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Dissecting the debt-ceiling/deficit deal

By Josh Richman
Monday, August 1st, 2011 at 12:15 pm in Obama presidency, U.S. House, U.S. Senate.

The debt-ceiling and deficit reduction package on which Congress will vote later today “removed the cloud of uncertainty that was over our economy” and paves the way for further, balanced debttt reduction later on, a top White House aide said a few minutes ago.

On a conference call with reporters, David Plouffe – senior advisor and assistant to President Barack Obama – said the bipartisan “supercommittee” this package creates will have until Thanksgiving to come up with a plan that will mix spending cuts with tax reform, possibly including closing corporate tax loopholes and raising taxes on the nation’s wealthiest.

Asked why anyone should believe this panel will succeed in accomplishing what so many others have failed to do – devising a plan that can get enough votes in Congress plus the President’s signature – Plouffe replied that this commission isn’t starting from square one. Its work will be based in part on frameworks already established by the National Commission on Fiscal Responsibility and Reform and in the more recent, direct talks between the President and House Speaker John Boehner.

National Economic Council Director Gene Sperling noted that when the Senate’s “Gang of Six” recently advanced a plan with even more revenue than the President had sought, as many as 15 to 20 Republican senators appeared ready to sign on. Poll show the public wants a balanced approach and experts say it’s the only way to go, Sperling said, so Republicans in both chambers will have to realize they can’t put an undue burden of deficit reduction on the nation’s most vulnerable if they want to see it become law.

But voices at both sides of the political spectrum are crying foul. Lots more on that, after the jump…

Adam Green, cofounder of the national Progressive Change Campaign Committee, noted his group’s website attracted more than 200,000 people pledging to volunteer for and donate to Democrats in 2012 who oppose cuts to Social Security, Medicare and Medicaid; he also noted 87 House Democrats signed a Congressional Progressive Caucus letter opposing such cuts.

“This deal will kill our economy and is an attack on middle-class families,” Green said in a statement issued this morning. “It asks nothing of the rich, will reduce middle-class jobs, and lines up Social Security, Medicare, and Medicaid for cuts. Today, we’re putting in thousands of calls to Congress urging Democrats to keep their promise and oppose this awful bill. The 14th Amendment is unambiguous, and President Obama should invoke it to pay our nation’s debt. Then Democrats should focus on jobs — not cuts — in order to grow our economy.”

Some say this whole thing was an enormous, distracting waste of time.

Dean Baker, co-director of the Center for Economic and Policy Research, issued a statement saying these weeks of negotiations on the debt ceiling and this deal “show what happens when a small minority is allowed to gain control over national debate.

“While polls consistently show that the vast majority of the public sees jobs as the main problem facing the economy, there has been a well-funded crusade to ignore public opinion and make cuts to social insurance programs and other spending the top priority for Congress and the President,” Baker said. “To further this effort, the anti-deficit lobby has been willing to rewrite the history of the downturn and the deficit. The data clearly show that the large deficits of recent years follow from the downturn caused by the collapse of the housing bubble. Prior to the downturn, the deficits projected for 2009 and subsequent years were relatively modest. In fact, even with the tax cuts, the cost of the wars, and the Medicare prescription drug benefit, the debt-to-GDP ratio fell from 2004 through 2007.”

Meanwhile, some conservatives say the deal didn’t go far enough.

“The Boehner-Reid plan, at best, will result in a further increase in the national debt of $7 trillion. It cuts only $6 billion for next year out of a budget that will spend literally over 600 times that, so it’s no wonder it has been widely criticized by fiscal conservatives,” Peter Ferrara, the Heartland Institute’s senior fellow for entitlement and budget policy, said in a statement issued last night.

“These budget debates make no sense because of ‘baseline budgeting,’ which builds in trillions in automatic increases in the budget, and then calls any reduction in that runaway increase a draconian cut in spending,” he said. “The first step on the road to fiscal sanity would involve repealing baseline budgeting so discussions about the federal budget would sound more like discussions about the family budget.”

UPDATE @ 2:27 P.M.: The hour draws nigh, and the outrage continues: Both the liberal National Nurses United, an Oakland-based union 170,000 members strong, and Americans for Limited Government, a Virginia-based conservative group, urge Congress to vote against the deal.

“At a time of the worst economic crisis facing our country in decades, it is disgraceful that Washington continues to ignore the deep pain in Main Street communities across the nation, and instead is pushing a plan for more punishing cuts that will only worsen the crisis,” NNU executive director Rose Ann DeMoro said in a news release. “What this latest deal does is make those who vote for it a full partner in the discredited theory that our economy is in free fall because of public spending on programs that help people, and kicks the can further down the road on real solutions that are needed to promote genuine recovery.”

DeMoro said the President “could avoid this current high wire act by invoking the 14th amendment to raise the debt ceiling, as many have proposed, and start this process over with solutions designed to address the real economic problems facing American families.”

Meanwhile, ALG President Bill Wilson sent a letter to Congress saying the deal “risks an unprecedented credit downgrade of the nation’s vaunted Triple-A credit rating, the continued weakening of the U.S. dollar as the world’s reserve currency, and higher interest rates.”

The $900 billion in spending cuts won’t go far enough to restore the nation’s financial security, he wrote, noting the government projects the economy will nearly double in the next ten years.

“But with anemic growth of 0.4 percent in the first quarter, and 1.3 percent in the second, we are nowhere near that pace,” Wilson wrote. “With assumptions so unrealistic, the mere $900 billion in savings under the bill will be easily erased by the slowing economy and lower-than-expected revenues,” Wilson predicted.

As for the commission this deal would create to pursue further deficit reduction later this year, “(t)he American people elected you to make these decisions, not convene another rigged commission whose findings will never be adopted,” he wrote.

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  • Elwood

    I’m predicting that it will be cold snowy day in hell when a tax increase recommended by “the commission” is approved by both houses of Congress and signed into law by O’bummer.

    I hear there’s an election in 11/12.

  • John W

    The only way a tax increase happens is if Obama is willing to let all the Bush tax cuts expire automatically. Anything else requires Congressional approval — getting by a GOP House majority and certain filibuster in the Senate.

  • RR, senile columnist

    Yep, jest kickin the ol can down da road

  • Elwood

    Who cares what the rating agencies do?

    Aren’t these the same rating agencies who fell all over themselves to give AAA ratings to bundled securities of bad mortgages? And to Fannie Mae and Freddie Mac?

    Their credibility is zero.

    If you want to see what the markets think of US debt, look at the yield on the 10 year treasuries: 2.77%

  • Elwood

    Dow falls 266.

    Great debt ceiling crisis is over.

    Market realizes O’bummer and his minions haven’t got a clue.

  • Elwood

    10 year treasury yield down to 2.66% today.

  • John W

    Bring Romney out of the “Mittness Protection Program,” so that he can reveal to us all the wonderful things he will do to invigorate our economy.

    Except for a few years of the Un-Real Estate/Mortgage securitization economy, we have not had meaningful economic growth in 21 years.

  • Elwood

    Not a clue.

  • John W

    So, Elwood, please share your wisdom. As newly elected President Elwood, sworn in January 20, 2009, you have inherited an economy falling like a rock due to a man-made financial meltdown crisis. Debt on that day is about $10 trillion, with another trillion or so already “baked in” for your first year in office. What plans will you be announcing in your inaugural address?

  • Truthclubber

    John W — why do you bother with this ideological handwanking with these FAUX News stooges (Hellwoody and Arr, Arr)?

    Don’t you get it by now that they are paid members of the FAUX News “50 Cent Army” merely trolling endlessly on the Rovian “message of the day”, regardless of the pearls of wisdom you might spin?

    There is a great scene at the end of the movie “War Games” where the demonic supercomputer finally realizes (after playing to the death every possible thermonuclear war scenario against the Russkies) that “…the only way to win the game…is NOT to play.”

    So, my moderate friend — why do YOU continue to play?

    Why not just attack them as the trolls that they are, and eventually force them to find another bridge to hide underneath, as I am doing?

    Notice how they despise my very being on this blog, and try (without success) to denigrate me as some imbecile unworthy of the rarified intellectual plane they claim to own?

    They have such thin skins — because they are massively insecure trolls who merely parrot what Rove sends them as the “message du jour” — so attack them as having no real message — just “attacking the messenger”.

  • Elwood

    @ toothsucker

    Help is available for your problem.

    Medication, therapy and long term institutionalization would seem to be indicated.

    Someday you might become rational.

  • Elwood

    I didn’t run, I wasn’t elected, so I don’t have to have a plan.

    Neither, apparently, does the O’bummer administration.

  • John W

    So, you see, Elwood, you and President Obama have something in common after all. You believe he has “not a clue.” And based on #12, neither do you. How’s the weather up there in the cheap seats?

  • Elwood

    Well, I have lots of company in my belief that the O’bummer administration is clueless.

    Do you follow the financial markets at all?

    Dow down 46 at this posting.

  • John W

    Re: #10

    “Why do you bother with…the FAUX News stooges.”

    Because

    (a) I am, as one commentator put it, “an eternal optometrist,” that if people with different points of view engage in dialog, eventually they will find at least some common ground;

    and (b)it gives me something to do between flossing.

  • John W

    Re #14

    Yes, Elwood, you do have lots of company on that point, including critics on Obama’s Left. But at least some of these people have their own ideas on what they think Obama should be doing about the economy.

    As for the markets, yes, I follow them enough so that I reduced my equities to 15% of portfolio before the market dip. And the market value on my bonds is up about $40k over face value due to diving interest rates. Why do you ask? Need some investing advice? Buy porkbellies.

  • Elwood

    I have all my money invested in kumquat futures.

    A few million more kumquats and I can control the market!