The debt ceiling looms. Confusion reigns. Schemes abound. We are deep in a hole with, as of now, only three ways out: the McConnell plan, the G6 plan, and the Half-Trillion plan.
● The McConnell essentially punts the issue till after Election Day 2012. A good last resort if nothing else works.
● The G6, proposed by the bipartisan Gang of Six senators, reduces ten-year debt by roughly $4 trillion. It has some advantages, even larger flaws.
● The Half-Trillion raises the debt ceiling by that amount in return for an equal amount of spending cuts. At the current obscene rate of deficit spending — about $100 billion a month — it yields about five months respite before the debt ceiling is reached again.
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In my view, the Half-Trillion is best: It is clean, straightforward, yields real cuts, averts the current crisis, and provides until year-end to negotiate a bigger deal. At the same time, it punctures President Obama’s thus far politically successful strategy of proposing nothing in public, nothing in writing, nothing with numbers, while leaking through a pliant press supposed offers of surpassing scope and reasonableness.
As part of this pose, Obama had threatened to veto any short-term debt-ceiling hike. Which has become Obama’s most vulnerable point. Is the catastrophe of default preferable to a deal that gives us, say, five months to negotiate something more significant — because it doesn’t get Obama through Election Day?
Which is why Obama is already in retreat. On Wednesday, press secretary Jay Carney showed the first crack by saying the president would accept an extension of a few days if needed to complete an already agreed upon long-term deal.
Meaning that he would exercise his veto if that larger deal required several months rather than several days? Call his bluff. Let the House pass the Half-Trillion. Dare him to put America into default because he deems a short-term deal insufficiently grand. After all, it dovetails perfectly with parts of the G6, for which the president has expressed support and which explicitly allocates roughly the same amount of time — six months — to work out the grander $3–$4 trillion deal.
The G6 conveniently comes in two parts. Part One puts immediately into effect, yes, a half-trillion dollars in cuts, including a more accurate inflation measure (that over time greatly reduces Social Security costs) and repeal of the CLASS Act (the lesser-known of the two new Obamacare entitlements, a fiscally ruinous, long-term care Ponzi scheme).
Part Two of the G6 is far more problematic. It mandates six months of committee negotiations over the big ones — Medicare, Social Security, discretionary spending caps, and tax reform. Unfortunately, the Medicare and Social Security parts are exceptionally weak — no mention of any structural change, such as raising the eligibility age to match longevity. As for the spending caps, I wouldn’t bet my dog’s food bowl on their durability.
On tax reform, the G6 calls for eliminating deductions, credits, exclusions, and exemptions to reduce rates across the board. The new tax rates — top individual rate between 23 percent and 29 percent — would bring us back to Reagan levels (28 percent). This would be a good outcome, but the numbers thus far are fuzzy and some are contradictory. Moreover, those negotiations have yet to begin.
In principle, however, if the vast majority of the revenue raised by closing loopholes goes to rate reduction, and if the vast majority of the net revenue raised comes from the increased economic activity spurred by lowering rates and eliminating inefficiency-inducing loopholes, the trade-off would be justified. We shall see.
What to do now? The House should immediately pass the Half-Trillion plan, thereby putting something eminently reasonable on the table that the president will have to address with a serious counterproposal using actual numbers. If the counterproposal is the G6, Republicans should accept Part One with its half-trillion dollars in cuts, CPI change, and repeal of the CLASS Act, i.e., the part of the G6 that is enacted immediately and that is real. Accompany this with a dollar-for-dollar hike in the debt ceiling, yielding almost exactly the time envisioned in the G6 to work out grander spending and revenue changes — and defer any action on Part Two until precisely that time.
The Half-Trillion with or without the G6 Part One: ceiling raised, crisis deferred, cuts enacted, and time granted to work out any Grand Compromise. You can’t get more reasonable than that.
You're making far too much sense. No one in D.C. would go for the ridiculous idea of restraining themselves to living within our means.
After all, they have enjoyed decades of wild spending on things that benefit the well-connected and serve only the re-election chances of the lazy hacks in Congress and the White House.
I still maintain that every government agency established after 1960 should be shut down immediately. Likewise, staffing and perks for our "servants" should be cut drastically, as should their ability to spend on anything but basic needs (defense, etc.) that lie within the Constitution's mandates.
Finally, if the millionaires and billionaires in D.C. want to talk about "sacrifice" (and they all do), let them lead by example: raise the tax rate on Obama, Pelosi, et. al. to 90%, withdraw their lavish freebies, and see if they can live like normal citizens without our money. I might believe them after that. Or not.
I agree. We should stop holding Obama's feet to the fire until after the elections. Then after he is reelected in 2012 we can get a really good agreement out of him.
So America can't immediately balance its budget without creating an economic catastrophe?
Let's rewind the clock to the end of world war II for a little historical perspective on this matter.
Federal spending was 41 percent of GDP. Many worried that drastic cuts in spending would lead to a disaster with millions of government workers and soldiers and others involved in the war effort becoming unemployed.
Remember, America had been in a long depression just before the war, with unemployment rates soaring about 20 percent in the 30s. It was just below 9.6 percent right before the war.
In 1945,39.5m Americans worked for the government, directly or indirectly through the war effort. Only 59.5m were not involved in the war effort. So concerns about massive unemployment seemed plausible.
But what happened?
But Truman slashed spending anyway from 41 percent of GDP in 1945 to 26 percent in 1946. He slashed it again the next year to 14 percent of GDP.
Meanwhile, 30m workers left the war effort and 29m of them went to work in the private sector in 1946. Unemployment was at 2.6 percent in 1946. Another 3.5m workers left war effort the next year and again most of them went to work immediately the private sector, with unemployment rising slightly by 1948 to 3.9 percent.
America entered a Golden Age. War workers got married, bought houses, and had children, starting the baby boom.
So don't talk to us about economic catastrophe. We already have that now. It's called out of control federal spending and obscene tax rates.
What was the size of the welfare state immediately following WWII? As of 2006, Medicare and Social Security alone made up 1/3 of the entire federal budget.
And therein lies the problem. Entitlements are the colossal elephant in the room that Republicans and Democrats alike are scared to death of seriously addressing. For Democrats it means relinquishing their iron grip on the poor and minority vote. Republicans fear it will drive the oldsters and independents permanently into the Dem camp.
Everyone knows the hard work that has to be done, and nobody in the political class has the courage to sacrifice their fortune and sacred honor to do it.
Immediate cuts in return for a short term increase in the debt ceiling could be acceptable if the cuts actually are immediate. Getting rid of another profligate Ponzi program in the Class Act (of which I am unfamiliar) would be good, but this would not represent immediate cuts. Herein lies the problem. The cuts are never real. My hard earned cash is. Government borrowing is going to make my savings based on years of prudent living vaporize with inflation.
Yep. Just give the GOP enough time and they will negotiate away every advantage they have.
The public gets this problem. We can get our heads around what has to happen to resolve it. We understand there are only two options - fix it or implode. We have the back of those who will take it on, and we are taking names of those who would only make it worse.
The Left know their approach is polling poorly, why do you think they have made "concessions" and altered their stance?
And unlike those that came before them, at least a portion of Republicans/Conservatives learned a lesson from the 2011 budget fiasco.
I favor the Krauthammer plan and, yes, the cuts would have to be front-loaded in FY 12 in real time. But the GOP must wait a few more days and let the Senate stew in its own dysfunction, with the GOP attacking Reid and Obama every day for having no plan, not ten cents in spending cuts in writing. The Democrats are absolute liars, they have offered nothing, they are unwilling to share ANY cuts publicly - and the MSM is their enabler, which is disgusting.
Send this bill to Reid and dare him to allow his handmaidens to filibuster it.
Bottom line is this: S&P did the GOP a huge favor yesterday by warning that they could care less about a phony deal; if the deal isn't real, the credit will be downgraded within 90 days. If that happens, Obama is toast.
@Michelle27 "Don't you just love the way Charles Krauthammer completely ignores and dismisses Cut, Cap and Balance? Nice man, I'm sure, but such an elitist."
Maybe he's "ignoring" Cut, Cap & Balance because (1) The Democrats can prevent it; and (2) a balanced budget amendment would have to be ratified by the states, which isn't going to happen in the next 4-5 months (even if it gets sent out).
What? The balance part has no prayer of passing - unless it is written such that it can create mandatory tax increases to balance a budget. That doesn't sound like a very nice idea to me.
I have a novel idea - how about just hold our elected representatives accountable to act like adults.
You know - for all the grief Boehner gets on this board - I think he has steered himself into a pretty nice situation.
As a consumer, once I've maxed out my credit cards, the issuers act swiftly to deny me any further borrowing. My credit rating also gets hammered, and deservedly so. Makes sense to me.
As a business, once I've exhausted my lines of credit, I'm also cut off by the lenders until I can prove - by tangible demonstration of more prudent fiscal management - that I deserve to have my borrowing ability restored. Again, that makes sense to me.
However, when our federal government can lend itself money freely - and then squanders it irresponsibly and dissolutely - Moodys and S&P are horrified to see them reaching their own borrowing limit. Their rational response? Extend a few more trillion or so to it, or else.
I can't think of any better example that absolutely proves the existence of alternate universes. Politicians, liberal economists, and financial rating agencies have gone where quantum physicists can only dream to go.
Michele27 noticed what I noticed. He is ignoring "C,C,B"...and for a good reason, because he knows Boehner and McConnell can't pass it now. Even some Senate Repubs are leery of it, despite what they say. (Oh, sure they'll vote in lock-step to support it...and then breath a big sigh of relief when the vote goes against them.)
Possibly he hopes that after a few months, the GOP can get their P.R. machine up and working and sell it and get some Blue Dog Dems to support it. Or atleast he knows that to "punt the ball" (which is what his plan is, as much as McConnell's Plan) is their only option to even try to change the polls and public opinion, which have gone sour quickly.
A half a trillion here, a half a trillion there, pretty soon we're talking about real money......NOT. But Jay Carney said the economy is doing splendidly, its just not doing splendidly fast enough. You can put lipstick on a leech, Jay, but if it is sucking you dry, its still a leech.
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