Howard Schneider

Howard Schneider
Location
Parsippany, New Jersey, United States
Birthday
February 02
Bio
I am a 56 year old financial services professional. I graduated from Wagner College in 1980 with a B.S in Economics & Business Administration with a minor in Sociology. My interests beyond economics lie in politics, literature, theater, music, and sports. I have always enjoyed writing and I look forward to writing on my varied interests to express my views and interact with others and explore their views. I invite differences of opinion and I am open to having my mind change. The only permanence is change.

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Salon.com
AUGUST 14, 2011 4:20PM

The Anatomy of the Debt Ceiling Showdown

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The debate that has been raging regarding the conditions for raising the debt ceiling has been predictably political and murky. It is true that progressive Democrats have emphasized protecting social programs and raising revenues. At the same time conservative Republicans have argued for massive spending cuts especially for social programs with no revenue increases. This is a good and proper debate for our country to have. Is it the proper debate to have right now and under these conditions? Should raising the debt ceiling be tied to these negotiations? There has been much misunderstanding and many false statements conveyed regarding the consequences of not raising the debt ceiling. There are many leaders who are positioning themselves politically and rhetorically in ways only meant to advance their own agendas and ambitions. The American people should not be used as pawns in their political game. This is a time for statesmen and stateswomen. The decisions being made now will affect many millions of people in some manner.

 

I will attempt to describe to you in this article what the debt ceiling is and what it means to all citizens of the United States. Then I will analyze the positions of the two parties. Also I will show which leaders in my estimation are attempting to be productive in these proceedings and which are not. Finally I will offer my own solution to both this immediate problem as well as the longer term budget issues. I hope I will succeed in answering the questions I have posed to the satisfaction of my readers as well as any others you may have regarding these issues. The American people need to understand what is going on regarding these debates and how it will affect all of us.

 

What is the debt ceiling? It was first created in late 1917 in the amount of 11.5 billion dollars. The reason for its creation was for the issuance of bonds and other debts to pay for the United States involvement in World War I. The debt ceiling did not significantly rise again until the early 1940's to fund World War II. It has in total been raised 102 times in its 94 year history. The debt ceiling represents the loan obligations which our country has incurred in the past which remain outstanding and obligations that Congress may legislate for in the future . This ceiling needs to be raised when it is estimated that we will have a higher level of these obligations due to budgetary choices in the near future.

 

All of the past debt ceiling increases passed very easily. Some Congressional members voted against it at times to protest one issue or another. Senator Barack Obama voted against a debt ceiling increase before he was elected President. None of these votes were cast when the vote’s passage was seriously in question. This is because everyone involved knew that the consequences to the United States would be dire if the debt ceiling was not raised. Our credit rating would drop precipitously if we failed to pay our debt obligations. The estimated loan interest payments for 2011 are approximately 420 billion dollars. These payments could easily double if our credit rating was dropped substantially. Interest rates would also rise for ordinary citizens as well as state and local governments because their rates are pegged to the Treasury rates.

 

The order in which budget expense payments are made is unclear in the event that we ever fail to raise the debt ceiling. Loan interest payments would probably be paid first both because we are legally bound to do so and because the economic consequences would be too expensive and damaging to our credit rating. Our troops might not be paid as well as other federal employees. Social Security, Medicare, Medicaid, and all other social program payments might also be held back. The reason that we might need to withhold these payments is that our expenses outstrip our revenues. Only 56% of our current expenses are covered by our current revenues. So choices would have to be made if the debt ceiling is ever not raised. What would the U.S. Treasury and the Administration do? This is virgin territory. No one really knows what might happen.

 

Democrats and Republicans have their contrasting political stances regarding this issue. They also have their own party divides. The Democrats are led by President Obama and Senate Majority Leader Harry Reid. They were seeking significant spending cuts along with revenue increases. These increases involved mostly the closing of tax loopholes and corporate tax breaks. They were advocating for deals with various advantages of spending cuts over revenue increases ranging from 2-1 to 4-1. House Minority Leader Nancy Pelosi and her progressive wing wanted much lower social program spending cuts than the President had agreed to.

 

The Republicans have a much more defined split within their party. The newly elected Tea Party faction of the House of Representatives number at least the 87 newly elected members. Their clout is enormous. They insisted on massive social program spending cuts with absolutely no revenue increases of any sort. Grover Norquist, the leader of the organization "Americans for Tax Reform", has the signatures of almost every Republican on his no new tax increase pledge. He has threatened to campaign against any of them if they break that pledge. They have effectively abdicated their power to compromise to this non-elected individual. Some even refused to vote for a debt ceiling increase no matter what deal was agreed upon. Many stated that they did not think it was even necessary to raise the debt ceiling.

 

Most of the Republican leaders in the House and Senate were much more forthcoming in their efforts to compromise and reach a deal. They seemed to realize what the terrible consequences would be if they failed in their efforts to reach a deal and raise the debt ceiling. They had been negotiating with Vice President Joe Biden for weeks and progress appeared to be moving steadily forward. Even Senate Minority Leader Mitch McConnell seemed to be on board. McConnell famously stated in 2009 that his main goal was to defeat President Obama in 2012.

 

Unfortunately House Majority Leader Eric Cantor threw a monkey wrench into the talks when he stormed out of a session after the elimination of corporate tax breaks was insisted upon by the Democrats. Cantor appears to have picked up the leadership mantle of the Tea Party wing of the Republicans in the House. His no revenue increase stance stopped Speaker Boehner in his negotiating tracks because he knew he would not have the votes for any compromise with President Obama. Cantor's new maneuvers had the look of a naked power grab. His eyes were clearly on the Speaker's job. This left the chance for any significant budget deficit reducing bill in tatters. Senator McConnell and Senator Reid now began developing a bill with Speaker Boehner's approval that would allow the President to raise the debt ceiling incrementally. Much smaller spending cuts would be attached to the bill.

 

Let me first state that I do not believe that this debt ceiling increase debate should be tied in any way to these or any budget negotiations. I feel that the U.S. Treasury department should be able to pay our bills and debt obligations automatically without any artificial limit derived from the World War I era. The debt ceiling can be totally eliminated by legislation if our political leaders had the will and inclination to do so. Just imagine if you spent money on your credit card and then called the company to state that you cannot pay your balance because you refuse to raise your personal credit limit. You would quickly find yourself in court. Actually, Amendment 14 of the United States Constitution states that the validity of the public debt shall not be questioned. I feel that President Obama should use this as a basis to pay its debts in the event Congress ever fails to pass the debt ceiling increase.

 

That being said, these budget negotiations which were tied to the debt ceiling increase were going nowhere. Why were both sides not acting more like adults and statesmen? This was especially true of the Republicans. Obstinately sticking to their no new tax revenue stance is similar to a child throwing a temper tantrum until he gets what he wants. Both sides needed to compromise to reach a deal. President Obama seemed to be bending over backwards to do so. The Tea Party Republicans refused to compromise. Senator McConnell began drafting his emergency legislation to give President Obama the power to raise the debt ceiling after he received a letter from 400 corporate and Wall Street leaders urging him to pass legislation to increase the debt limit. They argued that the consequences to the American economy would be catastrophic to even flirt with not raising it. Congress had to be scolded into doing this which is proof that we have a totally dysfunctional legislative branch.

 

President Obama originally wanted a 4.5 trillion dollar deficit reduction bill over ten years. This would have had some revenue raisers in it by way of eliminating corporate tax breaks and other tax loopholes. The Republicans refused this and then offered a 2.5 trillion dollar plan of only spending cuts mostly through entitlements. Speaker Boehner then trimmed this to a 1 trillion dollar plan in spending cuts only that would have raised the debt ceiling but only through February of 2012. The Speaker tried to corral the votes to pass this bill that same night. The Tea Party faction refused to support it so Boehner’s bill did not even come to the floor for a vote. Senator Reid had a 2.7 trillion dollar spending cuts only plan that would have pushed the raising the debt ceiling question past the 2012 November election. Both sides claimed that the other’s plan would not pass their chamber.

 

A backup plan was offered by Sen. McConnell in the event that both sides failed to reach a compromise on a passable plan. His minimal spending cut plan of around 1.5 trillion dollars over ten years would have allowed the President to raise the debt ceiling by way of veto. This piece of legislative trickery would have allowed the President to submit to Congress his intent to raise the debt ceiling two more times before his term was up. The idea being that the Republicans would vote "Nay" each time and he would then veto and raise the ceiling. This way the Republicans were on record saying no but would have actually acquiesced to the President. Is this a proper way to handle this problem? This plan was extremely flawed but it was better to do this and avoid the upheaval of not raising the debt ceiling. Doing nothing was unthinkable. Of course the House Tea Party Republicans were totally against this and their loud disapproval put this plan in doubt also.

 

Ultimately the two sides made a compromise that allowed the debt ceiling to rise through 2012. Unfortunately it fell far short of the amount of deficit reduction our country needed. One trillion dollars of spending cuts over ten years was agreed to immediately.  A super committee to find another 1.5 trillion dollars of deficit reduction by November of 2011 was agreed upon. Mandatory across the board cuts will be instituted if this committee cannot agree on a plan or if their prospective plan is voted down in the Congress. Only time will tell if this process will prove to be a fruitful one. I and many others are quite doubtful it will.

 

My proposal, though the Republicans in the House would have rejected it out of hand, comes out of parts of my article, "A Progressive Answer to Paul Ryan’s Path to Social Oblivion". I would use the 1.3 trillion dollars of savings in waste and fraud over ten years in defense and entitlements from that article as my spending cuts. Then I would raise 1.2 trillion dollars in revenue increases. These would be obtained by eliminating all oil, farm, and ethanol subsidies. I would also eliminate the state and local income tax deduction and the home mortgage deduction for homes worth more than 1 million dollars. My deficit reduction package would total 2.5 trillion dollars over ten years. Of course this package does not come close to balancing the budget but it is certainly more fair and reasonable than the other plans that have been floated on the Hill.

 

Unfortunately I do not see any way of reaching a true budget balancing deal until after the 2012 election. This is why I believe that the 2012 election will be so crucial to our future. The American people need to tune into this debate because it will carry on right through that event. We cannot afford the gridlock and bickering that is going on in Washington D.C. right now. Our candidates must hear our educated voices on these budget issues. They must then honestly debate these issues and come to a common sense compromise to start on the road to balancing the budget. I hope this article made clearer what is going on with the debt ceiling question and the budget deficit reducing debates. Please get involved and let your national leaders know your views on these subjects. Also please vote wisely in 2012. Once again our future and our children’s futures hang in the balance.

 

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Comments

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Your blog was on point about debt ceiling. One point you left out, Republicans want cuts in social programs, and when they get the cuts, they increase spending in defense spending. They call it triple down economics, from their god Reagan. If the federal budget going to be fix, there must be increase in revenue and decrease across the board on the federal budget. Food and healthcare safety, banks and stock regulations,government regulations to protect workers in the budget, should not be cut.
Your blog was on point about debt ceiling. One point you left out, Republicans want cuts in social programs, and when they get the cuts, they increase spending in defense spending. They call it triple down economics, from their god Reagan. If the federal budget going to be fix, there must be increase in revenue and decrease across the board on the federal budget. Food and healthcare safety, banks and stock regulations,government regulations to protect workers in the budget, should not be cut.
You are right James. The Republicans constantly argue against defense spending mostly because they have bases or arms companies in their districts. Trickle down economics has been proven not to work. The wealthy and corporations are hoarding their increased wealth now. Still they want more through tax cuts. I agree we need added revenues and strengthening of our social safety net as well as our regulations of industry. The corporate funded Tea party wants exactly the opposite. They are greedy and cruel. Thank you very much for your insightful comments James.
Great summary of the situation. I too fear that nothing will be done before the 2012 elections. The Republicans are going to use this to hammer Obama until election day. The question is whether the voters will be able to see through all the smoke. I think the Republican trump card is to try to hang both defense and entitlement cuts around Obama, saying that he is endangering the country and ending entitlements, even though their actions have led to this point. When one party no longer cares about the truth, the dialogue is destined to come apart.
David,

The Democrats need to fight tooth and nail on all the issues. You are right that they are going to lie on everything and then blame President Obama. He should come forth with a jobs plan that is strong and sensible and that shows his contrast with this do nothing Tea Party Congress. The only way to fight through the smoke is to be clear with your plans and show rapid response against the lies. President Clinton's campaigns were masterful against those tactics. Thank you for your insightful comments David.
Thank you Howard for your observations and kind comments on my previous posts.

I think we are all beginning to recognize that the economic challenges we face today are similar in magnitude and kind to those the country confronted during the industrial revolution that followed the Civil War when Populist and Progressive movements were needed to finally sort out the Gilded Age abuses connected with the new institutions and arrangements spawned from the rapid transformation of the nation's economy from agriculture to industry and finance.

Even Joseph Schumpeter, who coined the phrase "creative destruction," recognized that allowances had to be made outside laissez faire and the free market for the collateral damage of broken individuals and communities caused by capitalism relentless innovations if capitalism itself were to survive.

And so even to an Austrian school conservative like Schumpeter, the social safety net was not antagonistic to capitalism as so many Tea Party radicals would say today, but an indispensible part of it. Unless, of course, conservatives are content to turn out the militia whenever bread riots threaten.

Political, social and legal systems always lag behind economic innovations. So, hopefully, we will find a way to beat back the vested interests in order to establish a new equalibrium before the crisis arrives.
Thank you for your comments Ted. I hope you are right that we can beat back the current vested conservative forces. I see them as being very cruel and uncaring. The disparity of wealth between rich and poor is growing exponentially and they want to accelerate it. All of this while slashing social programs for the growing poor. Are they calling for violence in the streets? FDR helped avoid this in the 1930's. The Koch Brothers are behind this new and meaner conservative Tea Party politics. They want to run this country and it frightens me. We need to fight back hard against it and regain that proper equilibrium you talk about. I truly fear for this country if we fail to do so.
I cannot not even imagine what is going to happen next.
Algis,

I cannot imagine either. The super committee of 12 that must come up with 1.5 trillion dollars of deficit reduction will probably be deadlocked due to the Tea Party intransigence with revenue raisers. If nothing is agreed upon or if a plan is voted down automatic across the board cuts occur including defense. This is no way to run a government or come up with a budget.