Some have called August 2 “Financial D-Day.” That is the date, according to Treasury Secretary Geithner, by which either Congress raises the debt ceiling or some government disbursements will cease.
Multiple proposals have been floated for budgetary reforms to be made in exchange for raising the debt ceiling. A partial list includes: Rep. Paul Ryan’s (R-WI) plan to add $4.4 trillion less to the national debt than current trends project; the GOP “Cut, Cap, and Balance” plan, which aims for $6 trillion of future spending cuts; and the so-called “Gang of Six” Plan that proposes $3.7 trillion less debt than now projected.
Whatever compromise is eventually adopted, you should be aware that the national debt will continue to grow and that the vast majority of promised spending cuts will be scheduled for after the next election, when those promises can easily be forgotten. None of the proposed reforms would reduce debt; they would merely increase it less than now planned.
Also, notice how fishy the numbers seem to be. For example, the press release for the GOP “Cut, Cap, and Balance” stipulated $111 billion of spending cuts in Fiscal Year 2012 and to cut next year’s projected $1.1-trillion deficit in half. This is the best they can do?
Democrats resist spending cuts, but massive cuts are imperative. Last year, the U.S. Treasury incurred $3.3 trillion of new debt to finance the government’s on-budget and off-budget spending. This $3.3-trillion deficit cannot be closed with taxes. The total income of Americans above the $250,000 threshold that President Obama uses to designate “rich Americans” amounts to approximately $1.4 trillion. If the government taxed it all, we would still be around $2 trillion short. There literally is no other way to close the deficit than to slash federal spending drastically.
The Democrats have been particularly irresponsible in their handling of this issue. (For the record: I publicly criticized Republicans for their overspending during the Bush-Hastert years, and I opposed both the Bush stimulus plan and Bush’s Big Bailout.) As other commentators have observed, despite controlling both houses of Congress during President Obama’s first two years in office, the Democrats (in defiance of the law) failed to pass a budget that funded their ambitious spending plans. President Obama himself proposed a budget earlier this year that was so out-of-touch that the Democrat-controlled Senate rejected it 97–0. Since then, the president has not proposed a single specific spending cut. In fact, at his press conference on July 11, President Obama announced, “I’d rather be talking about … new [spending] programs” than deficit reduction.
On July 13, the president angrily told Republicans, “This [his willingness to scuttle any deal] may bring my presidency down, but I won’t yield.”
One would hope that, instead of couching this in terms of re-election prospects, the president of the United States would spare the American people a wrenching economic upheaval.
Obama knows that no president can spend funds that Congress has not raised by taxes or authorized the Treasury to borrow. As president, he should have in place contingency plans with clearly defined priorities (e.g., interest on the national debt so there is no default; Social Security, defense, whatever) for deciding what federal spending would be continued or discontinued if Congress said “Enough!” to runaway spending and refused to raise the debt ceiling. Whenever the debt-ceiling issue is temporarily patched over in the coming days or weeks, Congress should hold hearings to ferret out the truth. Did President Obama have a contingency plan in place? If he didn’t, he was derelict in duty; if he did, his plan could prove useful in identifying what federal spending is nonessential. And was cutting off Social Security payments really near the top of his list, as the president implied when he raised the prospect of those checks not going out on August 3, or was that a cynical attempt to scare senior citizens?
Another unseemly aspect of this ongoing drama is how the administration managed to postpone “Financial D-Day” to August 2, even though the debt ceiling was first reached in May. Secretary Geithner tapped the retirement funds of federal employees. Naturally, those funds (over $100 billion) will have to be repaid. As he did by tapping into the Strategic Petroleum Reserve, the president’s administration has misused important reserves set aside for future needs for (in my view) political advantage.
Bottom line: Whatever deal is struck now will not solve our long-term fiscal problems. The ongoing political maneuvering has given us glimpses of how sick our political system is.