikes. He is correct that he hoped the sequester would never go into effect but would be replaced by a 10-year bargain that would raise revenue and slow the growth of entitlement costs. He is correct, too, on the larger point: Such a deal is what’s needed, and the Republicans are wrong to resist further revenue hikes.
Barack Obama approaches his second term with his highest job approval rating since his first year in office (save for a brief bin Laden bounce) and a clear upper hand over the deeply unpopular Congress - including majority support for his demand to decouple talks on the debt ceiling and budget cuts.
With another showdown on the nation’s borrowing limit looming, 58 percent of Americans in this ABC News/Washington Post poll say the debt ceiling should be handled separately from the debate on spending cuts. Thirty-six percent instead favor linking the two, as the Republicans in Congress seek - a position that drew a tart response from the president Monday.
If it comes to a standoff, moreover, just 22 percent in this poll, produced for ABC by Langer Research Associates, indicate they’re willing to have the federal government default on its debt obligations or partially shut down if budget cuts can’t be agreed. And the president leads the GOP leadership in trust to handle the issue by a 14-point margin.
The results are perhaps unhelpful to House Speaker John Boehner, who said Monday, “The American people do not support raising the debt ceiling without reducing government spending at the same time.” That followed Obama’s comment that failing to lift the debt limit would be “irresponsible” and “absurd”; he called the linkage to budget cuts “a ransom.”
In a lively and spirited back and forth* with Megyn Kelly of Fox “News,” Mark Levin passionately denounced the “imperial presidency” of Barack Obama.
All the talk of executive orders being used to circumvent Congress on gun control, or using the 14th Amendment to do the same regarding the debt ceiling - even though there are no serious plans on either front - is what got The Great One’s blood pressure rising!
Conservative radio host Mark Levin appeared Fox News’ America Live this afternoon to discuss how his ‘fury’ over President Obama’s ‘tyranny’ in his use of executive orders.
‘He keeps telling us he won re-election,’ Levin said of the president. ‘Congratulations! But guess what, the Constitution wasn’t up for election, it wasn’t for a referendum,’ he continued, before rattling off the list of ways he believes the president has expanded his office into an ‘imperial presidency,’ including ‘unilateral action’ on immigration, the tax implications of ObamaCare, ‘attacks on religious liberty,’ and the potential use of executive order on gun control.
‘What the hell is this?’ Levin continued. ‘He was elected president. Congratulations. This guy makes Richard Nixon look like a man who followed the law all the time. I think we have an imperial president. He sounds imperial, he’s arrogant as hell and I’m furious about this.’
Host Megyn Kelly pushed back that many also found Obama’s Republican predecessor George W. Bush to be ‘imperial’ in his presidency, vastly expanding the powers of the executive branch.
*This would be like calling a Harlem Gobetrotters-Washington Generals game an “epic battle.”
“If congressional Republicans refuse to pay America’s bills on time, Social Security checks and veterans’ benefits will be delayed. We might not be able to pay our troops, or honor our contracts with small business owners. Food inspectors, air traffic controllers, specialists who track down loose nuclear material wouldn’t get their paychecks,” he said.
Obama reminded Republicans that he won the November election partly on his approach to fiscal issues.
The debt limit is one of a trio of deadlines looming around the end of February, including automatic deep spending cuts that were temporarily put off in the “fiscal cliff” deal, and the end of a stopgap government funding measure.
A number of Republicans have said they would be willing to allow a U.S. debt default or a government shutdown to force the Obama administration to accept deeper spending cuts than the White House would like.
Obama’s unexpected news conference could have been a pre-emptive strike aimed at influencing strategy sessions among Republican lawmakers scheduled for later this week.
The Treasury Department warned on Monday that the United States will run out of ways to prevent a default in mid-February or early March if the $16.4 trillion ceiling on borrowing is not raised.
NOT A “DEADBEAT NATION”
Obama said he would agree to talk about steps to trim the U.S. budget deficit, but made clear he wants to keep that discussion separate from the debt ceiling increase.
“The issue here is whether or not America pays its bills,” he said. “We are not a deadbeat nation. And so there’s a very simple solution to this: Congress authorizes us to pay our bills.”
He held to his position that deficit reduction should include measures to raise revenue and not come from spending cuts alone.
This is really scary stuff. The GOP is playing with fire.
Added emphasis mine:
Unless Congress intervenes, the U.S. government will bump up against the debt ceiling some time in late February. At that point, the government will only have enough tax revenue to pay about 60 percent of its bills — and it won’t be able to borrow more money to make up the difference. So what happens then?
For some Republicans, the answer is simple: The United States should keep funding the crucial stuff and let the rest of the government shut down. “We should pass a bill out of the House,” said Sen. Pat Toomey (R-Pa.), “saying there will be certain priorities attached to certain things, namely payment of debt services and payment of our military.”
For many economists, there’s one clear priority: The United States absolutely must not miss a payment to bondholders.This option is known as “prioritization.” It’s the idea that the government can selectively pay some of its bills so that the nation doesn’t default on its debt payments — the doomsday scenario. It may sound appealing. But there’s also good reason to think that prioritization may be unworkable. […]
For many economists, there’s one clear priority: The United States absolutely must not miss a payment to bondholders. The global financial markets are structured around the notion that U.S. Treasuries are the safest asset in the world. If that assumption were ever called into question, havoc would ensue. It ‘would be like the financial market equivalent of that Hieronymus Bosch painting of hell,’ says Michael Feroli, chief economist at JP Morgan.
In theory, Treasury might be able to prioritize bond payments above all else, says Steve Bell of the Bipartisan Policy Center. The computer system that handles U.S. sovereign debt, Fedwire, is separate from the system overseeing payments to government agencies and other vendors. Yet it’s unclear whether Treasury has the legal authority to prioritize in this way — the agency has never dealt with this situation before. ‘Anyone who says they know for sure whether this is legal is not telling the truth,’ says Bell. […]
I’m agnostic about the plan for the government to mint a coin and assign it a value for the purposes of paying the country’s bills once the debt ceiling is reached if Republicans in congress don’t vote to increase it. But apparently our friends at Faux are using the rumored plan to exhibit their unique brand of stupidness.
Matt Yglesias discusses:
In my wallet right now I have a bunch of $20 bills, a few $1 bills, and a $5 bill. These bills are worth different amounts of money due to the fact that they have different numerals written on them. In terms of their actual contents, there’s very little difference but a $20 bill is much more valuable than a $1 bill just because. By the same token, if you write a check for $20,000 it doesn’t need to be physically different from a $200 check except for having different numerals written on it. Coins are the same. Dimes are more valuable than nickels even though they’re smaller. It is true that several hundred years ago the value of a coin was driven by its metallic content, but this hasn’t been the case for a long time. The issue doesn’t even have anything to do with fiat money. The point of a gold standard is that you can exchange your currency for a certain amount of gold. But the currency itself is not made out of gold or anything else in particular. Mostly it’s paper. Some of it is coins. But the content of the coins is irrelevant.
The wingnut derpitude on this matter may reach epic proportions, so if you have Facebook relatives or old high school acquaintances who have had the misfortune to watch Faux’s take on this, you can try to point them to this helpful explanation.
I agree with the laser like focus here: this is about Congress doing their damned job and anything else is just distracting blabber. I’m normally a Paul Krugman fan, but I really don’t like the shiny bauble he threw in front of the press because they are just going to obsess over the coin idea now and lose focus of the real story.
Two more good things about this:
the Hastert rule (a.k.a. majority of the majority rule) was tossed aside by the GOP to pass the bill, I think that’s a first for the 112th tea party congress & Wikipedia has already been updated.
The Obama middle class tax cuts and top earner tax increases are permanent, unlike the previous temporary Bush tax relief.
Republicans split the difference on dividend taxation, raising it to 20 percent too, rather than the 39.6 percent Obama wanted. The working class got an extension of the stimulus tax cuts, but lost out on an extension of the payroll tax holiday. The deal also includes a bunch of other miscellaneous provisions (Suzy Khimm has the details here), and the end result is a revenue increase of about $600 billion over ten years.
In bonus news, the milk cliff was also averted. At the last minute, the Senate added a nine-month extension of the current farm bill to the legislation. This means we won’t be reverting to the 1949 law, which would have doubled milk prices across the country. Lactophiles can now breathe as easily as millionaires in hospices.
But it’s not over til it’s over, and the fiscal cliff is far from over. First, the House still has to vote on the deal. They’ll probably approve it, though. [Late night update: They did.] More importantly, negotiators punted over the debt ceiling and the sequestration cuts. That’s the $1.2 trillion in automatic spending cuts that emerged from the 2011 debt deiling debacle, split evenly between domestic programs and defense programs. Congress now has two months to hammer out a deal on that front, and Obama held a press conference yesterday warning Republicans that he wouldn’t accept a deal that was all spending cuts and no revenue increases. If this sounds like the exact same thing they’ve been fighting over for the past year, give yourself an A.