Debt Deadlock May be Dissolving Right Before the Zero Hour

Debt Deadlock May be Dissolving Right Before the Zero Hour

The Sunday morning political news cycle has leaders on both sides of the debate acknowledging a part in the clouds.

     

At last we visited Capitol Hill Elementary, the Republicans in the House had drafted and redrafted a plan to cut spending, while Senate Democrats had taken advantage of the GOP waffling to push their own plan. What we ultimately saw was that neither of these big-bang budget plans passed both the Senate and House, and both were drafted pretty closely along ideological lines with the GOP writing in heavy spending cuts and a small raise in the debt ceiling. Democrats, on the other hand, wrote in serious cuts, but also used some gimmicks with the end of the Afghanistan war. However, after a small breather, Senators Mitch McConnell and Harry Reid, along with the White House, have entered some hushed conversations. As of last night both senators and the White House announced that they were close to a debt deal. What's the difference between the last time they announced being "close", and this time? It didn't depend on John Boehner, who has shown himself to be completely incompetent in managing his party in the House.

     This morning on CNN's State of the Union with Candy Crowley, both Senate Minority Speaker Mitch McConnell and Chuck Schumer seemed to be confident that a debt deal was as good as done. Both described the package as being derived heavily from provisions in the House plan, which raised the debt ceiling by $900 billion (about 5 months of government spending) and included over $900 billion in cuts to discretionary spending. This is expected to get the government through the rest of this year safely.

     In the meantime a special joint committee will be formed to look at an additional $1.5 trillion in cuts to carry the government through 2012, an admittedly close shave but a politically beneficial one as neither the President or lawmakers seeking reelection will need to run in a climate of public pain over austerity cuts. This committee will be making the hard choices of looking at cuts to entitlements and tax reform to increase tax increases.

     The biggest changes made in this new deal are that it does not explicitly prevent Obama from raising the debt ceiling by invoking the so-called 14th amendment alternative. This keeps an alternative open for Obama to step in and prevent the first U.S. default in history should the committee not be able to find agreeable cuts. In addition, if the committee can't find a deal at any point during the life of this plan, a "trigger" will force the congress to make a significant change in both the debt ceiling and cuts and revenue.

     What this new proposed plan does, is essentially what's been done for the last several decades in terms of addressing political spending and tax reform; kicking the can down the road so that  none of the politicians that are making the decisions have to pay for the political fallout. In a rotten pie it doesn't matter how you slice it, everybody's going to get sick. This special committee will be the target of a lot of partisan fighting, which could be seen in the morning news cycle. Senator Claire McCaskill advocated for tax reform over entitlement spending cuts, illustrating how Republicans in the House and Senate advocated for making Medicare a voucher system while "writing checks" to oil companies in the form of tax subsidies. David Plouffe, on the same program, said that with the size of the target savings, tax reform to increase revenues was going to "have to be on the table" of this special committee. On the other side, Mitch McConnell said on State of the Union that the committee would be looking at cutting entitlement spending, capping future spending, and looking to pass a balanced budget amendment to the Constitution; the "Cut, Cap and Balance" Coalition's marching music.

     David Plouffe said on Meet the Press, "Today is a critical day." The very fact that the U.S. government is considering not paying its bills, is allowing the country to come to the brink of a default, is already effecting the markets. This is a result of CEO's and business leaders as well as investors and bond holders losing confidence in the U.S. government's ability to run the country and maintain economic stability. In the next 24 hours, we're likely to see whether that is true or not.