US Politics: Much Ado about Debt Ceilings, Balanced Budgets...and Shutdowns

On Tuesday, Rep. Paul Ryan (R-Wisc) released "A Path to Prosperity'" the Republican blueprint forreforms of the United States budget. The House Budget Committee, which Rep. Ryan chairs, will begin studying the document on Wednesday. After that predictable rubber-stamping process, Rep. Ryan's ideas will got to the House of Representatives for legislative consideration. Then, following a stormy debate on what some are calling the most important possible changes to the American economy in a generation, the "Path to Prosperity" will proceed largely unchanged the Senate for their approval.

And that is where the wheels will come of the Ryan bandwagon. His counterpart in the Senate Budget Committee, Sen. Kent Conrad (D-ND), released a statement on Tuesday which begins, “Representative Ryan’s proposal is partisan and ideological. He provides dramatic tax cuts for the wealthiest, financed by draconian reductions in Medicare and Medicaid. His proposals are unreasonable and unsustainable.” The rest of Sen. Conrad's remarks offer little encouragement that the Democrat-controlled Senate will consider adopting even the most inconsequential of ideas in Rep. Ryan's plan.

That is the conventional wisdom regarding the immediate future of the "Path to Prosperity", and events may well happen as predicted. But there is one potential spanner in the works. Rep. Ryan has said that he will link consideration of his budget proposal to the imminent, incendiary discussions that will take place in Congress over raising the debt limit of the Federal Government.

With Treasury Secretary Geithner warning of a financial Armageddon if the debt ceiling is not raised soon, and Ryan insisting on the price the Administration must pay for Republican support for increasing that ceiling, it will be a stormy time ahead in Washington.

The turmoil in Washington does not stop there. This Friday, at midnight, the latest continuing resolution funding government operations expires. The consequence of Congress failing this week to agree on a budget for the remaining six months of this fiscal year, or not passing yet another temporary spending bill, is a government shutdown. With no funds, non-essential agencies will be forced to cease providing services. Or, as the House Administration Committee cutely terms it, a “lapse in appropriations” will mean government offices will not not open their doors on Monday.

Opinions diverge over which government services should be considered as essential. The military continues to operate, with Congress scrambling frantically this week to pass measures that ensure that America's troops continue to get paid in case of a shutdown, but other federal departments cannot make the claim of being essential to America's national security. Take, for example, the National Institute for Health, which stopped taking hotline calls about the spread of diseases in the shutdowns of 1995-6.  

The Government has been reticent in disclosing what services it has deemed as essential in its contingency plans. The Office of Management and Budget has refused to reveal which government operations it has "excepted" from closure because they effect national security, foreign relations, or the safety of life and property, a policy which The Hill reports is “frustrating many federal employees and federal worker union leaders who say the silence is causing confusion in the ranks".

However, if a shutdown does take place, it is likely to be a quick one. It has never taken Congress this long to agree on a budget, and with more consequential disputes on the horizon, there is a sense emerging that a deal must be done so that attention can turn to other matters. As Sen. Tom Coburn (R-Okl.) explained in a hard-hitting article in Monday's New York Times, Congress is bickering over a difference in cuts in discretionary spending amounting to $29 billion, while “ our grotesquely obese government is borrowing $4.1 billion a day in order to function". Though Sen. Coburn does not use the metaphor, the politicians fiddle while America burns. 

Coburn emphasises that two upcoming debates must shape the future of how the United States discusses its deficit problem: the first over the serious plans in the Republican 2012 budget resolution to cut spending, and the other the  impending bump against the debt limit. He asks colleagues from both sides of the aisle to join him in confronting America's “impending financial peril" and concludes by noting that he has “confronted the phony purists on my side and need partners on the left to confront the same on theirs". It will not be a popular mission, he warns, but he contends that “we will never address these challenges without putting everything on the table and making choices that may end careers”.

On Monday, Sen. Jim DeMint (R-SC) also issued a statement claiming that America needed a principled stand from its politicians, “even if it means sacrificing their political careers.. In his case, however, the subject worth the price was a balanced budget amendment. In the venal world of politics, such calls for a noble self-sacrifice are hardly commonplace, and even recognising that they exhibit a certain rhetorical overture, such claims from members of the world's "greatest deliberative body" still warrant some examination.

First, the debt ceiling. On what turned out to be a busy Monday, Treasury Secretary Geithner sent a letter to Congress informing them that the United States would reach its statutory debt limit of $14.3 trillion by no later than May 16. This figure comprises just over $9 billion of public debt –-- money owed to private investors, foreign governments, etc. --- and $5 billion of intra-governmental debt; money borrowed from government funds like the Social Security Trust. Using some accounting gimmicks, the government could continue to fully meet its obligations for a further eight weeks but, Secretary Geithner warns, if the debt limit is not increased by July 8 the resulting financial crisis will dwarf that of 2007-8.

And he explains how the issue is not an academic or esoteric economic debate. The immediate effect of not raising the debt limit he explains would be that “a broad range of government payments would have to be stopped, limited or delayed, including military salaries and retirement benefits, Social Security and Medicare payments, interest on the debt, unemployment benefits and tax refunds". This leads to the crucial point of the letter: increasing the legal limit for borrowing would only allow the United States to meet its existing obligations such as the payments above. It would not give the government free rein to add to America's spending level, just meet the requirements already enacted in law.

Secreatry Geithner then proceeds to outline the reasons why nothing short of raising the debt limit would avert the potential crisis. He dismisses notions such as selling American assets, like gold, as being nowhere near enough to meet America's debt payments, and similarly rejects the contention that measures designed to increase revenues or cut spending could avert the need to raise the debt ceiling. His overriding warning is that the United States faces an immediate catastrophe that can only be thwarted by an immediate response like increasing the debt level. To underscore this point, Secretary Geithner quotes from a February report by the Congressional Research Service which cautions that not increasing the debt limit would mean the government would have to eradicate the annual deficit instantaneously:

[To] put this into context, the federal government would have to eliminate all spending on discretionary programs, cut nearly 70% of outlays for mandatory programs, increase revenue collection by nearly two-thirds, or take some combination of those actions in the second half of FY2011 (April through September 30, 2011) in order to avoid increasing the debt limit.

THis leads back to the balanced budget amendment, because Republicans --- and that means all Republican senators in this case --- are threatening that they will only agree to raising the limit if this long-term solution to the debt problem is also passed. In Monday's announcement, released through his Senate Conservatives Fund PAC, Sen. DeMint enthused that the current debt ceiling crisis is a ”once-in-a-lifetime opportunity” to enact the amendment, and “win a major victory for the American people and begin the process of stopping the massive spending, takeovers and debt that are destroying our country.” Sen. DeMint then sets out the strategy for winning over the nine Democrats whose votes prevented the passing of the amendment last month, and sends out the stark warning that “It's balance, or bust. No BBA, no debt limit increase.”

The amendment has three simple components. It would make Congress balance the budget each year, ensure excessive spending was not part of that equation by limiting it to 18% of GDP, and would prevent tax increases. To enforce the three proposals in the future, the amendment requires a two thirds super-majority vote in both the House and Senate to change them.

But nothing is ever as simple as it first seems in politics. A Center on Budget and Policy Priorities report on the amendment, among a list of other criticisms explains:

It says spending in any fiscal year may not exceed 18 percent of the GDP of the previous calendar year (i.e., the calendar year that ended before the fiscal year began). Using CBO’s economic assumptions, in the first five years that the amendment would be in effect, the amount of spending allowed would average 16.7 percent of the current year’s GDP.

And to illustrate how that would lead to “Draconian Spending Cuts,” the report notes that the last time federal spending was below 16.7 percent of GDP was 1956:

Medicare and Medicaid did not exist and millions of workers (including many low-income and minority workers) were excluded from Social Security. Federal aid to education barely existed. Most federal environmental protection did not exist. Nor, for that matter, did most basic programs to ease poverty and hardship such as Supplemental Security Income for the elderly and disabled poor, food stamps, and the Earned Income Tax Credit. More than a third of elderly Americans lived in poverty, infant mortality was far above today’s levels, and rates of child malnutrition in some areas of the country approached those of Third World nations.

This, to return to Rep. Ryan's "Path to Prosperity", is why you will hear over the coming weeks some conservative criticism of his blueprint. Rep. Ryan has set his target spending figure at just below 20% of GDP by 2018, with next year seeing 22.5% of GDP spent by the government. The differences are such that Rep Ryan's recommendations will still see the deficit actually rise over the next few years, before falling to $385 billion in 2021. Those are hard numbers for conservatives to stomach, which is perhap, why he recently added a proposal by the Republican Study Committee to limit the open-ended nature of the food stamp program.

So this week we might see a shutdown. Enhancing that possibility is the pledge by the House Republican leadership that all bills will be made available for public perusal 72 hours before a vote. And what happens then, other than the closing of the National Parks and the temporary holdup in Social Security applications, is unknown.

It could be a long weekend in Congress as they rush to pass some form of spending bill before the full ramifications of a shutdown occur on the Monday. It is no coincidence the Republican 2012 budget blueprint was released this week, as it gives the more moderate GOP leadership the leverage to persuade its more conservative members to swallow unacceptable levels of cuts in this year's budget to concentrate on the much bigger battle over Medicare and Medicaid spending ahead. Buttressing that likelihood is the fact that Congress goes into recess on the 15^th, and members will undoubtedly want to start discussing Rep. Ryan's ideas for 2012, the debt ceiling, and the balanced budget amendment before then.

But perhaps the most interesting development on Monday came in an announcement from the White House. It is not the one that President Obama is now officially a presidential candidate for 2012, but the news that he would host congressional leaders for budget talks on Tuesday. Progressives have not been shy in criticising the president for failing to stand up for their priorities and leading Democrat opposition to Republican plans to drastically cut spending. As E.J. Dionne chided in the New York Times on Monday while dissecting "Ryancare" and entitlement spending reforms:

And you wonder: Will President Obama welcome the responsibility of engaging the country in this big argument, or will he shrink from it? Will his political advisers remain robotically obsessed with poll results about the 2012 election, or will they embrace Obama’s historic obligation — and opportunity — to win the most important struggle over the role of government since the New Deal?

President Obama has begun participating in the talks over the budget impasse and has vowed to stay involved until a compromise is reached. But the question still remains whether he will take up the mantle of progressive leader he discarded, in favour of the middle ground, when the much more weighty matter of debt ceilings and entitlement reforms take centre stage.