Magazine article Policy & Practice

August 2, 2011, Is Not the Big One

Magazine article Policy & Practice

August 2, 2011, Is Not the Big One

Article excerpt

On February 18, 2010 President Obama signed an Executive Order creating the National Commission on Fiscal Responsibility and Reform to address the nation's fiscal challenges in this decade and beyond. The commission concluded that "The problem is real. The solution will be painful. There is no easy way out. Everything must be on the table. And Washington must lead." Erskine Bowles, one of the co-chairs of the commission testified before the Senate Budget Committee that the United States "faces the most predictable economic crisis in history," referring to the U.S. debt situation. This year will most certainly be remembered by the epic battle over how to address the "budget crisis" facing the country.

The debate on how to address the nation's debt has merged with the issue of the statutory debt limit. August 2 has become the symbolic date by which Congress must resolve its differences and produce a comprehensive strategy to address the most predictable economic crisis in history. This date was chosen by Treasury Secretary Tim Geithner, who warned that failure to raise the limit on the debt ceiling would be "disastrous." On May 31, 2011, the House of Representatives defeated a "clean" debt ceiling increase by a vote of 97-318. The bill consisted of one sentence of about 30 words. The bill failed because members felt strongly that any increase in the debt limit ought to be accompanied by at least a commensurate reduction in the debt. But until an agreement can be reached over how to reduce the debt, members of Congress will continue to remonstrate about how the other side of the political divide is acting irresponsibility, which only adds to the toxic environment that makes compromise even more difficult.

There is little question that by late July or early August, Congress and the President will somehow find a way to resolve what at first appeared to be irreconcilable differences and enact an increase to the debt ceiling to avoid national default on financial obligations (if only for a short while). The Speaker of the House John Boehner (R-OH) insists that any package must reduce spending equal to or greater than the increase in the debt ceiling. The President has indicated that he wants to increase the ceiling about $2 trillion (spread over 10 years), which would be enough to avoid having to face the issue again until after the 2012 elections. However, there is some indication that the final number may be closer to $1 trillion, which can be reached without making many of the more difficult political decisions about what programs to cut or how to increase revenues.

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The President's deficit reduction commission recommended a tax-and-spend package of about $4 trillion over the next 10 years. This was the target set by the Chairman of the House of Representatives' Budget Committee Paul Ryan (R-WI) in his budget resolution, which passed the House on April 15. Largely because of cuts in health and human services, and in particular major reforms in Medicaid and Medicare, the Ryan budget was greeted with scorn and demagoguery. It was eventually defeated in the Senate as was the President's budget. The Senate has been unable to pass any budget resolution. Consequently, the President asked Vice President Biden to chair a bipartisan, bicameral group to negotiate a compromise that would include an increase in the debt ceiling. As negotiations between Congress and the President materialized, the target for spending decreases and revenue increases focused on the $2 trillion level--only half of what the Presidential commission recommended.

Everyone is motivated to avoid a U.S. default on its financial obligations, as if that was the real problem facing the nation. It is not. The government added $5.3 trillion in new financial obligations in 2010, largely for retirement programs such as Medicare and Social Security. That brings to a record $61.6 trillion in unfunded liabilities not covered by any debt ceiling. …

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