Bipartisan debt ceiling plan explained

Jul 18, 2011

Post reporter Zachary Goldfarb reported, "A bipartisan effort in the Senate to allow President Obama to raise the federal debt ceiling in exchange for about $1.5 trillion in spending cuts over 10 years gained momentum Sunday, as leaders agreed they would have to act in the next two weeks to avert a potential default by the U.S. government."

Goldfarb gave you the inside scoop on what this bipartisan effort entails and the key questions in the coming week of debate on the debt. Zach also discussed the debt ceiling and the potential of a U.S. default.

Related: Congress tees up crucial votes on debt limit

Welcome to an afternoon chat on debt, deficits, and the economy. This week, Republicans are pushing a balanced budget amendment while congressional leaders are working on a backup plan that would avert a potential default on U.S. obligations early next month. President Obama is holding out hope for a "big deal," but the prospects are dimming. Meanwhile, S&P is warning that even if leaders avert a default, the U.S. government could still be downgraded if they fail to rein the debt over the long term. Big unknowns this week -- and a few knowns. I'm here to answer your questions as best I can. 

Moody's suggested getting rid of the debt ceiling.  Any chance of that happening?

Unlikely. The U.S. is the rare country that actually has a debt ceiling. In many ways, it's an odd idea because Congress gets to choose how much money to spend. The debt ceiling generally reflects money that lawmakers have already ordered the president to spend. But lawmakers like -- mostly for symbolic and political reasons -- the ability to vote for or against an increase in the debt. So they keep it. The McConnell-Reid plan would, through the 2012 election, cede that power to Obama. But the debt ceiling would still be there for future fights.

What if there are not enough Republican votes in the House to pass this? Would this trigger default? If so, will Republicans be blamed?

McConnell-Reid, the emergency backup plan, will likely pass the Senate. The House is really an unknown. If Republicans refuse to vote for it, then Obama and Pelosi will have to try to force House Democrats to join the few Republicans who would vote for the plan. That could get it over the line. If both Republicans and Democrats in the House refuse to support it, then we're back at the starting line without a clear path to avoiding a potential default Aug. 3.

Given that many members of the GOP do not believe this is a big deal, do you see if passing the house with a majority of Dem votes? And where does that leave Boehner going forward?

Passing the House on the strength of the Democratic vote is quite possible. It's hard to tell where that leaves Boehner. One of the big questions of the debt debate has been the degree to which Boehner represents his caucus and whether he can control/manage the tea party members and their allies. It's still an unknown.

How can A) the public and B) the economy stand to hear our politicians bicker about this between now and the 2012 Election? Don't they see the risks and public disguist?

One would think, but the nature of the debate reflects both fundamental differences of opinion and deeply ingrained political positions. Republicans and Democrats just disagree about the degree to which we need more stimulus to support the economic recovery. Likewise, Republicans won't accept tax increases which Democrats say are necessary for a balanced deficit reduction deal. But beyond that, there is clearly a degree of political intransigence. Republicans have refused to allow taxes on the wealthy to be part of the negotiations (and have been skeptical of a number of other revenue-increasing measures), while Democrats are insistent on it. Until one side gives more, we're not going to get there.

So this deal may pass the Senate, but what about the House?

See my previous answer. The House is the big unknown. Boehner needs to corral Republicans to support McConnell-Reid to make passage easy. If most R's oppose it, then it'll be up to Obama and Pelosi to get Democrats behind it. 

It is my understanding that Congress must create a New budget each and every year. They can't spend money in future years. But, every time someone talks about the budget, they talk about how it will save millions, billions, or trillions of dollars over the next 10 years. Isn't that all lies and smoke and mirrors? The budget only applies to this year and what happens next year will have to be approved then.

That's a great point. Whatever is decided now, future Congresses and presidents can change. But officials need to be able to take best guesses about the impact of policies years down the road, based on best available data. And, you want to present a plan to the markets, to the bureaucracy and to the public about what the future will look like. Also, by setting goals and potentially caps for years in the future, you can put pressure on Congress and the president to stay within those boundaries. Year-to-year budgets, with no planning for the future, would allow leaders to perpetually kick the can down the road. Long-term roadmaps might do no better, but it’s worth a try.

Do you think someone like DeMint or Rand Paul would filibuster this plan, assuming it comes to a vote?

They could try but given it has McConnell and Reid's support, you'd think you could get enough Senate Republicans and Democrats to get 60 votes to break the filibuster. 

If July 31 comes and goes with no deal, is it time to hide all the money in the mattresses?

The question is -- what will your money be worth, whever it is ?

Are there enough votes in the House to pass the McConnell sleight-of-hand plan?

Without comment on the legerdemain you suggest, the question is one of the big unknowns. Basic question is whether Boehner can build Republican support, and how much Obama/Pelosi can get Democrats to fill the difference.

Is increasing the debt ceiling as big a deal as it is being made out to be? What exactly is the fallout if it is increased?

It _is_ a big deal, for economic and political reasons.

Let's start with the economic reasons. If the debt ceiling isn't raised, the government will not be able to make payments on all of obligations on Aug. 3. That means Obama will have to make decisions about what to pay -- Social Security or military salaries or the FBI or welfare. He may not be able to make payments on the debt or roll over the debt, which would cause a financial crisis. See my story about this subject from last week.

The political fallout is also important. If there can be a deal to raise the debt limit, maybe just maybe the leaders, over the course of the next six months, can continue to find ways to find compromises that, while imperfect, will reduce the deficit in a way both sides can accept. 

 

 

Obama seems to be the worst negotiator ever. He seems to give the farm away at the outset and then gives up more during the negotiation. Is this a fair statement?

I'll let others decide if it's fair. But he has essentially two options -- either try to come up with the best deal possible within terribly constrictive constraints (an opposing party unwilling to budge on items central to his philosphy) or just go to the brink and use the bully pulpit to insist the Republicans go along with what he says or the country will default. Default is probably too scary an option, so Obama is making due with the constraints he faces while trying to win as many political points as he can.

Why is August 2nd the magic date? Is that a projected date for when the Government will reach the current debt limit? I assume the Government gets paid money on a regular basis as companies report taxes for their employees. Even if the Government reaches the limit, won't it have some ability to pay the bills as it collects taxes (even if it can't pay all of them in full.)

On Aug. 2, the government can pay all of its obligations, based on remaining authority to borrow money and incoming tax revenues. On Aug. 3, the government can't pay all of its obligations. It will continue to take in anywhere between $4 and $14 billion in tax revenue each day, but that'll be enough to cover less than 60 percent of spending obligations. For example, on Aug. 3 the president must send out 25 million Social Security checks totaling $22 billion. The Treasury will take in only $12 billion or so that day.

How can the Legislative branch, in effect, delegate its "power of the purse" to the Executive, even if for a limited period of time, and not leave the Constitution in shreds? I haven't seen a thoughtful analysis of how the McConnell plan passes Constitutional muster, but I'd be very interested in that perspective.

The debt limit is not a constitutional requirement. It is a matter of law and Congress can decide whether to have it or not. The power of the purse -- the actual decision to spend money -- remains in Congress' hands. Congress can decide how much to spend and on what programs, and they are not ceding that power. In the current context, Congress has told the president to do two things: Not to go above the debt limit, and spend more money (based on the recent budget) than we have.

There's been a lot of speculation as to who will take the brunt of the blame should the country default. Is there any indication at all who would take the hit (Boehner, Obama, or even the tea partiers?)

Impossible to know. It seems, though, that Republican leadership has been spooked by the idea that they could get blamed for blocking an increase in the debt limit since their caucus has been most vocal. GOP leadership in past few days have insisted there would not be a default. Thus the McConnell-Reid plan.

You'll forgive me, but I'm really confused about the way forward here with the debt talks. It strikes me that nothing will pass the House to either raise the debt ceiling or embrace Mitch McConnell's plan (to give the president sole authority to do so), either out of Tea Party loyalty or outright stonewalling to keep the talks indefinitely stalled. And I haven't heard anything lately about the 14th amendment option to make the debt ceiling unconstitutional. Perhaps I'm being overly pessimistic, but I'm beginning to fear that default is inevitable. Can you foresee a possible, realistic scenario whereby default gets avoided?

You're forgiven -- it's complicated and there are a lot of unknowns! Simple question is whether Boehner can corral enough Republicans to support passage of the McConnell plan, and if Obama/Pelosi can get enough Democrats to make up the difference.  If it can't pass the House, we're back to the drawing board and at real risk of breaching the Aug. 2 deadline.

 

On the 14th amendment, it was a constitutionally provocative idea that was debated heartily a few weeks ago. But that's died down now -- the White House has signaled it does not believe it holds muster or is an option. (And the president is a constitutional law professor.)

Before the President/Congress threaten to cut off Social Security checks for little old ladies (like my 93 yr old mother-in-law who almost had a stroke when she heard the President mention that as a possibility) shouldn't Obama, his Cabinet, and the entire Congress, and respective staff, forego THEIR paychecks until the issue is resolved? "Call my bluff".

I wouldn't be surprised if congressional and executive branch salaries were suspended dramatically if the debt ceiling isn't raised. But that will make up just a modicum of what's needed. On Aug. 3, there's $22 billion in social security checks alone and $12 billion in revenue. over the course of the month, the president could pay social security and a few other things, but still face very difficult choices about what not to pay - unemployment benefits, military salaries, the FBI, nuclear programs, etc.

I'm still going through your great questions! Thanks for sending them in and I hope to answer a few more in the next few mins....stay tuned

What is the appeal of this plan to the President and these Democrats. To my eyes it looks like a lousy deal with them? Is it that it lets the congressional Dems avoid having to deal with entitlement spending yet again, and gets the President out of the standoff? To me, it seems like allowing the bully to give you a black eye just to get him off your back. It works in the short term but in the long term he'll be back.

It's the appeal of not defaulting on the debt, which could be cataclysmic. Politics aside, I think the president worries that whatever blame he gets, a default is just too risky an option. Whether it's a negotiating strategy that will work in the long run ... is too hard to say.

Are entitlements not an expenditure in future years that is committed to in advance? Morally, at least? I know that nothing is CERTAIN except death and taxes, and even taxes don't seem to be certain in the Tea Party era, but still entitlements appear to be a long term commitment. What would you add to that short list?

Yes, but there has to be a way to pay for the entitlements. What the president is saying is that under the current system, we simply cannot afford entitlements down the road unless we strengthen the fiscal picture. Obama is arguing that you can do that without undermining entitements or dramatically reducing the benefits people receive. Republicans don't think that's possible. 

This plan Seems like it is only a start to debt reduction. The economy of the last 10 years has been a false economy based on the poor banking practices since deregulation. What factors make the politicians think the economy will get better than it is now?

Great question. The single most important contributor to making the debt manageable over the long term is the growth of the economy. And the economic recovery has stalled. If policymakers can begin to bring spending in line with revenues over the next few years, while continuing to support healthy economic growth, there's a good chance that we can succeed - at taming the debt and reducing unemployment. It'll take a lot of finesse, a willingness to compromise, and a bit of good luck.

On that positive note, let's wrap up the chat. Thanks so much for all your great questions. I'd be happy to take any more by email - goldfarbz@washpost.com - or on Twitter - @goldfarb.

 

'Til next time

 

-- Zach

In This Chat
Zachary Goldfarb
Zachary A. Goldfarb is a staff writer covering the White House, focusing on President Obama's economic, financial and fiscal policy. Previously, he covered financial regulation and government investigations into corporate wrongdoing. He also has written about national housing policy. He graduated from the Woodrow Wilson School of Public and International Affairs at Princeton, where he was editor-in-chief of The Daily Princetonian. He lives in Washington, D.C.

Follow Zach on Twitter: @Goldfarb
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