President Barack Obama and Congress face a mess if the federal government hits the debt ceiling Aug. 2. The Bipartisan Policy Center, a Washington think tank, projects that the government will receive $172 billion in revenues between Aug. 3 and Aug. 31, but it is on the hook to spend $306 billion, leaving a shortfall of $134 billion.So what's preventing our leaders from arriving at a solution? The Republicans want spending cuts in return for raising the debt ceiling. The Democrats want tax increases in return for agreeing to spending cuts:
On Tuesday, Mr. Obama told Scott Pelley of CBS News that "there may simply not be the money in the coffers" to issue Social Security, veterans and disability checks after Aug. 3.
Not so. The $172 billion in revenues collected over the rest of the month can pay the $29 billion interest charges on the national debt, Social Security benefits ($49 billion), Medicaid and Medicare ($50 billion), active duty military pay ($2.9 billion), Department of Defense vendors ($31.7 billion), IRS refunds ($3.9 billion), and about a quarter of the $12.8 billion in unemployment checks due that month.
There will, however, be no cash for highway construction, no checks for federal workers or retirees, no agriculture payments, no open national parks. Interest rates are also likely to rise if U.S. debt is downgraded, adding massively to the deficit and further damaging the economy. This would be a disaster with no political winners.
The president wants a $2.4 trillion debt-ceiling increase to get him past next year's election—and the deal he's proposing is based on promised future cuts paired with substantial tax increases on households earning more than $250,000 a year.This means that it's not just millionaires and billionaires whose taxes would rise, but thousands of small businesses working on tight margins would have their costs go up as well. This would inevitably lead to higher unemployment and more business failures. This the Republican negotiators refuse to agree to, and even though Mr. Obama is willing to agree to spending cuts in exchange for his tax increase there's another problem:
[T]he $4 trillion in deficit reduction that Mr. Obama talks about is shy on details. No one who's attended his frequent negotiating sessions knows what his proposal really is.
The president has made a bipartisan agreement even more difficult by declaring certain spending off-limits to cuts. Mr. Obama's "untouchable" list includes his $1 trillion health-care reform, $128 billion in unspent stimulus funds, education and training outlays, his $53 billion high-speed rail proposal, spending on "green" jobs and student loans, and virtually any structural changes to entitlements except further squeezing payments to doctors, hospitals and health-care professionals.
Republicans have wisely declined. Demanding the GOP vote for immediate tax increases that would be offset by vague, future tax cuts conjures up images of Charlie Brown, Lucy and the football. The tax increases would be real—the future tax rate cuts would be imaginary.The Democrats complain that the Republicans are not willing to compromise by raising taxes, but why should they? Tax increases would only worsen the economy and it's profligate spending that got us into the mess in the first place. Why, then should we not just cut spending?
The president offers what might be called the Wimpy (of the old Popeye cartoons) bargain - he'll gladly pay us on Tuesday (spending cuts) for a hamburger (tax increases) today, but giving Mr. Obama the hamburger just fattens government even more and there's no guarantee that Tuesday will ever come. Some deal.
