The White House and Congressional leaders have a deal on the debt ceiling. It is a Trojan horse of built-in tax hikes that solves nothing.
Tentative deal on the debt ceiling
Barack H. Obama, the man now holding office as President of the United States.
The agreement is only tentative; it goes to each House of Congress for votes, probably today. It came from private meetings among the Speaker of the House, the Senate Democratic Floor Leader, and the man now holding office as President of the United States.
The Budget Control Act of 2011 is already before the House Committee on Rules. The best summary is a Microsoft PowerPoint slideshow and PDF file that House Speaker John Boehner (R-OH) published to the House. (CNN published this summary early this morning.) The deal raises the debt ceiling by $900 billion immediately, and cuts the budget by nearly $1 trillion—over ten years, and beginning in 2013, not today. It has no obvious tax hikes. It creates a Joint Committee of twelve Members of Congress with full authority to cut another $1.2 trillion to $1.5 trillion from current baselines over ten years. If that Committee cannot do its job, the bill cuts all budgets across the board.
But, as Erick Erickson at RedState observes, it assumes that the Bush-era tax cuts will expire and counts the pre-Bush tax rates as the baseline. Erickson would not have you take his word for it. He cites Ezra Klein at The Washington Post. Klein mentions that Joint Committee. He boasts that this Committee could raise taxes after all:
Boehner is misleading his members to make them think taxes are impossible under this deal. But make no mistake: The Joint Committee could raise taxes in any number of ways. It could close loopholes and cap tax expenditures. It could impose a value-added tax, or even a tax on carbon. The Congressional Budget Office would score all of this as reducing the deficit under a current-law baseline.
Senator John McCain (R-AZ) is also misleading his colleagues, and the public, along the same lines.
The Act also commits Congress to a vote on a balanced-budget amendment to the Constitution. It does not say how that amendment should read. One version that some have considered would let a court decide whether to raise taxes. (New Jerseyans know all about courts levying taxes. The Supreme Court of New Jersey laid New Jersey’s income tax in Robinson v. Cahill, 1976.)
Media and political reaction
Established Republicans applaud the agreement. Politico.com describes Republicans as effusive in their praise, and boasting that they forced the Democrats to concede much.
Far-left commentators like Paul Krugman kept up their histrionic refrain. “Surrender!” “Extortion!” screamed Krugman this morning.
The worst thing you can do in these circumstances is slash government spending, since that will depress the economy even further.
Krugman further decried the lack of obvious tax hikes.
Incredibly, a group calling itself the Progressive Caucus wants Barack Obama to raise the debt ceiling on his own authority. They insist that the 14th Amendment allows him to raise the debt ceiling whenever he wants, and by however much he wants.
This is a moot point. Obama did not want to do that, because he wanted the Republicans to share the blame for raising the debt ceiling. If he acts on his own, he takes all the blame.
This is also play-acting, as Michael Hammond points out at RedState. He points out where the tax hikes will come from. He reminds people that the spending cuts are not significant. (They don’t even rise to the level that Standard and Poor demanded as its price not to downgrade US credit.) He names the flaw in the balanced-budget amendment language.
But the most important thing he points out is that the government was never in any danger of default, and still isn’t. More than enough revenue comes in every month to redeem any Treasury bill, note or bond that anyone presents for payment. The debt ceiling need not rise to pay them. So if the government “stiffs” a bondholder, it will only be because the man now holding office as President so authorized. What would have happened was a partial shutdown of government.
Instead, the government will keep borrowing and spending. The debt ceiling will probably rise again, and again.
The market was never going to crash. It will not crash today, or tomorrow. But it will crash next year.
Featured image: the classic Weimar-era illustration of wheeling a barrow full of money to buy a loaf of bread.