GOP: Playing “Dangerous Games” With The Debt Limit
The debt limit is supposed to make Congress think twice before passing tax cuts or spending increases that add to the national debt. Instead, lawmakers routinely support policies without paying for them — like the Bush-era tax cuts and two wars — and then posture and protest when their decisions require raising the debt limit.
So it will be once Congress returns from its spring recess. The debt limit — $14.3 trillion — will be hit as early as mid-May. If it is not raised in time, the government will have to use increasingly unorthodox tactics to meet its obligations, which would disrupt the financial markets and the economic recovery.
Default is theoretically possible, though public outrage over the mess would likely compel Congress to raise the debt limit before then. The best approach, the most sensible and mature, would be to pass a clean and timely increase.
However, nothing sensible or mature is on the horizon. Republicans have vowed to extract more heedless spending cuts in exchange for their votes to raise the debt limit. To that end, they seem likely to demand changes to the budget process, like a balanced budget amendment to the Constitution, or spending caps.
Such reforms have a glib appeal — who can oppose something as prudent-sounding as balanced budgets? In fact, they are a dodge, because they cut spending broadly without lawmakers having to defend specific cuts. They are also often wired to block tax increases, without which deficit reduction efforts are not only unfair, but also will not succeed.
Take, for example, the balanced budget amendment to the Constitution that Senate Republicans recently endorsed. By rigidly requiring a balanced budget each year, it would deepen recessions by forcing tax increases or spending cuts in a weak economy.
Worse, the amendment would hold annual spending to 18 percent of the previous year’s gross domestic product, a formula that works out to about 16.7 percent in the proposal’s early years, according to the Center on Budget and Policy Priorities. That is a level last seen in 1956 — a time before Medicare, before the interstate highways, when many baby boomers were not yet born, never mind aging into retirement.
Sharply lower spending would, in turn, allow for big tax cuts. Those tax cuts would be virtually irreversible, since the amendment calls for a two-thirds vote of both houses to raise taxes.
Another bad idea is the spending cap proposed by two senators, Bob Corker, Republican of Tennessee, and Claire McCaskill, Democrat of Missouri. It would cap spending at around 21 percent of G.D.P., compared with about 24 percent now — which would require deep cuts like those in the House Republican budget plan. With its emphasis on spending cuts, the cap also seems intended to reduce the deficit without tax increases.
In the successful deficit reduction efforts of 1990 and 1993, budget process reforms were helpful. The key, however, was to first enact credible deficit-reduction packages — with spending cuts and tax increases — and then impose rules, like pay-as-you-go, to prevent backsliding. Process reforms alone avoid the hard work. Still, they can exert powerful political pull.
The White House and Congressional Democrats must not allow themselves to be taken hostage again.
By: The New York Times, Editorial, April 22, 2011
Republicans Play Us For Dupes on Financial Reform
Senate Minority Leader Mitch McConnell gestures while meeting with reporters on Capitol Hill in Washington
Conservatives are representing themselves as anti-bailout populists, while serving Wall Street.
Senate Republicans today debuted their new strategy for financial reform: Refuse to cooperate with Democrats on grounds that the Dems are too willing to give Wall Street what it wants.
I’m not making this up.
In a Senate floor speech, Minority Leader Mitch McConnell said Republicans couldn’t support the legislation that emerged from Chris Dodd’s banking committee because it “institutionalizes” future taxpayer bailouts of the Street, giving the Federal Reserve “enhanced emergency lending authority that is far too open to abuse.” Senator Bob Corker, a senior Republican on the committee who had spent many weeks negotiating the bill with Dodd, huffed that Dodd’s final bill provides “the ability to have bailouts.”
Sen. Lamar Alexander, a member of the Senate Republican leadership, blasted Dodd for partisanship — “Dodd jerked the rug out from under Sen. Corker and went back into a partisan bill” — that is, partisanship toward Wall Street. Alexander said Republicans will hold out for a plan “that would end the practice of too big to fail and that would make certain that we don’t perpetually use taxpayer dollars to bail out Wall Street.”
Republicans have been looking for a way to oppose Senate Dems on financial reform without looking like patsies for the Street. And now they think they’ve found it — by trying to make Democrats look like patsies for the Street. The strategy is surely the handiwork of Republican pollster Frank Luntz who for months has been telling Republicans “the single best way to kill any legislation is to link it to the Big Bank Bailout.” (See Luntz’s memo.)
Let’s be clear: The Dodd bill doesn’t go nearly far enough to rein in the Street. It allows so-called “specialized” derivatives to be traded without regulatory oversight; its capital requirements are weak; it gives far too much discretion to regulators, who, as we’ve seen, can fall asleep at the switch; it does nothing about conflicts of interest within credit rating agencies that rate the issues of the companies that put food on their plates; it puts a consumer protection agency inside the Fed whose consumer bureau didn’t protect consumers; it doesn’t do anything to control the size of banks; it delays dealing with other hard issues by assigning them to vaguely-defined “studies”; and, yes, it preserves the possibility that the Fed could launch another bank bailout.
But the Street thinks the Dodd bill goes way too far, and wants its Republican allies to water it down with more loopholes, studies, and regulatory discretion. Republicans figure they can accommodate the Street by refusing to give the Dems the votes they need unless the Dems agree to weaken the bill — while Republicans simultaneously tell the public they’re strengthening the bill and reducing the likelihood of future bailouts.
It’s a bizarre balancing act for the Republicans, reflecting the two opposing constituencies they have to appease — big business and Wall Street, on the one hand, and the emerging Tea Partiers, on the other. The Tea Partiers hate the Wall Street bailout as much as the left does. It was the bailout that “really got this ball rolling,” says Joseph Farah, publisher of WorldNetDaily, a website popular among Tea Party adherents. “That’s where the anger, where the frustration took root.”
The awkward fact, of course, is that the bank bailout originated with George W. Bush and a Republican congress. “Without this rescue plan,” Bush told the nation in September 2008, “the costs to the American economy could be disastrous.” New Hampshire Senator Judd Gregg, the leading Republican negotiator of the bailout bill, warned that without the bank bailout, “the trauma, the chaos, and the disruption to everyday Americans’ lives would be overwhelming.”
Republicans figure the public’s attention span is so short they won’t remember, and that the public understands so little about the details of financial reform that Republicans can weaken the Dodd bill without leaving any fingerprints.
I have a suggestion for Senate Democrats: Don’t let them get away with it. Smoke the Republicans out. Respond to their criticism that the Dodd bill leaves open the possibility that some future bank will become too big to fail by amending the bill to limit the size of banks to $100 billion of assets — so no bank can become too big, period. Challenge the Republicans to join you in voting for the amendment. If they decline, force them to explain themselves to their local Tea Partiers.
By Robert Reich April 14, 2010, Salon; Photo-AP/Manuel Balce Ceneta
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