A Bankrupt Nation Keeps on Spending: Congress Fails Once Again to Solve the Nation’s Fiscal Problems

After months of meetings, speeches, threats and dire warnings of a US government debt default, Congress this week finally gave in to the pressure and passed another massive debt ceiling increase. It was a great show for the media and for the political class which followed every move like as if it were a Super Bowl game in progress, but in the end nothing really significant was accomplished.

The net result of this “grand compromise” is that the United States government will continue to spend itself into bankruptcy. Besides raising the debt ceiling by $2.1 Trillion, the legislation give us a complicated process, with an initial promise of only $917 Billion in savings over a 10 year period, to be followed by additional “promised” savings of $1.2 to $1.5 Trillion to be determined by a new 12 member congressional committee. The large increase in the debt ceiling insures that Barack Obama won’t have to be bothered with another nasty debt increase problem during the presidential election in 2012.

What Exactly Did Congress Agree to Do?

The House of Representatives and the Senate passed a bill that accomplished the following:

  • Approved legislation to raise the U.S. debt limit by at least $2.1 trillion and cut federal spending by $2.4 trillion or more, with a number of caveats. 
  • There are no overt tax increases in the legislation. 
  • The debt ceiling is raised in two installments, allowing the debt ceiling to extend into 2013, thus sufficient to serve the president’s election needs for 2012. 
  • Provides indeterminate cuts of $917 billion in spending over the next decade 
  • Raises the debt limit initially by $900 billion 
  • Assigns a special congressional committee to find another $1.5 trillion in deficit savings by late November of 2011, to be enacted by Christmas 
  • Commits Congress to take a balanced budget amendment vote by November of 2011. 
  • Requires the special congressional committee to find an additional $1.5 Trillion in budget cuts by November 2011. 
  • If Congress passes the balanced budget amendment or passes the additional $1.5 Trillion in spending cuts, the debt ceiling is increased by another $1.5 Trillion. 
  • If Congress doesn’t pass either the Balanced Budget Amendment or provide for an additional $1.2 Trillion in cuts, that would trigger automatic spending cuts across the government -- including in defense and Medicare -- to take effect starting in 2013, and still raises the debt ceiling by another $1.5 Trillion. 

There are actually many other complexities in the legislation, which will be discovered in the days and weeks ahead. This was another classic example of Congress passing a bill that nobody had a chance to read. It was another one of those Nancy Pelosi specials – “you have to pass the bill if you want to find out what’s in it”.

What’s wrong with this Debt Ceiling Legislation?

  • It doesn’t reduce the nation’s ever increasing debt. 
  • All of the proposed cuts are against a federal government baseline budget process which estimates a 7.5% increase for each government agency. (The baseline includes automatic adjustments for inflation and anticipated increases in program participation. Baseline budgeting is an absurd process that builds automatic, future spending increases into Congress's budgetary forecasts). 
  • So the initial $917 Billion in cuts over 10 years is not really a cut, but a reduction in the estimated increases. 
  • It’s unlikely the special Congressional Committee will have any likelihood of coming to an agreement on the proposed additional $1.5 Trillion in cuts.  
  • The so called budget cuts are back loaded, meaning that most of them take place later in the 10 year cycle, when another Congress can change the rules. 
  • The actual cuts haven’t been identified so they are unlikely to be real.

So, let’s see how this might work. The total federal spending for 2011 was about $3.7 Trillion. Using Baseline budgeting, next year’s budget should be about $3.98 Trillion. Subtracting a $91.7 Billion cut from that amount ($917 B ÷ 10 years), we get a new spending amount of $3.89 Billion. By my calculation, that amounts to a 5.1% increase in spending for fiscal year 2012. Even if the Congress were to totally eliminate baseline budgeting in the coming fiscal year (2012), the real estimated cut for next year was around $20 Billion, so we would be looking at a paltry 0.54% cut in spending next year.

This whole process is a complete sham while the U.S. federal government continues down the road to bankruptcy.

What’s Good With this Debt Ceiling Legislation?

Not much!

About the only good part of this legislation is the requirement for Congress to vote on a Balanced Budget Amendment. For a Balanced Budget Amendment to be passed and to become part of the United States Constitution, it requires passage by two thirds of the members of each House of Congress. If it survives that hurdle, it is then sent on to the individual states and must be “ratified by the Legislatures of three fourths of the several states”. The President of the United States has nothing to do with this Amendment process, no matter what you may have heard to the contrary, other than to voice his opinion on the merits of its passage.

The likelihood of a Balanced Budget Amendment getting a two thirds vote for passage in both houses of Congress is extremely remote, even though polls indicate that it is currently supported by 75% of the American people. Then why is this a good part of the current debt ceiling legislation that has just passed? It’s a great idea because it will force every member of the House and Senate to take a position on this Amendment. They will not be able to hide behind their leadership’s unwillingness to not bring up this vote.

This was a key sticking point in this debt ceiling legislation right up to the last minute. I commend Speaker Boehner and Senate Minority Leader Mitch McConnell for insisting on this part of the legislation. You will remember how quickly Harry Reid was able to table the Boehner bill on the Friday evening before the key debt ceiling Aug. 2 date. The Balanced Budget Amendment vote has always been a poison pill, especially for the Senate Democrats. They have 23 members who have to face the voters in 2012, many of whom are vulnerable and in close elections. Some will have to come to terms with their desire for unlimited government spending matched against their desire to hold their Senate seats next year.

It will be an interesting vote when it is finally scheduled! It will be even more interesting watching the cleverly crafted TV and Internet political ad directed against Democrats who voted against the Balanced Budget Amendment.

Where do we Go From Here?

The Republicans held all of the cards in this debt ceiling fight and could have insisted on a much better deal. As it stands now, the USA is still headed for a Greek style bankruptcy, with no end of the spending in sight. Unless the TEA Party can mount a massive effort in the 2012 election to help elect a large class of new, conservative Republican senators like Rand Paul, Marco Rubio, Pat Toomey and Mike Lee, we will continue down this road to financial Armageddon.

I personally look forward to continuing to support the various TEA Party organizations throughout the country, as I believe they will continue to work on turning the Republican Party into a party much more seriously focused on conservative economic reforms. They have accomplished a great deal so far and they have at least changed the conversation in Washington, D.C. from spending to cutting.

I also strongly support our own Denton County Republican TEA Party here in Texas, which is doing a wonderful job in recruiting new members and bringing important issues to the attention of the voters in Denton County, Texas.

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