Tag: debt ceiling

A Turning Point?

Greg Sargent cites a CNN poll question:

As you may know, the agreement would cut about one trillion dollars in government spending over the next ten years with provisions to make additional spending cuts in the future. Regardless of how you feel about the overall agreement, do you approve or disapprove of the cuts in government spending included in the debt ceiling agreement?

Approve 65

Disapprove 30

Sargent continues:

Sixty five percent approve of deal’s spending cuts. But it gets worse. Of the 30 percent who disapprove, 13 percent think the cuts haven’t gotten far enough, and only 15 percent think the cuts go too far. One sixth of Americans agree with the liberal argument about the deal.

About 20 percent of Americans self-identify as liberals. This would suggest that all non-liberal Americans and one-fourth of self-identifying liberals approve of the deal or think the cuts have not gone far enough. It could also mean that some non-liberal Americans disapprove of the deal and more than one-quarter of liberals approve of it. Either interpretation will not encourage those who believe government should be larger.

Still, the political agenda is defined as cuts, and the public seems willing to go along. 2008 seems like a generation ago.

In Class War, It’s the “Middle” Ground that’s Key

Want to know a major reason Washington won’t make the cuts we need? Because winning elections is largely about getting “middle-class” votes, and just about any program can be spun as a savior for that big – but rarely defined by politicians – chunk of Americans.

Case in point, an animosity-stoking assertion uttered last week by House education committee Ranking Member George Miller.  As reported by CNN, the subject was the possibility of a cut being made to the federal Pell Grant program:

Rep. George Miller, a California Democrat, defended Pell Grant funding on Friday, calling it the “great equalizer” for millions of students.

“Pell is the reason they are able to go to college and get ahead,” Miller said. “It’s a shameful excuse and an attack on middle class families.”  

Now, what’s wrong with this assertion (other than its obnoxiousness and assumption that Pell doesn’t mainly enable colleges to raise their prices)? According to the U.S. Department of Education’s  description of Pell – and the long understood intent of the program – it isn’t for the middle class. It is for “low-income” Americans:

The Federal Pell Grant Program provides need-based grants to low-income undergraduate and certain postbaccalaureate students to promote access to postsecondary education.

So much for Pell-trimming proposals assaulting the middle class. Buy maybe Rep. Miller was doing more than just inaccurate, uncivil political posturing with his comments. Maybe he was revealing a dirty little secret: While Pell is better focused on low-income students than many federal aid programs, over time politicians increasingly aim all education efforts at the big mass called the middle class. Maybe Miller was accidentally acknowledging that aid for the poor morphs into aid for the not-poor because, well, that’s where the votes are.

Look at Pell, which, again, is relatively well targeted. In the 1975-76 school year, 1.2 million students received grants (table 1). By 2009-10, 8.1 million did – almost seven times more! Meanwhile, overall enrollment in degree-granting institutions grew from about 11.2 million in 1975 to 20.4 million in 2009, less than doubling.  Almost certainly, there has been less precise targeting to truly low-income students. Indeed, about 6 percent of Pell recipients (table 3-A) in 2009-10 came from families making at least $50,000 a year, or about the median household income in 2009.

Such expansion has been seen in K-12 education, too, though one wonders if Pell is singled out for big bucks in the debt-ceiling deal because people get Pell personally, unlike elemetary and secondary aid which goes to states and districts. Regardless, federal K-12 funding has spread farther and wider over the decades as politicians have sought to keep money coming even as their districts have lost people, and as allocations have become less and less focused on individual students. 

When waging class war, a powerful weapon is to portray your political enemy as intentionally hurting the most vulnerable people: the poor, children, etc. But the winning strategy? Sending money to the middle class, and capturing their precious votes.

Deconstructing the Revenue Side of the Debt-Ceiling Deal: Yes, There’s a Real Threat of Higher Taxes

Politicians last night announced the framework of a deal to increase the debt limit. In addition to authorizing about $900 billion more red ink right away, it would require immediate budget cuts of more than $900 billion, though “immediate” means over 10 years and “budget cuts” means spending still goes up (but not as fast as previously planned).

But that’s the relatively uncontroversial part. The fighting we’re seeing today revolves around a “super-committee” that’s been created to find $1.5 trillion of additional “deficit reduction” over the next 10 years (based on Washington math, of course).

And much of the squabbling deals with whether the super-committee is a vehicle for higher taxes. As with all kiss-your-sister budget deals, both sides can point to something they like.

Here’s what Republicans like:

The super-committee must use the “current law” baseline, which assumes that the 2001 and 2003 tax cuts expire at the end of 2012. But why are GOPers happy about this, considering they want those tax cuts extended? For the simple reason that Democrats on the super-committee therefore can’t use repeal of the “Bush tax cuts for the rich” as a revenue raiser.

Here’s what Democrats like:

There appears to be nothing in the agreement to preclude the super-committee from meeting its $1.5 trillion target with tax revenue. The 2001 and 2003 tax legislation is not an option, but everything else is on the table (notwithstanding GOP claims that it is “impossible for Joint Committee to increase taxes”).

In other words, there is a risk of tax hikes, just as I warned last week. Indeed, the five-step scenario I outlined last week needs to be modified because now a tax-hike deal would be “vital” to not only “protect” the nation from alleged default, but also to forestall the “brutal” sequester that might take place in the absence of an agreement.

But you don’t have to believe me. Just read the fact sheet distributed by the White House, which is filled with class warfare rhetoric about “shared sacrifice.”

This doesn’t mean there will be tax increases, of course, and this doesn’t mean Boehner and McConnell gave up more than Obama, Reid and Pelosi.

But as someone who assumes politicians will do the wrong thing whenever possible, it’s always good to identify the worst-case scenario and then prepare to explain why it’s not a good idea.

We’re In This for the Long Haul

Today POLITICO Arena asks:

Is it the Senate’s turn to take a crack at the debt ceiling?

My response:

Speaker Boehner has both the Constitution and convention on his side — “money bills” arise in the House. In fact, the Constitution is his strongest ally in his struggle to win the support of recalcitrant Tea Party members. They revere the document, after all, and no one has put the point better than Charles Krauthammer in this morning’s Washington Post.

Boehner’s bill, just to be clear, is a far cry from what this debt-ridden nation needs. As my colleague Chris Edwards put it yesterday, even the revised plan “doesn’t cut spending at all.” It “cuts” only from the CBO baseline, which assumes constantly rising spending. If Congress were serious about addressing our deficit and debt problems, Edwards says, it would have “to start abolishing programs, privatizing activities, and making other lasting reforms.”

Absolutely. But now step back and look at the larger context at the moment. As Krauthammer says,

We’re in the midst of a great four-year national debate on the size and reach of government, the future of the welfare state, indeed, the nature of the social contract between citizen and state. The distinctive visions of the two parties — social-democratic vs. limited-government — have underlain every debate on every issue since Barack Obama’s inauguration.

And the terms of that debate have shifted radically since the Tea Party came on to the scene. The “cuts” in the Boehner plan are modest, to be charitable, but there are no new taxes, which in an earlier day would have been taken as essential. And the focus in Congress and in the nation, as long as the Tea Party keeps up the pressure, is not on new programs but on eliminating old ones — when that is possible.

But right there we bump up against constitutional realty. As Krauthammer puts it, “you cannot govern from one house alone.” We’re light years beyond living under the substantive Constitution, which authorizes only limited government, not the out-of-control welfare state that got us into this mess. But we still live under the procedural Constitution, which means that Reid and Obama can block Boehner’s modest plan. Posturing aside, that’s not likely at this late date. Yet if Tea Party members overplay their hand, they play right into Obama’s hand, politically, going into 2012, when the battle over real change will be waged.

No war — and that’s what we’re in — was won in a day. It took 80 years for John Locke’s ideas about liberty to find their way into the Declaration of Independence. It took another 90 years for those ideas to bring an end to slavery. The limited-government ideas that the Tea Party has brought back to the surface are just now being felt in Congress. This is no time to abandon them. But neither is it a time to set the course of events back, perhaps irretrievably, by employing them unwisely. Take what you can, and live to fight another day, on the battlefield that lies just ahead.

US Has Already Been Downgraded

Lost in all the concerns over how Moody’s and S&P will view any deal to raise the debt ceiling and whether such a deal addresses our country’s long term budget imbalances is the fact that at least three rating agencies have already downgraded U.S. government debt.  One of these agencies, Weiss Ratings, treats U.S. government debt as barely better than “junk” or speculative grade.

It would be easy to dismiss these agencies as irrelevant and attempting to simply grab attention, but at least one of these agencies, Egan-Jones, has a track record of correctly predicting problems at such companies as Enron, WorldCom, Global Crossing, Bear Stearns and Lehman Brothers that the major rating agencies missed until it was too late.  Egan-Jones also employs a business model of having investors pay for its services, rather than the debt issuer.

The simple truth is that the U.S. government has made more future promises than it will have the capacity to pay, under almost any circumstances.  The fact that the major rating agencies downplay these long term imbalances is further testament to their entrenched monopoly status.  But then when the government provides you with some regulatory protections, its only natural to assume the government will expect one to return the favor.

For more on the issue, check out Cato’s latest daily podcast.

Parallels to 1995 in Spending Fight

The American welfare state has been in crisis for decades. Many of the problems faced in 1995 fight have become less tractable problems today. John Samples comments in yesterday’s Cato Daily Podcast.

One notable difference between 1995 and today, Samples says, is that the GOP of 1995 kept Social Security off the chopping block for spending cuts.

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