If you’re a Democrat, indeed if you’re an informed American, it’s hard to get very excited about the new plan which has been proposed to expand the debt ceiling.
Certainly the debt ceiling needs to be raised to prevent the US from defaulting on our obligations. But in crafting the plan, Congress and President Obama mostly ignored recommendations from the President’s bi-partisan deficit panel and the bi-partisan “Gang of Six” Senate panel. They (and the media) also completely ignored the People’s Budget Plan put forward by the Democratic Progressive Caucus. Instead, they were forced to embrace many ideas from the Tea Party and Republican deficit hawks.
Even if the plan passes both houses of Congress and is signed into law, the debate and resulting uncertainty have had a devastating impact on an economy that was already struggling. As the debate raged through the first half of this year, the economy grew at an anemic annual rate of only 0.8 percent and there are limited options of improving it. Before the deal, federal spending was already in steep decline, the stimulus money has largely been spent, and there’s little chance the administration will be able to convince Congress to pass new stimulus. On top of all this, we recently learned that that the Great Recession was much worse than previously thought.
Even in the defense industry, the effects of the debt debate have been noticeable. According to the chief executive of Northrup Grumman, Wesley G. Bush, “Uncertainties surrounding the debt ceiling and future defense budgets caused our customers to move more slowly and spend more conservatively. We did not see the recovery in spending that one might have expected.”
With all of that said, according to a report by the Associated Press, here’s what the new debt ceiling plan will do:
—Immediately increase the debt limit by $400 billion, with Obama permitted to order another $500 billion increase this fall unless both House and Senate override him by veto-proof margins; a third installment of between $1.2 trillion and $1.5 trillion would be made available after enactment of matching levels of additional spending cuts recommended by a special joint committee of lawmakers.
—Cut more than $900 billion over 10 years from the day-to-day operating budgets of Cabinet agencies. Caps spending passed by Congress for agency budgets at $1.043 trillion in 2012, $7 billion below 2011 levels.
—Create a 12-person, House-Senate committee evenly divided between the political parties, and charged with producing up to $1.5 trillion more in deficit cuts over 10 years. If a majority of the committee agrees on a plan, it would receive a vote in both the House and the Senate. If the panel deadlocks or fails to produce at least $1.2 trillion in additional cuts, or if Congress fails to enact its recommendations, the White House budget office would impose across-the-board spending cuts across much of the federal budget, including the Pentagon, domestic agency budgets and farm subsidies. Many federal benefits programs, however, would not be covered by this, including Social Security, Medicaid, veterans’ benefits, and federal retirement benefits.
—Require both House and Senate to vote on a balanced budget amendment to the Constitution.
—Establish “program integrity” initiatives aimed at stemming abuses in benefits programs like Social Security.
—Increase funding for Pell Grants for low-income college students by $17 billion over 2012-13, financed by curbs in student loan subsidies.
So how is the deal being received outside of Washington?
Speaking this past Sunday on ABC, Mohamed El-Erian, chief executive of the bond investment firm Pimco, said “Unemployment will be higher than it would have been otherwise. Growth will be lower than it would be otherwise. And inequality will be worse than it would be otherwise. We have a very weak economy, so withdrawing more spending at this stage will make it even weaker.”
In a recent op-ed, Robert Reich wrote “The deal does not raise taxes on America’s wealthy and most fortunate — who are now taking home a larger share of total income and wealth, and whose tax rates are already lower than they have been, in eighty years. Yet it puts the nation’s most important safety nets and public investments on the chopping block. It also hobbles the capacity of the government to respond to the jobs and growth crisis.”
Nobel Prize-winning economist Joe Stiglitz said, “The cost of the wars in Iraq and Afghanistan alone will exceed $5 trillion. With a cost like this, why isn’t war central to the debate over the national debt?”
And Arthur Delaney of the Huffington Post wrote “The long-term unemployed have been left out of a deal between congressional negotiators and the White House… Anyone laid off after July 1 is ineligible for extra weeks of benefits.”
Given the obvious problems with the new debt deal, you may ask, why would Democrats ever agree to it? After all, recent Democratic administrations are only responsible for $2.8 trillion of the national debt while their Republican counterparts (especially the administration of George W. Bush) are responsible for $9.5 trillon. The answer probably lies in a statement by Bruce Bartlett, former Reagan Policy Adviser and Deputy Assistant Treasury Secretary under George H.W. Bush. When he was a guest on MSNBC’s Hardball with Chris Matthews recently, he said, “A good chunk of the Republican caucus is either stupid, crazy, ignorant or craven cowards who are desperately afraid of the Tea Party people. And rightly so.”