Plain speaking: What President Obama should have said to the American people about the budget and the debt ceiling

By Distributorcap

This is the speech Obama should have given on Sunday night -- before he let the terrorists Republicans dance the hora all night. His polls would have gone up at least 20 points and his re-election would have been all but guaranteed. Americans may love hearing the words "tax cuts" (even when they're for 1% of the population), but they love their John Wayne character even more.

Ladies and gentlemen, the President of the United States:

Good evening.

As we all know, the U.S. government is scheduled to reach its limit for borrowing, or what has come to be known as the "debt ceiling" on Tuesday. The U.S. Congress, knowing full well the consequence of not increasing that limit would be economic chaos, has historically raised the ceiling under both Republican and Democratic administrations. This time, due to the intransigence of the opposition Republicans in the House, Congress has been unable to reach a compromise that would increase that limit. With a painful and catastrophic default staring us in the face, I am ordering the following steps to be taken:

Unless a clean bill raising the debt ceiling reaches my desk by Monday night, I will invoke the clause in the 14th Amendment to the Constitution that states, "The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned" -- to raise the debt ceiling. As President of the United States, I cannot morally or financially let the United States default on its obligations. I cannot allow the actions of a small group of Representatives to push the entire American economy off a cliff. I cannot allow millions to suffer at the hands of a few. If you do not agree with this process or do not take well to the move I am undertaking and want to begin some sort of investigation into the legality of this procedure or even impose hearings for impeachment, let me quote our last Presiden: "Bring it on." I look forward to that fight.

After we ensure the continued flow of checks and payments, Congress and the Executive Branch will immediately begin discussion of the U.S. budget. To be blunt, these budget discussions will include spending cuts across the board, including defense, subsidies to the wildly profitable industries, and closing loopholes that exist only to enhance the re-election of specific Senators and Representatives, for example the corporate jet loophole. I cannot say what the figure will be, but every branch of government will be touched, including many of the perks enjoyed by Members of Congress.

The budget discussions will also include raising taxes on individuals and on corporations, especially those persons that make over $250,000 and corporations that have generated enormous profits yet pay minimal to nothing in taxes. Many of these individuals and corporations have profited greatly from the tax breaks and government bailouts over the past decade. It is time to review just exactly what this government largesse has truly cost a majority of the American people. The Bush tax cuts, which have cost over $400 billion and have not created any jobs, will not be renewed in their current form -- period.

These budget discussions will also include an in-depth examination of the cost to the American economy of sending jobs abroad and the creation of a public works program in conjunction with the private sector to rebuild our faltering infrastructure. The U.S. cannot compete in a world where jobs are shipped out of the country to save a few dollars and the rest of the world builds while applying band aid after band aid.

In addition, I am ordering Harry Reid and John Boehner to keep their respective constituents in session all month -- yes, I know it is August -- to hammer out the framework of a budget that I can sign, a budget that will truly demonstrate shared sacrifice across the board, a sacrifice that will not be based solely on those who cannot pay for high-priced lobbyists sent to D.C. to protect specific breaks and grants.

The past three years have not been a vacation for the American people, and therefore we, the men and women who these struggling Americans elected to shepherd in a better and stronger America, are not taking a vacation until we can agree on a true compromise to get our fiscal house in order.

Thank you.

On vacation, full of debt ceiling rage

By Michael J.W. Stickings

I'm currently on vacation and won't be blogging all that much over the next few weeks. Here and there, when the mood is right, but otherwise not. Rest, relaxation, and family are the priorities.

But, fear not, Richard and the gang will keep things rolling, and so I hope you keep checking back for new posts from my wonderful team.

Actually, though, I'm full of rage at the moment. I'm generally trying to avoid the news, and especially U.S. politics, but, well...

What has me enraged? The Deal, of course.

Yes, the new bipartisan deal to avert default by raising the debt ceiling and, to please Republicans, slash spending (of course, mostly spending that benefits the poor and downtrodden, the usual GOP targets, those no one in power seems to give a shit about).

Now, it's not yet a done deal. President Obama and the Democratic and Republican leadership have agreed to it, but not the rank and file -- and there are sure to be many on both sides who object to it.

Democrats have good reason to object. The deal is heavily Republican, a largely right-wing fix to a crisis created by Republicans. It's all about cuts, not revenue increases, and cuts that, again, will hurt those Democrats supposedly care about. Some Republicans will object as well, but only because -- let's put it kindly -- they're a bunch of petulant extremists who refuse to compromise and who are willing to let the country go into default, and face economic calamity, to get everything they want.

In fact, it has come to this largely because Republicans, from the top down (the leadership included), are bullies crazy enough to risk the country's health, so "patriotic" are they, having basically held the country hostage throughout this entire process.

Sure, I'm deeply critical of Democrats, including the president, for not fighting harder to prevent this, and for not standing up more determinedly for what they purportedly stand for, but, honestly, what were they supposed to do? Let the country go into default? Let the debt ceiling deadline pass, come what may? Sure, maybe. Maybe they could have spun that and kept the blame on the other side, and even come away with a political win, and maybe the impending crisis and public outcry would have forced Republicans back to the negotiating table with their tails somewhat between their legs, but... should they really have taken such an enormous risk?

Maybe Republicans were always going to win this, maybe it was inevitable, because all along they were willing to go further and risk more. That's the problem trying to negotiate with crazy people. They're willing to do things you're not. (Isn't that how Keyser Söze solidified his power?) In this case, Republicans were willing to sacrifice their country for their ideological demands. Democrats, being mature and rational and responsible, were not. And so they had to agree to a deal on Republican (i.e., insane) terms.

There was a brief time when Obama had the upper hand, after he had turned the tables on Republicans and back them into a corner, and with public opinion on his side, but he was only going to win this if he went all the way. And, say what you will about him, he wasn't prepared to play that game, not with so much at stake.

I suspect the deal will pass tomorrow. There will be major defections, but surely enough arms can be twisted, enough dissenters bought off, to make it happen.

And then? Crisis will have been averted, at least temporarily, but Republicans will declare victory -- for getting most of they want (loads of cuts, no new revenue).

The Democrats? They'll get nothing out of this politically.

Obama? Yes, probably. He'll be able to reinforce his credibility among independents by presenting himself as a bipartisan leader who got it done when it mattered (no matter the awful details of what got done).

But unless Democrats can gain control of the narrative and make the debate about ending the deeply unpopular Bush tax cuts for the wealthy and protecting deeply popular entitlement programs (Social Security, Medicare, etc.), this deal won't do them any political favors next year, with with Republicans set to hammer them, however dishonestly (as usual), for being tax-happy, spend-happy socialists.

At least for now, there is reason for cautious, extremely cautious optimism. The deal would allow the president to raise the debt ceiling by $2.4 trillion (with $900 billion in spending cuts):

That will be paired with the formation of a Congressional committee tasked with reducing deficits by a minimum of $1.2 trillion. That reduction can come from spending cuts, tax increases or a mixture thereof.

If the committee fails to reach $1.2 trillion, it will trigger an automatic across the board spending cut, half from domestic spending, half from defense spending, of $1.2 trillion. The domestic cuts come from Medicare providers, but Medicaid and Social Security would be exempted. The enforcement mechanism carves out programs that help the poor and veterans as well.

If the committee finds $1.5 trillion or more in savings, the enforcement mechanism would not be triggered. That's because Republicans are insisting on a dollar-for-dollar match between deficit reduction and new borrowing authority, and $900 billion plus $1.5 trillion add up to $2.4 trillion.

However, if the committee finds somewhere between $1.2 and $1.5 trillion in savings, the balance will be made up by the corresponding percentage of the enforcement mechanism's cuts, still in a one-to-one ratio.

Democrats say they're confident that the enforcement mechanism is robust enough to convince Democrats and Republicans to deal fairly on the committee -- to come up with a somewhat balanced package of entitlement reforms and tax increases. However, the White House assures them that if the committee fails to produce "tax reform" he will veto any attempt to extend the Bush tax cuts, which expire at the end of next year.

Again, the focus is on spending cuts, not revenue increases, but at least cuts to defence spending are on the table and at least it's possible that revenue increases will be part of any future deal.

Actually, scratch that. I'm still highly enraged. And there's really no good reason for optimism at all, even cautious optimism. Obama may want to use the Bush tax cuts for the wealthy in his re-election campaign, as a winning issue (assuming public opinion stays roughly where it is), but he has shown little to no willingness to stand up for progressive principles -- indeed, for principles that are simply not Republican, so much of a moderate Republican does he appear to be -- and, what's more, neither have most Democrats on Capitol Hill, it seems.

All of which is to say, if Obama and the Democrats have been willing to cave so much already, what should make us think anything will change?

How do you kill the economy? Pass a balanced budget amendment.

Guest post by Publius

The House recently passed “Cut, Cap and Balance” (see John McCain’s fantastic take on it here). Republicans are convinced of the need for a balanced budget amendment, and one of the most cited arguments for they give for a balanced budget amendment is that 49 states have one so the federal government should too.

The concept of a balanced budget amendment sounds intuitive enough. “Ordinary Americans and 49 states have to balance their budgets,” the argument goes, “so Congress should too.” Well, not exactly.

First, there is a huge difference between the balanced budget “amendments” (several states have laws instead of constitutional amendments) at the state level and the proposed amendment at the federal level. The state amendments, for example, do not even attempt to balance the entire state budget. Instead, they almost exclusively only apply to a state’s “general fund.” The general fund oftentimes constitutes less than half of a state’s budget. It is the fund out of which general expenditures flow and into which general revenues enter. “Special” expenditures and revenues, such as gasoline taxes, education expenses, etc., have nothing to do with the general fund and are exempt from the balancing requirement.

If Congresspeople would stop and think about their argument for a moment, they would quickly realize that the balanced budget requirements at the state level either can’t apply to the entire budget or are laxly enforced. Most every single state is currently running a deficit, and has been for several years! Further analysis by these Congresspeople would also show the issue isn’t lax enforcement- at least exclusively.

In 1987, the Advisory Commission on Intergovernmental Relations published an oft-cited study (PDF) of state balanced budget requirements. The study examined each state’s budget balancing requirements and the mechanisms each used to enforce the requirements. It then ranked each state on a scale of 0-10, with 0 being no enforcement mechanism and 10 being the strongest possible enforcement mechanism. 26 of the states ranked a “10,” and in 2004, California recently became the 27th state to join that category by adopting an amendment to its constitution. Here’s how those states have done with their deficits since FY 2009:

States in categories 3-5 (fairly lax enforcement) had the largest deficits by far over the measured periods, but states in category 10 (most stringent) were the next worst deficit spenders. Ironically, states with little to no enforcement mechanism had almost no deficit (though only 2 states fit in this category, so not much of a sample size). This suggests that stringent enforcement of a balanced budget amendment is insufficient to produce a balanced budget for the states.

The scatterplot table below (amounts in thousands) shows the deficits by year, state and category. California’s enormous deficits and NY’s 2010 deficit were removed from the scatterplot because they shrunk the scale of the chart so much the rest was not legible:

The scatterplot is a bit messy, but it shows the size of the deficit for each state within the 0-10 enforcement categories described above. There’s no getting around it. No matter how strict a state balanced budget requirement is, states continue running deficits during this economic downturn. This doesn’t mean the balanced budget requirements have no impact- only that they don’t accomplish what Republicans in Congress think they accomplish.

One might ask, “Why isn’t the federal proposal (which demands that the entire budget be balanced) more workable than the state proposals?” Well, first consider that the federal “general fund” only accounts for about about 35% of the entire federal budget. That number includes defense spending, however (which is considered “discretionary” even though it has a history of only going up). Non-defense discretionary spending only accounts for about 15% of the budget.

A true “balanced budget amendment” like what Republicans have proposed could require that money which is allocated to defense spending or other mandatory spending (social security, Medicare, Medicaid, interest on the debt, etc.) be cut in order to balance the budget. In FY 2010, for example, the deficit was about $1.3 trillion. Total non-defense discretionary spending in FY 2010 was only $714 billion. Even if all non-defense discretionary spending was eliminated in FY 2010 (no spending on education, justice, health, roads or other infrastructure, etc.), we would have still had a $586 billion deficit. Total defense spending in FY 2010 was only $663.7 billion, meaning to avoid any cuts to mandatory spending (which, as its name implies, is money we must spend), the Department of Defense budget would have been reduced by 88% (to a total of $77 billion). The last time defense spending was that low was 1973.

As should be obvious, when a severe recession hits, it’s quite difficult to balance a budget. In fact, it’s also precisely the wrong thing to do in a recession (when spending should go up as a stabilizer). The federal government has a macroeconomic role through fiscal policy which it cannot play if it is hamstrung by a balanced budget amendment. But even assuming that wasn’t the case, there’s just not enough discretionary spending to cut to balance a budget in a severe recession. Recessions reduce tax revenue dramatically because people lose jobs and stop paying FICA and income taxes. There just aren’t enough discretionary dollars to eliminate to keep pace. That means defense spending and/or mandatory spending has to be cut. So who should cut it?

This is the next problem with the balanced budget amendment. The enforcement mechanism. If the Constitution requires Congress to balance a budget and it doesn’t- what happens? In some states, the governor can eliminate spending without legislative approval (like a line-item veto). In 2010, however, there is no chance any politician would have voluntarily eliminated 100% of discretionary spending plus a large amount of defense/mandatory spending. The courts, then, would be required to mandate the cuts or, alternatively, raise taxes (also a bad idea during a recession). One can only imagine the Republican cries of “activist judiciary” in such an instance- and ironically they would have been the ones demanding that the judiciary take such an activist role. I should mention that tax increases could be adopted in lieu of spending cuts, but I haven’t spent much time on that option because: a) Republicans would never agree to tax increases; and b) to ensure no tax increases are passed, Republicans have proposed in Cut, Cap and Balance that all tax increases require a 2/3 vote, effectively making them illegal.

So, what happens if the courts also don’t act to force the budget to balance? The Constitution is violated and, as we are seeing with the debt ceiling debate, the nation’s credit rating would beat risk as a consequence (thereby threatening global economic instability).

Of course, the federal amendment could be fashioned to look more like the state balanced budget requirements and only apply to discretionary spending. Needless to say, such an amendment would not eliminate federal deficits (which is the stated purpose of enacting such an amendment). The amendment would be circumvented entirely in recessions (appropriately so from an economic perspective) which would only serve to undermine the Constitution and the rule of law. The accounting tricks employed by states to “balance their budgets” would only be magnified at the federal level thereby creating far more frustration with the system (California technically has a balanced budget this year, despite its projected $17.9 billion deficit).

The balanced budget amendment as included in Cut, Cap and Balance is quite possibly the worst economic idea any major party has actively promoted in modern history. It can’t work- except to wreak havoc. Few other proposals stand to do as much harm to the US and global economies, particularly during recessions.

(Cross-posted at The Fourth Branch.)

The politics of the debt ceiling crisis: Republicans seeking to shift blame onto Democrats, but Obama needs to stand firm

By Michael J.W. Stickings

I wrote yesterday that Republicans, completely unserious about trying to do anything substantive about either the debt problem or the more immediate debt ceiling crisis, were looking for a way to turn the tables on Obama and the Democrats -- this after the president had successfully turned the tables on them, backing them into a corner, not least because he had public opinion on his side and because the Republicans are deeply divided over what to do (basically, financial establishment vs. Tea Party).

This is what's driving the GOP -- the politics -- and it's pretty much the only way GOP leaders on Capitol Hill can keep the party together (and not lose independents). Facing pressure from both sides, Boehner et al. have to find some way to have the Democrats take the blame for the country defaulting (and for the failure to deal with the deficit in any meaningful way).

Well, guess what?

As right-wing hack Jennifer Rubin wrote at WaPo, quoting Boehner's statement to House Republicans yesterday:

That suggests to me that the House Republicans will pass a bill, send it to the Senate and let the Democrats decide if they want to send the country into default.

What exactly did Boehner say?

You know, last week we passed the Cut, Cap & Balance Act and showed America our solution, our vision, as we did months ago with our budget. So we've done our job. And I think the nation knows it. But as you all know, the Senate tabled the Cut, Cap & Balance Act. And I think the nation knows that, too. So the question becomes — if it's not the Cut, Cap & Balance Act itself — what CAN we pass that will protect our country from what the president is trying to orchestrate?

The White House has never gotten serious about tackling the serious issues our nation faces — not without tax hikes — and I don't think they ever will. The path forward, I believe, is that we pull together as a team behind a new measure that has a shot at getting to the president's desk. It's won't be Cut, Cap & Balance as we passed it, but it should be a package that reflects the principles of Cut, Cap & Balance. We're committed to working with you — and with our Republican colleagues in the Senate — to get it done. No one is willing to default on the full faith and credit of the United States.

And I think the leaders in both parties and both houses of Congress already agree that we need significant reductions. But if we stick together, I think we can win this for the American people... because I do think there is a path. But it's gonna require us to stand together as a team. It's gonna require some of you to make some sacrifices. If we stand together as a team, our leverage is maximized, and they have to deal with us. If we're divided, our leverage gets minimized.

Rubin's a fool, but she's a connected one, and she's someone insiders leak to. What's interesting here, though, is that she's revealing, in its utter nakedness, the cynical game her beloved Republicans are playing.

On the merits, Boehner's case is completely dishonest. Obama has been extremely serious about working on a bipartisan deal, even going so far as to put cuts to Social Security, Medicare, and Medicaid on the table, all while positioning himself essentially as a moderate Republican alienating the Democrats' progressive base. He has actually proposed massive spending cuts with only minimal revenue offsets. Significant tax hikes aren't on the table, just letting the Bush tax cuts for the wealthy expire and closing some loopholes.

This is why Paul Krugman can write a compelling post entitled "President Pushover." Obama is a pushover, in the eyes of many on the left (including me), because he has signalled time and time again that he is prepared to give Republicans most of what they want, that he is willing to cave to their demands. Maybe not all of them -- no, he supposedly remains committed to some progressive principles -- but enough to suggest that any deal would be heavily Republican-oriented. In saner times, Republicans would have jumped at what Obama was offering them. Now, dogmatic right-wing extremism having taken hold of the party, they can't even see what's right in front of them. Or if they can see it, they're just too crazy to accept it.

What's more, CCB was DOA, a reflection of that dogmatic right-wing extremism that would have required the Democrats to give up everything they believe in. It was never going to go anywhere, it wasn't an effort at compromise, and it's ridiculous of Boehner to hold it up as a viable plan. (It makes you wonder if he was ever serious about working out a deal with Obama. Or was that all for show as well? Or is he just flailing about without much rhyme or reason other than self-preservation? Cantor, after all, is similarly flipping and flopping.)

Just as it's ridiculous of him to say that "the nation" is on the Republicans' side. Wishful thinking, but it's not.

But you can see clearly what's going on here, what they're going to do and how they'll spin what they've done. Indeed, the talking points pretty much write themselves: "We tried to work with Obama and the Democrats to get something done for the American people, but all they wanted was tax increases. They rejected our sincere and reasonable efforts. It's not our fault the country will default. Blame them!"

BULL. SHIT.

As they have been throughout this process, with genuine crisis upon us, the Republicans are being completely dishonest. And their only hope -- and they know it, which is why there's desperation behind the machismo -- is to bet on the utter ignorance of the American people and the media's willingness to give them a free pass by taking their bullshit at face value and reporting it without a trace of serious analysis.

Do they think they can succeed? Sure, why not? They often succeed mainly because of public ignorance and the media usually act as their uncritical enablers, as a huge megaphone through which they can communicate their dishonesty.

Will Obama and the Democrats let this happen? Will they stand firm and refuse to let the Republicans define the narrative? Who knows? They've let it happen so many times before, on issue after issue.

What I do know, as I also wrote yesterday, is that they'd be crazy not to take advantage of their current position, with public opinion on their side and with Obama commanding the bully pulpit, and keep up the pressure on the Republicans.

Simply put, Boehner can't be allowed to get his way. Not with America desperately needing the Democrats to win both the policy and the politics of the debt ceiling crisis.

The GOP & the national debt: A history of symbolism and hypocrisy

Clinton's surpluses, Bush's deficits & the value of balanced budget amendments • Debts don't matter, perception does • GOP fights responsibility to govern • Symbolism over solutions • GOP laws protect GOP lawmakers from their own irresponsibility

By Nicholas Wilbur

Constitutional amendments aren't a laughing matter, but they quickly become the butt of the joke and the source of mocking ridicule when they are pursued as a blatant sabotage tactic meant to undermine the economic recovery and score political points in the lead up to the 2012 election.

As if in revolt against their responsibility as leaders, Republicans have sidestepped the real debt negotiations in Washington, D.C., and have instead proposed balanced budget amendments in the House and Senate that ignore both the economic repercussions and the partisan political climate required for passage of such measures.

Similar to their retreat from debt ceiling negotiations and their hollow, half-hearted attempts to repeal President Obama's health care law, Republicans are demonstrating to the American people that they would rather rile the conservative base with symbolic gestures and partisan votes than offer legitimate solutions and workable compromises that help solve the real problems facing the United States.

Here's why a balanced budget amendment won't happen, why it shouldn't happen, and why Republicans don't care one way or the other if it does happen.

A Brief History

Congress hasn't voted on a balanced budget amendment since 1997.

Similar to GOP leaders today, Republicans in the 1990s so feared the effects of growing debts that they sought a balanced budget amendment to the Constitution, as they believed only a legal requirement would be a strong enough motivation for the government to balance its books.

Their efforts failed, but President Clinton kept his vow to eliminate annual deficits without a balanced budget amendment. By the end of his second term, Clinton had amassed a budget surplus of nearly $560 billion, prompting both the Office of Management and Budget and the nonpartisan Congressional Budget Office in 2001 to predict budget surpluses reaching $5.6 trillion and the complete elimination of the national debt by FY 2011. 

Obviously that didn't happen, as a swift change in fiscal priorities by Clinton's successor erased the surpluses within a year. During his eight years in the White House, President Bush would never sign a single balanced budget bill.

The American Presidency Project

What's noteworthy here is that Republicans sought permanent measures to balance the budget under an administration that didn't need a constitutional amendment to reach such ends, then abandoned the strategy for the next 14 years while a Republican president added $4.97 trillion to the national debt over his two terms.

Within a year of another Democratic president's election, Republicans were once again talking about a balanced budget amendment. On Tuesday, July 19, the Republican-controlled House of Representatives brought a bill to a vote with that end in mind.

As a general observation, the fact that Clinton created budget surpluses without a balanced budget amendment says something about the necessity of such measures. The fact that Congress will forever retain the power to say no to a president’s spending initiatives only further undermines the value of a balanced budget amendment.

The Potential for Fiscal Sanity

In response to President Obama's weekly radio address on July 16, Sen. Orrin Hatch (R-Utah) reminisced about the good old days – or day – when he nearly saw his proposed balanced budget amendment enacted. It failed by one vote.

"Think of how different our fiscal picture would be if we'd passed one in 1997," he said. "Fourteen years later, our nation faces a debt crisis of epic proportions. Our national debt has gone from roughly $5 trillion in 1997 to over $14 trillion today. That's more than $45,000 for every man, woman, and child in America."

Indeed, things would be different.

Had Congress found that last vote, and had three-quarters of the states voted for ratification, as is required to amend the constitution, the 1997 bill, which was slated for implementation in 2002, would have severely hampered President Bush's agenda.

According to the 1997 balanced budget amendment:

Total outlays for any fiscal year shall not exceed total receipts for that fiscal year, unless three-fifths of the whole number of each House of Congress shall provide by law for a specific excess of outlays over receipts by a rollcall vote.

With a deficit of $377 billion in FY 2003, the second round of Bush's tax cuts would never have become law, as a BBA would have required 67 Senate votes to allow spending to exceed revenues. The 2003 tax cuts squeaked by with a mere 51 votes – and that only after Vice President Dick Cheney, the Senate president, ended a 50-50 deadlock with his tie-breaking vote.

Democrashield

Arguably, the 2001 tax cuts wouldn't have passed, either. Many Democrats were on the fence about the estimated $1.7 trillion cost, and many economists already were predicting budget deficits within two years as reports warned of exaggerated estimates for GDP growth and significantly lower surpluses. If a BBA had been in place in 2001, the 58 votes in the Senate wouldn't have been enough to make them law, either.

Other than the wars, which undoubtedly would have been cut short due to spending restraints, Bush's other cash cow, the Medicare Part D prescription drug program, also would have failed in the Senate for lack of a supermajority.

If Republicans had been as worried about deficit spending during Bush's spend-thrift years as they were during Clinton's surplus years, we'd be better off for it, financially. The pock mark on our national conscience that is the Iraq war would have ended at "Mission Accomplished." The government's books would be in the black. The debt likely would have been paid off.

That said, Congress didn't need a balanced budget amendment in order to keep President Bush in check. The simpler solution to excessive spending is to vote down any unnecessary spending initiatives that add to the deficit.

The Assurance of Fiscal Doom

There are two sides to every coin, and on the other side of the balanced budget debate there is the damning economic impact of such strict financial obligations in times of recession.

In what now ought to be regarded as prophet-like foresight, President Clinton and the majority of Democrats opposed the GOP's balanced budget amendments in 1990s on the grounds that it would spell economic doom in the event of a future downturn.

When faced with a strong Republican majority in Congress that was intent on passing a balanced budget amendment, Clinton softened to the idea, but with conditions: "I don’t believe we need it," he said, a statement he was already in the process of backing up, "but if we have it, it ought to be able to be implemented in a way that actually works and gives the country what it needs to manage a recession because... someday down the road we’ll have another bad patch in the economy."

When the Great Recession hit, federal revenues plummeted nearly $400 billion in two years, falling in 2009 to a near-60-year low of 14.8 percent of GDP. Under a balanced budget amendment, that $400 billion deficit would have to be offset with a) spending cuts and/or tax increases, or with b) deficit spending legislation to allow the government to spend more than it collected, both of which would have required supermajorities in Congress.

Government Receipts vs. Outlays, 1962-2009

Given the partisan political climate in D.C. today, it's safe to say that a BBA would be economically disastrous. With supermajorities required for deficit spending, America would have lost an additional 3.3 million jobs during the Great Recession, as Congress would not have had the votes needed to pump $800 billion into the economy via the 2009 stimulus bill (which passed in both houses of Congress with only simple majorities). When the CBO made its 3.3 million estimate, unemployment was 9.7 percent, with 15 million people out of work. Without the stimulus bill, unemployment in would have reached 12 percent.

And that doesn't include however many more workers would have been added to the unemployment statistics if the government let the auto industry go bankrupt, if Congress had let the banks crash, and if Obama had ignored the housing crisis.

As Clinton warned Congress in the 1990s:

The balanced budget amendment is, in the first place, bad economics. As you know, the Federal deficit depends not just on Congressional decisions, but also on the state of the economy. In particular, the deficit increases automatically whenever the economy weakens. If we try to break this automatic linkage by a Constitutional amendment, we will have to raise taxes and cut expenditures whenever the economy is weak. That not only risks turning minor downturns into serious recessions, but would make recovery from recession far more difficult. Let's be clear: This is not a matter of abstract economic theory. Contractionary fiscal policy in the 1930s helped turn an economic slowdown into a Great Depression. A balanced budget amendment could threaten the livelihoods of millions of Americans. I cannot put them in such peril.

He didn't put them in such peril. And neither will President Obama.

Political Playmaking 
Passing a constitutional amendment with majority control of only one branch of Congress isn't an easy task.

Republicans know this. Fortunately, they don't care. As backward as it may sound, their BBA proposal isn't about taking action. It's about symbolism.

Like every major legislative initiative Republicans have fought for this year, the party's proposal to amend the Constitution has nothing to do with achieving pragmatic and effective legislative solutions to real national problems. It has to do with perceptions.

The Republican-controlled House of Representatives voted on Tuesday, July 19 on a bill that would cut spending and balance the federal budget.

The "Cut, Cap, and Balance" bill passed along party lines in the House. It is doomed in the Senate, and the president has already threatened a veto if a miracle happens and it somehow receives a majority in the upper chamber.

As evidence to just how serious Republicans are about lowering the debt and balancing the budget, the "balanced budget amendment" portion of the bill was not an actual amendment. It was a call for an amendment, which explains why it passed the House without a two-thirds majority. 

Republicans essentially drafted a bill that said, "We think the government should cut spending, cap total outlays based on average GDP growth, and send a balanced budget amendment to the states for ratification, but we're not actually going to write a bill that accomplishes those ends."

Sen. Hatch's latest balanced budget amendment faces the same hurdle the House bill does: odds. Though it has the support of every Republican in the Senate, "every Republican" is only 47 votes, far short of the 67 needed to send the bill to the states for ratification.

But that doesn't matter.

It doesn't matter what Republicans accomplish, or even that they've failed to uphold virtually every promise on which they based their 2010 midterm election campaigns. It doesn't matter that "Obamacare" is still in place or that the deal they negotiated in April to cut spending by a full $100 billion actually increased spending by more than $3 billion.

What matters is that they appear to their constituents as fiscal hawks who fought to the death against Obama's "socialist" regime. Effective governing, in the eyes of the GOP constituency, means refusing to negotiate even if the country's financial solvency is on the line. This strategy works out quite well for Republicans considering that every budget proposal they've offered would tank the economy and add to the already high unemployment level. (Not implementing any of their proposals actually saves them the embarrassment of having to defend the results of those proposals.)

Politics for Republicans is about symbolic legislative maneuvers and ideological posturing. Because they won't even attempt to lobby Democrats for their support, a balanced budget amendment will meet the same fate as their health care repeal attempts.

As the past six months have shown us, real solutions to real problems don't matter.

The Party of Symbols is waging a shadow war.

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David Broder, in 1994, wrote that the largest flaw in the BBA proposal "is that it would give a minority of the Congress permanent veto power over fiscal policy by requiring a three-fifths vote for a deficit budget."

In The New York Times, Nov. 6, 1993, Clinton says of the GOP's BBA proposal: "[I]t would promote political gridlock and would endanger our economic recovery."

From the Los Angeles Times, Nov. 6, 1993: "Government and private economists generally agree that a quick move to actually bring the government's books into balance – either by cutting spending or by raising taxes – would knock the economy back into deep recession."

Jon Perr on the GOP's BBA farce.

The New York Times: Bush signs 2003 tax cuts.

The cost of war: a running tally.

Paul Krugman on the Bush Tax Cuts.

(Cross-posted at Muddy Politics.)

The balanced budget amendment that wasn't

By Nicholas Wilbur

In what appeared, if you didn't look too closely, to be a noble effort to enact strong debt-reduction legislation, House Republicans on Tuesday passed a bill that would cut spending, cap total outlays based on average GDP growth, and amend the Constitution to require balanced annual budgets.

But like most things Republicans do, there's a catch. Or two catches, in this case.

Catch No. 1: It in fact wasn't a noble effort at all, because the bill has no chance of earning majority approval in the Senate and is therefore yet another example of the GOP wasting crucial time with useless legislation that has no chance of becoming law. The bill received a presidential veto threat even before it was passed (along party lines) in the House.

Catch No. 2: The balanced budget amendment included in the bill isn't really a balanced budget amendment.

 

The "Cut, Cap, and Balance" bill doesn't have the congressional support to cut or cap anything. Nor does it have the legal authority to balance anything. As a whole, the bill doesn't do anything.

It makes veiled threats to the effect that, if enacted (doubtful), Congress would not allow the debt limit to increase until spending is cut and capped over time, and until a balanced budget amendment is sent to the states for ratification, but it doesn't actually achieve those ends.

As Republicans well know, or should know, demanding a balanced budget amendment isn't the same as actually voting for one. The former requires only a simple majority to pass through Congress, while the latter requires a two-thirds supermajority and three-quarters of states' approval for implementation.

Republicans didn't achieve that.

That fact they didn't even try to achieve that says something about their intelligence. On the one hand, they're not so naïve as to think that a balanced budget amendment would garner enough support in Congress to meet the two-thirds majority requirement needed for eventual implementation. On the other hand, they settled for a purely symbolic gesture that achieves nothing and that has just as hopeless a future in the Senate as an actual, legitimate amendment proposal would have.

We need a name for this sort of political posturing.

I propose "Rainbow Wheel Politics."

Any other suggestions?

(Cross-posted at Muddy Politics.)

How you know Republicans aren't serious about tackling the deficit

By Michael J.W. Stickings

Is it when they fall in line behind their chief budget guru, wunderkind Rep. Paul Ryan, who once said the deficit was "too small" and now supports the Bush tax cuts, and especially those for the wealthy, that are perhaps the greatest impediment to addressing the deficit problem in a meaningful way?

Yes, sure.

But it's also when they pull out of bipartisan budget talks because, really, they have no interest at all in compromise given their extremist right-wing position on taxes:

After House Majority Leader Eric Cantor (R-VA) dropped out of the talks [yesterday] morning, Senator Kyl was the lone Republican in the group left. And with his withdrawal late [yesterday] morning, the group does not have a Republican negotiator left in the room.

That's right. Zero Republicans. There's what Republicans think of bipartisanship. And about tackling the deficit.

Although, I should say, a few Republicans realize that they have to be at the table and have to work constructively with Democrats to get something done -- or at least have to make it appear as if they're serious:

A Senior Democratic aide says, "Cantor and Kyl just threw Boehner and McConnell under the bus. This move is an admission that there will be a need for revenues and Cantor and Kyl don't want to be the ones to make that deal."

There you go. If only future generations of Americans could express their disgust. They're the ones, after all, who will be left with this mess.

Way to put your country before your partisan agenda, Republicans.

Pawlenty's tax plan is an utter disaster

By Michael J.W. Stickings

Tim Pawlenty, sucking up to both Grover Norquist and the Tea Party and once more trying to prove his right-wing bona fides (as he has on social issues), released his economic "vision" yesterday.

Pawlenty is a serious, sensible man, you say? Surely not.

All his ridiculous plan envisions is massive fiscal irresponsibility, economic catastrophe foisted upon future generations. He's clearly not a deficit hawk, despite his pledge to balance the budget, which is, to put it mildly, unrealistic, but then, of course, neither is Paul Ryan. All this is about is cutting spending conservatives don't like and cutting taxes even more, widening the revenue gap even further, all to score cheap political points with the anti-tax fanatics who run the GOP.

Just how bad is the plan? Here's Michael Linden, Director of Tax and Budget Policy at the Center for American Progress Action Fund, guest-blogging at Think Progress:

Pawlenty called for:

– Cutting the top individual income tax rate down to 25 percent;

– Having just two income tax brackets, 10 percent and 25 percent;

– Eliminating all taxation on capital gains, dividends, and estates;

– Cutting the corporate tax rate down to 15 percent

These proposals, taken together would bestow a massive tax cut on the wealthiest people in the country. They would also reduce overall federal revenues to a such a low level that even if Pawlenty's draconian, radical spending targets were achieved, deficits and debt would still soar out of control.

All together, Pawlenty's tax proposal would generate an average revenue level of just 13.6 percent of GDP from 2013-2021. That translates to a tax cut of $7.8 trillion, and that's on top of $2.5 trillion cost of extending all of the Bush tax cuts...

Pawlenty also says that he will balance the budget, and cap spending at 18 percent of GDP. Unfortunately for Pawlenty, his tax plan leaves him about $8.4 trillion short. Given that reality, he can either embrace a huge middle-class tax increase, or give up his claims to a balanced budget. If he doesn’t make up that revenue, deficits and debt will skyrocket, even if he does slash spending back to levels not seen in half a century. 

Given how well this fits into the Paul Ryan orthodoxy of the GOP, I'm sure this "vision" will meet with applause from Republicans, to the extent that anyone's actually paying attention to Pawlenty, what with so much of the attention on Sarah Palin these days, not to mention Ryan himself.

Pawlenty has been a bit of a joke so far in the campaign, but he's trying really hard to be the candidate who appeals broadly across the party (unlike Romney), from the more "moderate" establishment to the Tea Party and the various other right-wing elements that are really the party's new mainstream. It's far from clear how successful he'll be, or not, but he's certainly saying the right things, which is why he's widely regarded as one of the favourites to win the nomination despite his poor poll numbers so far.

Of course, he's also desperate for attention. Maybe this "vision" -- however irresponsible, however much it would be an unmitigated disaster, if ever realized -- will give him a bit of a bump. It is, after all, what Republicans love to hear, and what they so firmly believe in.

Why the GOP is f***ed in 2012

By Nicholas Wilbur 

The future of the Republican Party rests on the shoulders of one candidate. Unfortunately, not even the Republican Party has any idea who that candidate will be. 

The long list of potential, possible, likely and too-stupid-to-calculate-basic odds second-string presidential hopefuls include: a flip-flopping Mormon with a soft spot for government-run health care; a libertarian advocate of legalizing heroin and prostitution; a perpetually stoned former governor from a state most Americans don’t know is part of the union; another Mormon (this one who worked for a socialist as ambassador to communists), a paranoid Constitutionalist whose followers have threatened to rape a high school girl who challenged their candidate’s knowledge of America’s founding documents; an evangelic whose last name has come to mean “the frothy mixture of lube and fecal matter”; a hopelessly unattractive Minnesotan with no redeeming qualities other than his own self-awareness in admitting publicly that he’s boring; and a pizza maker.

Romney is ready to take on
supporters of Medicare. Other
potential GOP candidates,
 order your red man suits online today

With such a pathetic roster of uninspiring candidates, the Republican Party was more than happy to leave the media spotlight for a weekend as the perpetually campaigning Mama Grizzly from the Upper One state launched a Memorial Day “Rolling Thunder Magical Mystery Bus Tour” along the east coast. Riding into DC on an all-American hog and dressed in full leathers, the still unpopular, still unqualified former half-term governor of the Great Frontier, who sold her soul to Rupert Murdoch in order to prolong her short-lived 2008 Mama Grizzly publicity tour, kept the limelight burning for one last-ditch effort to sell some books and boost her public image before the media finally catches on and permanently turns the cameras away from the publicity hound and onto the real, equally hopeless but nonetheless inarguably “legitimate” candidates for the presidency. The most that will come of this magical bus tour is a Fox News segment on patriotism and motorcycles – and possibly a sequel to Hustler’s 2008 porn flick “Nailin’ Paylin.” (“Nailin’ Paylin Part II: The Bang Bus Tour,” or maybe “Paylin Does Pennsylvania.”) 

Whomever the GOP trots out as the next “savior of the party” better come equipped with a red man suit, a dog-eared copy of “How to Win Friends and Influence People,” and either Scott Brown’s Cosmopolitan centerpiece photographer, Brad Pitt’s personal trainer or Bristol Palin’s cosmetic surgeon – because he’s going to have a lot of heartened hearts to soften before Election Day. 

Between near-riotous town hall meetings prompted by Rep. Paul Ryan’s plan to “voucherize” Medicare, the party’s backing of anti-union laws, and the continuous state- and federal-level efforts to defund family planning services and undermine women’s right to choose, the Republican Party’s presidential nominee will face the seemingly impossible feat of convincing retirees, women and laborers – not to mention the unemployed, the LGBTQ community and college students fighting for grants and scholarships – that the GOP cares about more than securing the votes of the Tea Party base. 

Then, of course, there’s the question of party’s post-primary strategy: how will he (or, less likely, she) go toe to toe with the supercandidate (and popular incumbent) Barack Obama, who enters the race with the political equivalent of a Seal Team 6 campaign apparatus? President Obama – the Commander in Chief who captured and killed Public Enemy No. 1, the international uniter, the eloqutionist and the level-headed pragmatist – is already salivating at the prospect of debating a presidential challenger about the fiscal ramifications and social consequences of continuing tax cuts for millionaires, abolishing the health care reforms that stopped insurance companies from dropping coverage on a whim and bankrupting families without mercy, eviscerating the social safety net for seniors and the poor through radical changes to Medicare and Medicaid, holding hostage federal funds for disaster relief to ravaged states until Democrats embrace more budget cuts and every other radically unpopular policy the GOP has pushed since 2010. 

All of this is to say that the candidate Republicans nominate to face off against Obama in 2012 won’t be a candidate who is capable of actually winning. There is no such candidate. Not even in the party’s wildest, homoerotic political wet dream does such a candidate exist. But that isn’t what the 2012 race is all about. If Republicans are smart (a rhetorical question if there ever was one), they’ll take advantage of the free publicity, use the opportunity to train a future leader in the art of presidential campaigns, save the estimated $1 billion they’ll have to spend in order to make a dent in the Obama incumbency, and use 2012 as a primer for the only election race in which they have a fighting chance: 2016.

(Cross-posted at Muddy Politics.)