Debt Ceiling Update: Painting the Roses Red

Posted on July 18, 2011. Filed under: Uncategorized | Tags: , , , , , , , , , , , |

JULY 18, 2011

House fiscal conservatives raised the stakes over the weekend by insisting on a series of votes designed to advance their “cut, cap, and balance” (CCB) strategy before consideration of any legislation that might avoid default on August 2nd. This strategy could generate some of the most extreme measures considered on the floor of the House in decades.

House leaders now want to cut $1.8 trillion from discretionary non-defense spending only within the next ten years, combined with a balanced budget amendment that would require a 2/3 vote in both chambers to enact any tax increase.

Strong enforcement measures being written into this proposal could force automatic sequestration of Social Security, Medicare, and Medicaid payments, university research funding, infrastructure financing, and other programs if spending cut targets aren’t met – all with no limit on defense expenditures. Such a proposal would have no chance at all of passing the Senate, and if it did, would be vetoed by the President.

If this approach fails, and it is being written to assure failure, there is no guarantee that the House can pass the McConnell proposal to allow the President to raise the debt ceiling.

On the Senate side, Reid continues to make progress in working with McConnell to modify his Plan B proposal in ways that can attract the 60 votes needed for Senate passage. This approach seems to have the most momentum at the moment, but still faces daunting odds in the House.

Some fiscally conservative Senators are holding out for a vote on their own version of “cut, cap, and balance”, including a balanced budget amendment, before Senate consideration of a modified McConnell-Reid bill.

But earlier today, Moody’s reiterated its threat to lower the U.S. credit rating based on the fact that the McConnell-Reid default fix, if enacted, still fails to address the long term structural debt problem.

Meanwhile, back-channel Obama-Boehner discussions continue about a “grand bargain of last resort” that could generate $4 trillion in savings over 10 years. However, such a huge deal would be likely to pass only in response to a precipitous drop in world markets. Is this a master strategy designed to make the most of an increasingly probable financial meltdown or a failure to face reality? Only time will tell.

Congress is now scheduled to waste most of this week on political grandstanding even before we get to a vote on the McConnell grenade toss designed to avoid default on August 2nd and “salvage the Republican brand”. The Democrats have yet to pass a budget, and the White House has yet to release details about its grand $4 trillion plan.

There is plenty of blame on all sides. Unfortunately, this totally predictable crisis is playing out in an environment that rewards brinkmanship and penalizes any agreement before the final minute of the doom’s day clock.

House Strategy

The latest version of the House Republican “cut, cap, and balance” proposal (CCB) would impose $1.8 trillion in cuts over the next 10 years, combined with a debt cap of 18% , or possibly 19.9%, of GDP by 2012.

This CCB proposal, if agreement is reached on the details, is scheduled for a vote in the House as soon as tomorrow. Watch the House Rules Committee website for more information on what amendments, if any, will be in order and what is included in the final version of this legislation.

This proposal, at least as currently drafted, probably will pass the House, but will not pass the Senate. U.S. age demographics are such that a 19.9% of GDP cap on the annual deficit would require major cuts to Medicare and Medicaid.

The CCB strategy also requires that a balanced budget amendment (BBA) to the Constitution be passed by both houses of Congress BEFORE House consideration of any increase in the debt ceiling, including the McConnell Plan B that “lets the President do it”.

To pass, a constitutional amendment requires a 2/3 majority vote in both chambers of Congress. This translates to at least 48 Democratic “yea” votes in the House. But the House BBA in the works now is being written to assure zero support from House Democrats, and possibly even some defections by moderate Republicans. Why write a BBA that is sure to fail and that sabotages the cap, cut, and balance strategy???

Conservative and Tea Party House Members will get to vote for tough spending cuts and a balanced budget amendment without having to vote for a debt ceiling increase.

Senate Action

A BBA is being developed on the Senate side as well. It will employ more moderate language in an attempt to attract the 67 Senate votes necessary for passage in that chamber. A Senate CCB strategy may come together in the Senate also, although it is not as far advanced as in the House.

A Senate vote on a BBA may be necessary, even though it is probably doomed to fail, in order to convince Tea Party House members that their cup, cap, and balance approach won’t work and some action such as McConnell-Reid is necessary.

The modified McConnell-Reid proposal under discussion now will include at least $1.5 trillion in cuts over 10 years, plus a bipartisan 12-member committee that will work to develop a plan to address the long term debt problem.

This panel will be made up of Members of Congress other than those who participated in the Simpson-Bowles deficit reduction commission. Language, at least at this point, is being left vague to allow the committee to consider of all possible actions, including tax increases and entitlement reforms. (This failure to restrict consideration of tax increases will be a problem in the House.)

This bipartisan panel would be charged with developing a deficit reduction plan by December 31st that can pass with a simple majority vote of the 12-person committee. This plan would then be forwarded to Congress for an up-or-down vote, with no filibusters or amendments allowed.

The McConnell-Reid bill also is expected to impose a spending cap for FY 2012 in an attempt to circumvent another government shutdown impasse on September 30th. This McConnell-Reid FY 2012 spending cap is said to impose cuts at least as large as imposed by the FY 2011 CR, but not as severe as called for by the House Republican budget. In reality, this FY 2012 spending cap will be whatever number it takes to get House passage of the bill. Immediate significant cuts to non-defense programs are very likely starting October 1st in this scenario.

The escalation of House demands for spending cuts in their CCB strategy is striking because it appears that Senate Democrats have begun to consider entitlement concessions that go beyond what the Obama Administration put on the table in recent White House talks.

Republicans risk losing these entitlement concessions if they persist in forcing a short-term fix with no new revenue.

Boehner-Obama Redux

Boehner’s latest offer for a grand deal includes credit for a “peace dividend”, i.e., the savings that would accrue to the federal budget as war in Iraq and Afghanistan winds down. This peace dividend was included in the House Republican budget put forth by Rep. Paul Ryan, and could end up in whatever final arithmetic underpins a deal by August 2nd. However, Cantor is strongly opposed to counting any peace dividend, and together with other conservative Republicans, wants any and all peace savings reinvested in the defense budget.

Boehner is risking his future by continuing these back-channel negotiations. The only explanation seems to be his belief that he “wasn’t elected Speaker to do small things” and a conviction that the strident House Republican strategy is likely to implode.

President Obama today indicated he would veto any measure that requires Congressional approval of a BBA before the debt ceiling can be raised. This will not deter implementation of the House or Senate CCB strategy.

Senate Majority Leader Reid promised to keep the Senate in session every day, including Saturdays and Sundays, until an agreement is enacted to avoid default.

Turner GPA is one of the premier, highly respected government and public affairs firms in the nation. Turner’s state-of-the-art advocacy has earned them respect and acclaim from the media, clients, policymakers and even their competitors! Turner advocates on behalf of cutting edge businesses, municipalities, and non-profits that wish to ensure their perspectives and needs are taken into account in Washington, in state capitols and in City Hall, as well as in the media. The firm creates and implements intensely focused and targeted advocacy campaigns designed to meet and exceed its client’s expectations and goals. For more information on Turner GPA, visit www.turnergpa.com.

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