Wonkbook: Ryan, Obama and Simpson-Bowles would all bust the debt ceiling
There are two important things to know about the debt ceiling. First, because of what we’ve already done, it needs to be raised. Second, no matter what we do next, it needs to be raised.
It doesn’t matter which budget plan you’re looking at: our accumulation of debt might slow in the coming years, but it doesn’t stop. Obama’s budget requires another $7 trillion in borrowing over the next decade. Paul Ryan’s budget requires $6 trillion. The Simpson-Bowles recommendations would require about $5 trillion. Odd as that sounds, it’s actually okay -- perhaps even good. A gradual fiscal adjustment is far safer for the economy than an abrupt contraction. As Steven Hess, chief credit officer of Moody’s ratings agency, puts it, “You don’t have to have extreme austerity right now to come up with a plan that is long term. It’s the long term trajectory that’s important.”
But we have to admit the reality of the situation, particularly if we’re going to avoid catastrophe over the debt limit. As Howard Gleckman writes, every legislator who voted for the 2011 continuing resolution “voted for a budget that will result in about $3.7 trillion in spending and about $2.2 trillion in revenues.” That is to say, they voted to add $1.5 trillion to the debt. Now the bill needs to be paid. Going forward, almost every legislator is supporting some budget or another that would increase the debt over the next decade. Those bills will need to be paid also. It’s good and necessary to have a conversation about how to get our fiscal house in order going forward. But the debt ceiling is about what we have already done, and raising it is a precondition of anything serious we might do next. It is not the place for posturing, as you’ll see in this morning’s fourth story.
Five in the morning
1) All of the plans on the table would see us accumulating more debt over the next decade, reports Lori Montgomery: “The analysis, by the bipartisan Committee for a Responsible Federal Budget, found that the plan Obama unveiled in a speech last week would require the nation to borrow another $7 trillion during the next decade, compared with about $5.5 trillion under the House Republican budget and about $5.3 trillion under the recommendations offered in December by Obama’s fiscal commission. The new outline is a significant improvement over the budget request Obama submitted to Congress in February, which would have required $9.5 trillion in fresh borrowing through 2021.”
2) Congress has already voted to increase the debt, writes Howard Gleckman, which makes it irresponsible to play games with the debt limit: “Any lawmaker who voted for the budget deal that funds the remainder of this fiscal year or who opposed the measure because it cut spending by too much ought to be impeached if he does not also vote to increase the debt limit. That politician has voted for a budget that will result in about $3.7 trillion in spending and about $2.2 trillion in revenues. In other words, that pol has voted to add $1.5 trillion to the debt (or at least that fraction of $1.5 trillion necessary to get the government through the remainder of the budget year). Having voted to run up the bill, it is utterly irresponsible to prohibit the government from borrowing the money to pay it. “
3) Going forward, the Republican budget would require lifting the debt ceiling and rejecting the Senate Republican’s balanced budget amendment, reports Ezra Klein: “House Republicans voted to make the Ryan budget law. But the Ryan budget includes $6 trillion in new debt over the next 10 years, which means that to become law, the Ryan budget would require a substantial increase in the debt ceiling. But before the Republicans agree to increase the debt ceiling so that the budget they passed can become law, Republicans are demanding the passage of either a balanced budget amendment that would make the Ryan budget unconstitutional or a spending cap that the Ryan budget would, in certain years (and if you’re using more realistic numbers, in all years), exceed.”
4) Annie Lowrey imagines what will happen if the US doesn’t raise the debt ceiling. It’s really, really bad: “By 9 a.m., you are onto other worries. Your firm had used Treasurys to help finance a big investment in emerging markets. Given the foreign sell-off, those Treasurys, once as close to cash as any investment came, are now worth less. The other side of the deal wants you to cough up actual cash to make up the difference...At 10 a.m., you turn your attention to money-market funds...You remember what hell broke loose when such funds went on the fritz in 2008. Just one fund ‘broke the buck,’ essentially repricing its dollar shares at 97 cents. That caused a $500 billion run on all money-market funds. A possibility predicted by J.P. Morgan analyst Terry Belton months before, you hear a rumor that a big money-market fund carrying a lot of Treasurys might have to break the buck this time too, and frightened investors are pulling out and demanding their money back.”
5) Tom Coburn says the ‘Gang of Six’ will not agree to a “significant tax hike on anyone,” reports Michael O’Brien: “Republican senators trying to hash out a bipartisan deal to reduce the deficit will refuse any significant tax hikes, Sen. Tom Coburn (R-Okla.) said Thursday. Coburn, one of six senators involved in behind-the-scenes talks considered crucial if there is to be a deal, said that while it was possible that some voters could see their tax burdens rise, the ‘Gang of Six’ talks would not result in a significant tax hike. ‘There’s no plan to have a significant tax hike on anyone,” Coburn said on conservative talker Laura Ingraham’s radio show. “I don’t think there’s any of the three of us who will embrace tax hikes.”
’ Coburn’s comments suggest the senators are unlikely to agree to end the Bush tax rates for families with annual income above $250,0000, a priority for the White House. “
And Sen. Orrin Hatch, ranking member on the Senate Finance Committee, says he won’t vote for a deal with tax increases: http://bit.ly/hJx6UW
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Before they were famous interlude: Fleet Foxes frontman Robin Pecknold covers “Let Down” by Radiohead.
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Still to come: Joe Biden’s deficit negotiations are not off to a good start; more and more more homeowners are defaulting on their mortgages strategically; Republicans are spending Easter break defending Medicare cuts to their constituents; the SEIU is preparing a national Wisconsin-style campaign; the administration is gearing up to fight gas price gouging; and the littlest Thor in the world.
Biden’s deficit panel is wracked with infighting before it even meets, reports Paul Kane: “A congressional task force launched by President Obama last week to help cut the federal deficit is off to a rocky start, with some members complaining that the agenda is destined to provide political theater, not a sweeping rewrite of spending and tax policy. Set to begin discussions May 5, members already hit a dispute this week, disagreeing over how many people should have seats at the table. Some are asking what’s the point of meeting at all. ‘I’m at a loss to understand what the purpose is,’ House Majority Leader Eric Cantor (R-Va.) said Thursday in an interview...Several members said it was unclear whether the commission, to be chaired by Vice President Biden, will become the source of a bipartisan deal on cutting the deficit or simply serve as a diversion while an agreement is quietly negotiated elsewhere.”
Big investors are abandoning the dollar, reports Steven Mufson: “Some of the most successful investors in the United States and the biggest money management funds are worried that trade deficits, big budget deficits and the possibility of renewed inflation will make the U.S. dollar a weak currency compared with others around the world. On Thursday, the dollar fell to an 181 / 2-month low against the euro. Bill Gross, chief executive of the giant bond investment firm Pimco, said its flagship Total Return Fund has 8 percent of its assets -- a historic high -- in issues denominated in currencies other than the dollar. Earlier this year, the fund dumped its entire holdings of U.S. Treasury bonds, according to disclosures...The dollar may still have more room to decline against other currencies.”
More and more homeowners are foreclosing on purpose, reports Dina ElBoghdady: “Some borrowers can’t keep up with their mortgage payments because they’re struggling to make ends meet. Others choose not to keep up even though they can afford their monthly payments, and a new picture is emerging about who these borrowers are and why they walk away. A growing body of research shows that these so-called ‘strategic defaulters’ defy the tell-tale characteristics of most people whose loans go bad. They pay their bills on time, rarely exceed their credit-card limits and hardly use retail credit cards, according to a study released Thursday. And they plan ahead...A team of researchers estimated that 35 percent of defaults in September may have been strategic, up from 26 percent in March 2009.”
Rich people don’t flee high state income taxes, reports Robert Frank: “Anti-tax advocates contend that higher taxes on the wealthy lead to millionaire flight. They say this has been seen in Maryland, Rhode Island, New Jersey and New York. The rich are mobile, they say. They can take their money, taxes and jobs wherever they are treated best. But a new study focusing on New Jersey provides some of the most detailed evidence yet that so-called millionaire taxes have little effect on the movements of millionaires as a whole. The study, by sociologists Cristobal Young at Stanford and Charles Varner at Princeton, studied the migration patterns of New Jersey’s millionaires before and after 2004, when the state imposed a “millionaire’s tax” that raised rates on those earning $500,000 or more to 8.97% from 6.37%...The tax rate, they concluded, had no measurable impact.”
Policymakers are starting to care more about bond traders than voters, writes Robert Skidelsky: “The financial collapse of 2007-2009 was the result of a massive mispricing of assets by private banks and ratings agencies. So why should we believe that the markets have been correctly pricing the risk of Greek, Irish, or Portuguese debt?...In the last resort, it is voters, not markets, which hold governments to account. When these two accounting standards diverge, the popular standard must prevail if democracy is to survive. The tension between democracy and finance is at the root of today’s rising discontent in Europe. Popular anger at budget cuts imposed at the behest of speculators and bankers has toppled leaders in Ireland and Portugal, and is forcing the Spanish prime minister into retirement.”
Adorable animals catching some zzzs interlude: Baby lions go to bed.
Republicans are spending Easter break trying to defend Ryan’s Medicare cuts, reports Patrick O’Connor: “Republican lawmakers fanning out across the country during their Easter break to explain the plan to constituents are finding their biggest challenge is convincing seniors already receiving Medicare benefits that those benefits won’t be affected, and that the changes would apply only to people who become eligible for Medicare in 2021 and beyond. That task is complicated by Democratic attacks on the GOP proposal, which they say abandons a promise of guaranteed benefits. The Democratic Congressional Campaign Committee aired radio ads blasting the GOP plan this week and commissioned phone calls in the districts of some House Republicans, including Mr. Barletta, telling voters the lawmakers want to use Medicare ‘as a piggy bank for the government.’”
Public health officials predict smoking bans in every state before the decade’s out: http://wapo.st/eba97Z
Health patients aren’t too smart as consumers, writes Paul Krugman: “There’s something terribly wrong with the whole notion of patients as ‘consumers’ and health care as simply a financial transaction. Medical care, after all, is an area in which crucial decisions -- life and death decisions -- must be made. Yet making such decisions intelligently requires a vast amount of specialized knowledge. Furthermore, those decisions often must be made under conditions in which the patient is incapacitated, under severe stress, or needs action immediately, with no time for discussion, let alone comparison shopping. That’s why we have medical ethics. That’s why doctors have traditionally both been viewed as something special and been expected to behave according to higher standards than the average professional.”
Let states spend Medicaid dollars how they want, writes Scott Walker: “Why now support a block grant for Medicaid when similar proposals have failed? First, we know from more than a decade of experience with welfare reform that switching from open-ended entitlements to block grants pushes both individuals and states to behave more responsibly. Second, more than a decade of experience with the State Children’s Health Insurance Program, which has vastly expanded coverage for children while being more flexible than Medicaid, shows the success of the block-grant model. Third, there are already caps within Medicaid through so-called Section 1115 demonstration projects. It is through such projects, known as waivers, that innovative programs like BadgerCare in Wisconsin and MassHealth in Massachusetts (which President Obama says was his model for reform) were built.”
Rep. Chris Van Hollen wants the FEC to toughen campaign finance rules, so he sued them, reports T.W. Farnam: “Rep. Chris Van Hollen (D-Md.) filed a challenge to campaign spending rules in federal court Thursday, charging that the regulations do not adequately implement the portions of the 2002 McCain-Feingold law requiring disclosure of political donations. The lawsuit challenges regulations at the Federal Election Commission that allow groups organized as nonprofits to spend money on candidate ads ahead of an election without revealing their financial backers. ‘The disclosure of campaign-donor information is essential to our democracy,’ Van Hollen said in a statement announcing the lawsuit... Supporters of the lawsuit say interest groups ran $135 million worth of campaign ads in the last election cycle without revealing the source of the money.”
SEIU wants two, three, many Wisconsins, reports Ben Smith: “In a major strategic shift, the Service Employees International Union plans to use its giant political operation to try to build a grass-roots movement of public protest and organization similar to the massive show of pro-labor support that overran Madison, Wis., last month. The SEIU’s ambitious effort is a dramatic departure from its straightforward approach to the 2008 campaign. That year, the union pressed a single-minded and ultimately successful focus on getting Democrats to commit to a health care overhaul. Then it spent more than $32.5 million in independent expenditures to elect President Barack Obama. SEIU President Mary Kay Henry acknowledged in an interview that the new strategy, which would include aggressive outreach to non-union members, is ‘a risk.’”
The House shot down a “quasi-earmark”: http://politi.co/ettGsl
Adorable children dressed as superheroes interlude: Little Thor.
The administration is bringing out the big guns to fight gas price gouging, report Jeremy Pelofsky and James Vicini: “With U.S. gasoline prices soaring, the Obama administration Thursday unveiled a working group of federal agencies to probe potential fraud in the energy markets. Rising fuel prices are a persistent concern for the White House, which worries about their impact on the economy’s recovery and on voters’ wallets as President Obama runs for reelection...’We will be vigilant in monitoring the oil and gas markets for any wrongdoing so that consumers can be confident they are not paying higher prices as a result of illegal activity,’ Attorney General Eric H. Holder Jr. said in a statement unveiling the effort...The group, which will be part of the administration’s Financial Fraud Enforcement Task Force, will focus on any manipulation of oil and gas prices.”
Obama slammed “climate deniers in Congress” at a fundraiser: http://bit.ly/e8bwYm
Automakers wants a break from environmental rules when gas prices are low, reports Josh Mitchell: “Auto makers are pushing to link federal fuel-economy and emissions targets to the price of gasoline, saying consumers won’t pay enough for fuel-efficient cars to make them profitable if gas prices aren’t high. The Alliance of Automobile Manufacturers, the industry’s main trade group, is proposing that regulators periodically review gas prices and other market factors, and scale back fuel-mileage and emissions requirements if gas prices don’t hit certain targets. The White House is under pressure from environmental groups and California officials to require the U.S. fleet to average as much as 62 miles per gallon by 2025, compared to the current average of 22.5 miles per gallon for 2010.”
Computing “carbon footprints” for consumer products is often a shot in the dark, reports Brian Vastag: “Two years on, handicapped by uncertainties about how to calculate those ratings -- or whether it’s even possible -- carbon-footprinting schemes struggle to be recognized as the standard stamps of eco-consciousness that the FairTrade, Energy Star and LEED systems have become. Nonetheless, several countries have labeling schemes in the works, and U.S. proponents of labeling argue that even flawed systems are better than none...So far, though, few people agree on how to measure the carbon footprint of, say, a kilogram of beef... Estimated emissions vary greatly depending on how many environmental ripples are included in the equations. And deciding that is a matter of choice, not math.”
The US has way more oil than Obama thinks, writes Lisa Murkowski: “The president said this month that ‘even if we doubled the amount of oil that we produced, we’d still be short by a factor of five.’ That’s simply incorrect. Doubling our production would trim imports nearly in half. Boosting production by a factor of five is not currently feasible, but if it were, it would make the United States the world’s largest producer. Perhaps most misleading is his claim -- also made by others -- that the United States has ‘about 2, maybe 3 percent of the world’s proven oil reserves; we use 25 percent of the world’s oil.’ That line is crafted to make the audience think that America is both running out of oil and using oil at an unsustainable rate. In truth, ‘reserves’ is just one of several categories used to quantify oil and, on its own, misrepresents America’s potential.
Closing credits: Wonkbook is compiled and produced with help from Dylan Matthews and Michelle Williams.