Monday, August 1, 2011

Rearranging the Deck Chairs on the Titantic--or--We Have a Deal

It looks like the President and the Congress--its leaders at least--have come up with a deal to raise the debt limit.  It is notable for a few of things:  1) no tax or revenue increase; 2) the cut to the defense budget is $350B over ten years (less than the $400B the President had called for and the $800B in many of the competing visions); 3) it grants the government borrowing authority through the 2012 election; 4) it projects "spending cuts" of up to $2.7 trillion over ten years, though only about $1.0 trillion is up front--the rest would theoretically come as the result of a "tri-partisan" commission (whatever that means) that will meet this year to find the rest of the cuts.  If it doesn't, automatic "triggers" would then kick in which would cause draconian cuts in discretionary spending; 5) it sets the stage for a balanced budget amendment vote in both chambers.  Ok, now some analysis.

First of all, although I find him to be an insufferable prig, Ezra Klein of the Washington Post has a pretty good rundown on the deal and how the triggers and such work.  Read it here

The deal does one thing well--it provides for the debt ceiling to be raised, in two stages, averting the crisis of default.  The first stage would occur immediately and the second stage, next year.  This appears to be the President's major victory in all this--that he would not have to deal with another messy debt ceiling fight in the 2012 Presidential Election year.  On much of the rest, he compromised. 

The deal cuts spending--but on the whole, not very much.  The deck chairs on the Titanic have been rearranged.  The real culprit in our certain decline into insolvency--health care--remains virtually untouched.  Yes, there is a provision in the trigger mechanism to cut medicare provider reimbursements, but such cuts serve only to drive providers from the system, creating new political pressures on the Congress to reverse them.

There are no revenue additions in the plan--either tax hikes or adjustments to revenue expenditures.  This is a short term victory for Republicans, though it may be Pyrrhic.  Broadening the tax base to generate sufficiently predictable revenue was part of the Bowles-Simpson recommendations AND it is part of Saint Paul of Ryan's Roadmap.

The agreement to hold votes on a balanced budget amendment is an interesting one--this will cause quite a stir in the Senate (though it could still be filibustered) as there are a number of vulnerable Dems up for re-election who might find it hard to buck current Democratic thinking on the issue.  We'll have to wait and see.

So--everybody got something they wanted--the President got the debt ceiling raised until his (hoped for) second term.  The House Republicans got spending cuts equal to the debt limit increase (sort of) and a balanced budget amendment vote in the Senate.  I'm sure Congressional Democrats got something out of the deal (lest they would not have agreed to it), but I'm not sure what it is.

As for real reform, this "deal" does nothing.  It does nothing to reform our ridiculous tax code which punishes work, investment and saving.  It does nothing to control spiraling out of control entitlement spending, especially on heath care.  It sets up yet another "commission" to come up with another trillion and a half dollars in cuts which--if they aren't agreed upon--trigger draconian cuts to discretionary spending that no Congress will actually make. 

What did the deal do?   It moved the iceberg just a little bit farther on the horizon.   But it is still there, and we're headed right for it. 


BigFred said...

Disappointing. 2012 is going to be a bloodbath for both sides.

"The Hammer" said...

Commissions and experts and more commissions to sort out the problem. I thought that's what Congress is for. And I also thought that was what Erskine Bowles and the boys did just a few months ago.

The Dems got what they wanted, the debt limit issue off the table through the election with just a kiss and a promise. I expected as much.

Doc Milnamo said...

Q: What is the difference between the Titanic and the United States?

A: The Titanic had an orchestra.

Mudge said...

Precisely, Hammer, this President didn't compromise on anything. He got exactly the most important feature of all--to make this go away as a campaign issue--the rest of it he couldn't care less about. He comes from a culture of progressives who seek to raze the economy and recraft it in a 'more just' model. This was the perfect concoction to get him his 4 more years do continue what he couldn't complete in the first four.

Bryan said...

I'm amazed after being in such a superior negotiating position the Republicans weren't able to drive through a compromise more on their terms. Was this a function of the Democratic Senate being able to stymie more significant reductions, or did the House miss an opportunity because their proposal was too extreme?

Even if this does help Obama's re-election, it seems likely the Senate will flip Republican in the next election and the House will stay Republican. That form of divided government worked in the 1990s and other times. Maybe it will work again when we have to face this same issue next year.

Michael Mueller said...

Spiraling health care costs pose our biggest problem. The US pays more on health and obtains worse results than any other nation, with costs rising much faster than inflation.

I defy anyone to present a a better theoretical solution for controlling health care costs than a single payer system.

It's not perfect, but it's our best shot. And it is not "socialism" any more than Social Security or Medicare are socialism.

Spain's Health Department just issued a regulation requiring doctors to prescribe according to active ingredient (i.e. fill with generics rather than brands).

Would a single payer system hurt pharmaceutical and insurance company's profits? No doubt. Would it stifle innovation? Maybe.

But as you point out, we continue to head down the path to fiscal Armageddon and must do whatever it takes to bend the health care cost curve.

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