Washington's Charade on Debt-Ceiling Nears End

by John M. Curtis
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Copyright July 5, 2011
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            Washington knows better than most what happens when government runs out money:  Elected officials, bureaucrats and consultants don’t get paid.  With the government running out of cash and needing to raise the national debt limit above $14.3 trillion, elected officials are beginning to make progress.  Using the national debt as a political football, Capitol Hill Republicans played a dangerous game of chicken, demanding the Democrats slash the budget or face a government shutdown.  Now that the shutdown draws near, the differences have narrowed between the two parties, paving the way to raise the debt ceiling.  Those familiar with the same past wrangling knew the debt ceiling would eventually get raised.  “Washington is addicted to spending, and the addict-in-chief is the president,” said Sen. Jim DeMint (R-S.C.), whose voice was silent during the Bush years.

            DeMint had no problem raising the debt ceiling for former President George W. Bush to accommodate Medicare Part D, the prescription drug entitlement program, biggest rise in government spending since Medicare went into effect in 1965.  DeMint, a favorite of the tea party, likes to talk about slashing government spending but won’t give up one cent of his Social Security check or Medicare benefits.  Everyone’s screaming about government spending because unemployment is up and tax receipts are down.  When employment rises and tax receipts climb, the government isn’t so concerned about spending.  Today’s economic recovery has helped trim budget deficits and create light at the end of the tunnel.  If the economy continues to expand, all the talk about slashing budget deficits falls by the wayside.  Only when money is tight do politicians scream and take out the knives.

            Republicans plan to cut $2 trillion out of a $14 trillion budget seems most extreme, given the current defense budget that finds itself financing three wars to the extent you consider Libya a hot spot.  If President Barack Obama continues his plan to scale back the Iraq and Afghan wars, there’s going to be plenty of cash to help balance the budget and fund new programs.  “In order to get out of this mess, they’re going to have to eat some of their words,” said Joe Minarik, a former budget officials with the Clinton administration, believing the two sides have narrowed the gap.  GOP officials know that budget slashing won’t be enough to deal with government’s responsibilities, especially funding new programs like Obama’s national health insurance program.  No Republican or Democrats, including extremists like DeMint, want to see the government default on its obligations and hurt the recovery.

             Obama’s budget-slashing and debt-ceiling team is led by Vice President Joe Biden.  Biden has already agreed to lower discretionary spending by $800 billion to $1.7 trillion, satisfying much of the GOP demands to cut spending by $2 trillion over the next 10 years.  Obama wants to see some tax increases for the ultra-wealthy, something philosophically opposed by Republicans.  Former President Bill Clinton, whose economy under his Treasury Secretary Robert Rubin soared during the late ‘90s., wants to see corporate tax rates lowered.  Instead of pushing tax hikes for the rich, Obama would be far better off cutting corporate tax rates, providing more stimulus at a time when his own bailout programs loses steam.  With U.S. GDP running 1.8% and the Federal Reserve Board keeping interest rates at unprecedented lows, the economy needs all the stimulus it can get to avoid a double-dip recession.

               Bridging spending gaps with Republicans should help propel a budget deal before the end of July.   As the economy adds more jobs, budget deficits will become less important to the economy’s growth.  If Obama followed the GOP prescription, he’s been toss millions of folks into unemployment.  Government spending is a good thing when it comes to providing long-term jobs.  “It going to be a difficult lift, but I still think that calmer minds will prevail in the end and they’ll recognized that we don’t have any alternative but to mover forward,” said Bill Hoagland, a former Republican congressional aide and old hand at budget negations.  Hoagland knows the government can’t default on any of its foreign and domestic obligations, making such threats empty rhetoric during an election year.  With the gap narrowing, a deal on the national debt ceiling looks more promising.

            Playing a dangerous game of chicken, Republicans and Democrats know there’s no choice but raise the debt ceiling.  Budget negotiators also know that with the stock market rallying, the prospects for more employment look better, especially for a lowered budget deficit.  More employment translates into more tax dollars, eventually bringing down today’s whopping budget deficits.  While there’s nothing wrong with trimming the budget, there’s something very wrong with slashing aid to the elderly or families with dependent children.  As the economy continues to grow, budget deficits will continue to drop, creating less urgency to slash budgets.  Clinton’s suggestion to lower corporate tax rates should provide the kind of stimulus needed to grow more jobs and eventually reduce budget deficits.   Neither side wants to shut down the government and stop collecting their paychecks.

John M. Curtis writes politically neutral commentary analyzing spin in national and global news.  He's editor of OnlineColumnist.com.and author of Dodging the Bullet and Operation Charisma.

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