The Sad Sad Nature of the Debt Ceiling Debate

This is a truly sad time to be an American.  One cannot help but watch the current squabbles over the funding of the government and the debt ceiling without feeling both helpless and deeply disturbed.  A few of the more disturbing points to me are:

1. We are, at this point, mostly fighting over issues that don't matter on the budget side.  As near as I can tell, the budget debate boils down to a fight over the ACA medical device tax which is irrelevant from a budgetary perspective and a debate over whether we will spend less than $10 billion (or 0.3%) more or less in terms of the sequester caps.
2. The "settled law" and various other stand on principal points are falling apart.  The death knell here was when the Senate refused to consider the Collins/Manchin bill because it "extended the BCA caps for too long."  But of course, the BCA is settled law every bit as much as the ACA is.  Neither side is fighting for a principal here, naked political power is all there is.
3. The debt ceiling itself is awful and untouchable.  We are debating the length of a debt ceiling extension when pretty much everyone, at least on the Democratic side, believes the debt ceiling is stupid.  Where's the proposal to eliminate the debt ceiling entirely?  Well, it turns out Americans like the debt ceiling so we avoid doing the right thing in order to do the stupid thing.

I have no doubt that eventually we will sort this out in a way that kicks the can a little bit down the road, poisons the process further, and reveals how devoid of principle the entire process is.

It's simply sad to have to watch it.

Almost but Not Quite

Well, House Republicans are getting closer.  They've figured out that they need to pass a debt ceiling increase but they haven't figured out how to do it yet.

When you compare their approach to what I've suggested, you'll see two key deficiencies in their proposal.

1.  There's no principal behind the budget increase.  Validating the principal of raising the debt ceiling to cover committed funds is important and something that is clearly missed in the three month extension.

2.  Pushing the Senate to pass a budget resolution is a good idea but the enforcement mechanism (withholding pay) does nothing to ensure future debt ceiling increases proceed apace.  Rather tying future increases to the deficits in the budget resolution ensures a long-term solution to the problem as well as a short term one.

Congress is losing the opportunity to reform the way we design and execute the debt ceiling.  This is an opportunity that should not be lost.

A Potential Solution to the Debt Ceiling

I'd like to take one argument that I have heard a lot of folks, particularly on the left make, and use that to make an argument about how we might manage the debt ceiling.  First the argument and what I think is wrong with it.  You can find a simple version of it here.  Trying to ignore some of the invective, the crux of the argument is:

Obama has said he will not negotiate over the debt ceiling increase.  Good…I hope he sticks to that, because the debt ceiling shouldn’t be something that ever needs to be negotiated.  It shouldn’t even need authorization by Congress, it should simply be required that the U.S. Treasury have the capability to always pay the bills that Congress has already authorized.  The “trillion-dollar platinum coin” issue has been making the rounds as an option for Obama to bypass Congress if the GOP continues to play with economic disaster by making the debt-ceiling a political football. 

Now, the part of this statement is true is that Congress has already authorized spending that will push us above the debt ceiling but, in point of fact, it hasn't authorized very much, probably less than $300 billion.

1.  The Senate has not proposed and Congress has not passed a budget in more than 3 years.  Thus, there is no agreed upon spending blueprint for FY2013.

2.  The government is currently being run via a series of continuing resolutions.  The latest CR expires in March of 2013

3.  Assuming Secretary Geitner was correct that we hit the current ceiling on 12/31/12, this means that Congress has agreed to run the government for about 3 months post the passing of the ceiling.  Leaving aside timing effects, this means that the government would have about 1/4 of the annual deficit of say $1.1 trillion or about $275 billion to cover.

So yes, the government has agreed to spend $275 billion above the debt ceiling but not more than that.  Thus, the argument made by so many only justifies raising the debt ceiling by $275 billion.

However, there's the germ of a solution in the overall point.  I'd propose that Congress do the following.

1.  Immediately raise the debt ceiling by $275 billion dollars in what is called a "clean increase" of the debt ceiling.

2.  Attach an increase in the debt ceiling of whatever amount is required to the CR that much be passed prior to March 27.  In my view, I would increase the debt ceiling by 110% of the projected deficit created.

3.  Require that a debt ceiling increase be attached to each house's budget and that budget resolutions were the only way to raise the debt ceiling.  Thus, when each house passed its budget it would also be passing an increase to the debt ceiling and budget bills would be required to be passed, else the debt ceiling could not be increased.

4.  Finally, require a "true up" process at the end of every year.  That is, the ceiling could be adjusted for variance from projected costs and revenues but "only" for technical projections.  This could be done during the following year's budget process.

The consequence?  Well, the House, Senate and White House would have to agree on a budget (in order to increase the debt ceiling) and that increase would already be baked into law.  We might have to do some true ups when the economy tanks or thrives but, over time, those should cancel each other out.

Of course Congress would hate this because they'd have to pass a budget and they'd have to raise the debt ceiling showing how much debt they were adding every year.  But wouldn't this be much better approach to it than the current mess?

Why S&P Looks Silly

I'm really pretty stunned by the S&P downgrade.  I know they had threatened it but I didn't really understand why.  Reading through their report, I get three potential reasons for the downgrade.

1.  The reduction in debt wasn't big enough ($2.1 trillion instead of $4.0 trillion).

2.  The process was ugly (right up to the wire, etc., etc.)

3.  The Republicans are intransigent on taxes and the Democrats are intransigent on entitlements.

Let me take these one at a time in an effort to show that there's really nothing new here

The two sides of the debt ceiling discussion (and not the two you are thinking of)

I was thinking about the debt ceiling debate a bit (hey, isn’t everyone) and I started thinking about how I would vote on the Reid or Boehner plans and how I would explain my vote to someone and I concluded something that I haven’t seen written about much.

In short, there are only two principled (not political) stands on how to vote on the debt ceiling…either you vote yes on both the Boehner and Reid plans or you vote no on both of them.  Voting yes on one and no on the other serves no principle of which I can think.

The two most imporant things

The President delivered a press conference full of sound and fury today.  Rather than have a long debate about all he said, I want to focus on only two things.  I'm drawing from the WSJ transcript which accords with my memory of having heard it live.

"Show Me the Money"

Like every other political blogger in America, I wanted to write a post on the debt ceiling crisis.  Unfortunately, since this blog is supposed to be about facts, it's likely to be a pretty short post because there don't appear to be any facts.  There are lots of stories.  You can go pretty much anywhere you like to read them.  Someone offered this and it was rejected.  No they didn't, it was just a trial balloon.  Republicans won't accept any tax increases.  Well, maybe they will.  Democrats are going to reform entitlements.  No maybe they aren't.  Well, let's stick to the one fact we pretty much know.

Defaulting on the debt is both a really bad idea and really unnecessary.  That's the only fact we have.