Debt Ceiling Deal Does Nothing…Or Does It?
At first glance, the debt ceiling deal reached by Republicans and Democrats is another useless act. At second glance, it may be a very shrewd piece of legislation.
The Truth
The truth of the matter is we have a huge national debt problem. The fact we still have a triple A rating with the rating agencies is fairly laughable. We currently owe $14.3 trillion on the debt, but have another $60 trillion plus coming due in the next 30 years. Yes, 60 TRILLION.
The simple fact is we have no way to pay down 60 to 80 trillion in national debt. We would pretty much have to double taxes and cut spending by 80 percent or so to even come close to getting it under control. Given this, the hard decisions can no longer be kicked down the road. They road ends at a brick wall and we are now staring it in the face. There is very little pavement left.
Politically, Obama, Boehner, McConnell and Reid seem to realize as much. They started talking about the big move that would seek to cut some serious money in the near future, say $4 trillion dollars. The deal would necessarily have involved big spending cuts and big tax increases. While you may be in favor of one or the other, the truth is we need both to try to at least stabilize the national debt. Alas, such a big bargain was impossible as the far right and far left of each political party refused to play nice.
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Debt Deal – Dumb Like A Fox
The debt deal looks like an incontinent piece of…well, not a good deal. It has no tax increase and $2.1 trillion of cuts. Of course, those cuts don’t really start for another three years, which is a long time in politics. To put it another way, this appears to be a debt ceiling increase with a lot of minutia tacked on that will never actually happen.
That is until you read it closer.
Let me ask you a question. How do you get a deal done while not having to deal with the vocal fringes of your party? You pass a deal that has delay provisions in it that nobody can challenge. That is exactly what happened here. The deal calls for another $1.5 trillion in cuts to be made based on whatever a “Super Congress” of 12 politicians agrees on. This group will consist of six Democrats and six Republicans. They have almost no chance of agreeing on a deal because Boehner and Obama will end up putting members from the fringes of the parties on the panel.
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Now comes the fun. If the panel cannot agree on cuts within a prescribed time, a trigger occurs. If it does, it will cut $800 billion from the defense budget over 10 years. This is an automatic deduction, not one that is voted on by the politicians. There are other substantive cuts as well to other areas although Medicare and Social Security get out mostly unscathed.
So, what will ultimately happen here? Ultimately, the panel will fail to reach an agreement and big cuts will be made to the defense budget. The military budget is one of the big three programs that must be cut. Social Security can be handled by raising the qualification age and including a means test that precludes wealthier individuals from getting payouts. Expect a deal next year or right after the election. That will just leave Medicare and its ilk to be dealt with.
Tea Party
The Tea Party is being touted as the big winner in the debt ceiling debate. I have my doubts. I should note that I believe strongly in the conservative fiscal policies people like Rand Paul tout. At first glance, this bill looks like a winner with not tax increases, but plenty of cuts. There is only one caveat. The Bush Tax Cuts expire at the end of the year and that is something the Tea Party can’t stop from happening. I think Obama is counting on that event as a means to raise new revenues. If so, then the Tea Party has not won much at all.