With typical Washington hysterics, Congress struck a last-minute deal to raise the US debt ceiling, enabling the Treasury to continue borrowing and, supposedly, avoid defaulting on payments to our creditors.
The deal included neither the level of spending cuts the Republicans wanted, nor the tax increases the Democrats were looking for. Conventional wisdom says that since both sides were unsatisfied with the deal, it must have some redeeming qualities. But, since when is wisdom in Washington conventional?
The deal immediately increases the US debt ceiling by $400 billion, and allows the President to request another $500 billion increase which Congress could vote down (by attaining a veto-proof a two thirds margin). An additional increase of $1.5 trillion becomes available after a special committee identifies matching levels of spending cuts.
The agreement also calls for spending cuts of more than $900 billion over ten years, with discretionary spending being decreased by $21 billion in 2012 and $42 billion in 2013. The compromise does not include any tax increases.
The deal also creates a 12-person House and Senate special committee to identify further spending cuts. The committee must make its recommendations to Congress, which will hold an up-or-down vote (Congress cannot modify the committee’s recommendations). If the special committee fails to reach an agreement or if Congress rejects its recommendations, automatic spending cuts of at least $1.2 trillion (50% defense/50% non-defense) would go into effect.
So, will this compromise solve our debt crisis? The numbers aren’t promising.
For fiscal years 2008, 09 and 10, Congress recorded budget deficits of $1 trillion, $1.9 trillion and $1.7 trillion, respectively. The $4.6 trillion debt incurred during these three years is equivalent to total debt the US accumulated from its founding in 1789 through 1994.
Further, this agreement raises the debt ceiling from $14.3 trillion (which is 98.6% of our 2010 GNP) to $16.7 trillion. Plus, the spending cuts are “back-loaded” (discretionary spending is reduced by a mere $21 billion – 0.6% of the $3.8 trillion budget – in 2012), and can be waived in the future.
Clearly, the fact that these outrageous spending levels are up to Congress’ “discretion” is the problem.
Fortunately, the debt ceiling agreement also requires that the House of Representatives and the Senate vote on a Balanced Budget Amendment to the Constitution.
Though passage neither assured nor likely, such an amendment is our only option for reclaiming fiscal sanity.