Debt Ceiling 201

This is the follow-up on the short post about why reaching the debt ceiling wasn't the rosy picture painted by some Tea Party wishful thinkers. I said that there was 1) no legal framework for prioritizing government payments (and thereby avoiding default on debt service) and 2) no practical mechanism to do it at this time.

No Legal Framework

The US government hasn't intentionally defaulted since FDR's presidency. Even then, that was a planned default, which is not what the Tea Partyers want. They want prioritized payments of US obligations to avoid default and do the least harm to the country.

No such prioritization has been established, so this is new territory. There aren't laws laying out how to do this. In the absence of such laws, who will decide what the priority should be? That's a huge constitutional question. Does the president unilaterally decide since he's the executive? Does the Congress decide? Can Congress impeach the president for making unilateral decisions? Can Congress impeach the president for refusing to prioritize payments? Will the Tea Partyers who want the prioritization of payments guarantee that they won't call for Obama's impeachment over the decisions he makes in this regard? I sure haven't heard anyone making such a promise.

Will Congress quickly pass the legal framework required? HAHAHAHAHA.

No Practical Mechanism

All the accounting programs, sign-offs, clearances, etc. that it takes for the government to send money to the correct people are probably much more complex than anyone's monthly disbursements. How readily can that all be changed to send out prioritized payments? Not readily, I'd bet. There would need to be an entire design/implementation cycle with the requisite planning, programming, testing, bug-fixing, and retesting.

Political Motivation (1)

Now that the practical considerations are out of the way, let's consider the motivations of the parties regarding prioritized payments. For Tea Partyers, the motivation is to prevent default, incur no new debt, and pay the most important government expenses. However, there isn't strong agreement on what the most important government expenses are. That's one reason not to leave the decision-making unilaterally to the president, just in case he's a scum-sucking, pinko, socialist bastard.

So those who support prioritized payments will probably also want a big say in determining the priorities. But again, there is no legal framework at this time for that. Congress would need to follow the usual law-making procedures--but the chance that the House, Senate, and president will pass one prioritization plan is so close to zero, it is effectively zero. So there will be no prioritization in established law.

I've never heard any proponent of prioritization discuss this wrinkle in their plan. I'm guessing that they gloss over that impediment, and imagine that their priorities are so obvious that they'll be followed. Then, reaching the debt ceiling is equivalent to immediately going to a balanced budget. By refusing to raise the debt ceiling, they achieve one of their biggest policy goals. And they didn't even have to pass a balanced budget law or amendment. Hooray! No wonder they gloss over so many details.

So if priorities could be established, Tea Partyers have another way to achieve a major goal--just don't ever increase the debt ceiling. That's a lot of added leverage for them in any budget negotiation.

Political Motivation (2)

What is the political motivation of the Democrats, including the president? They aren't for an immediate balancing of the budget. They aren't for establishing spending priorities at a much lower budget target point. They don't want the Tea Party to have greater leverage in budget talks. Their motivation is to make the debt ceiling as painful as possible, so that the GOP will always back down.

In this, they have history on their side because the debt ceiling has always been increased. Neither Congress nor the president has ever stepped over that line, because it would be too catastrophic a move to make. The US government would go into default, which would destabilize the world economy and probably cause a worldwide depression.

The Democrats have no reason to make the debt ceiling less scary. That hands leverage to those who want severe budget cuts, which are not the Dems. So there's no way that the Dems will pass any legislation that prioritizes payments in the event of reaching the debt ceiling.

Wonderland Scenario

Maybe the next time the GOP controls the House, Senate, and presidency, they can pass the legislation and build the accounting mechanisms to implement prioritized payments. That will be somewhere on their list of must-have legislation including the repeal of Obamacare, rolling back regulation, closing the EPA, block-granting Medicaid or just getting rid of it, outlawing abortion, and ushering in the permanent GOP majority.

Maybe, like Rip Van Winkle, I'll go to sleep for two decades, and then wake up to a US where all this has happened. Somehow, I doubt it, but we'll see. Nighty-night!

Come on, it's simple.

Image: archiscene.net

The limits of leverage

One of the epiphanies I had about politics since I started writing this blog was realizing the importance of leverage. Specifically, the GOP could finally make the Dems cut government spending because they had the leverage of the debt ceiling.

Leverage Past

Back in the summer of 2011, it was clear to both the GOP  and the Dems that the GOP had the leverage.  However, then the Dems foisted a deal on the GOP that stole most of the leverage back, because the GOP no longer had the choke points of appropriation bills and debt ceiling increases.

Neither party was able to exert its will in 2012 because the absolutely necessary matters had already been decided. The next "must-legislate" moment wasn't coming until the end of 2012 with the expiration of the Bush tax cuts. Therefore, the prime focus of both sides were the campaigns for the control of the House, Senate, and presidency.

Back to the present. With expiration of the Bush tax cuts and new tax rates in place, it would seem that the Dems have no leverage anymore. But that viewpoint is incorrect.

No Monopoly on Leverage

Leverage is not being able to do everything you want. The GOP found that out in 2011. Few of the cuts were immediate, the Dems forced the Defense budget to bear a lot of the cuts, and the GOP weren't able to include provisions that made the Bush tax cuts permanent, which was high on their wishlist.

This wasn't a failure of leverage, but it shows the limits. Leverage doesn't ensure passage of a particular agenda when the House, Senate, or President is dead set against it. They all have veto power that they will use. You can get them to do something within the wide middle of political outcomes, but you can't blackmail them into capitulation. Bargaining and compromise is expected by the majority of the electorate. Drama and ultimatums are going to be punished unless they are dropped for last-ditch realism and compromise.

Leverage To Be?

So, how will leverage play out in the next choke point, the debt ceiling? I doubt the GOP will get all the cuts they want (but won't specify). They may get some additional cuts on top of the agreed level of cuts from the August 2011 deal. They won't get to exempt Defense or write their own script on where the cuts will occur.

If Obama says no to unreasonable demands, as judged by center of the country, he won't be blamed if government shuts down. If the GOP can put together a reasonable list of additional cuts (per the same judges), Obama will be blamed if he still says no. The important thing is taking the temperature of the center of the country and knowing what it is considered an unreasonable demand, then making sure you aren't on the wrong side of that fuzzy line if there's a stand-off.

However, I don't see the GOP accurately taking those readings yet. As a party, they never faced reality on the expiration of the tax cuts. McConnell saved them by starting real negotiations just four days before doomsday. That didn't give much time to cobble together a well-crafted program. The GOP looks likely to do just as poorly on the debt ceiling choke point.

The GOP hasn't done well with their leverage. They aim too high, shoot too much ammo, waste time, and then have accede to a lesser deal than if they had proposed a center-right solution in the beginning. There's no improvement in their game that I can see. If I was their coach, I'd throw in the towel.

Ideas, anyone?

That better be a new plan, son.

Image: kccollegegameday.com

Not a good plan: Atlantic hostage post, National Review hostage post.

Countdown to capitulation

So it's Sunday afternoon, and the GOP are still trying to get something (I don't know what) for the junk cards they hold in their hand. (For those you need a recap, the Bush tax cuts expire on January 1, and to a lesser extent the sequester starts.  The GOP would like to stop both, but they didn't win the presidency or the Senate, so that scrapped their plan.)

Today, the Dems refused to give the GOP the index that will allow Social Security payments to grow more slowly. The GOP will be lucky if the Dems give them a fig leaf. The GOP may have to totally capitulate and allow all the tax increases now scheduled for those earning over $250,000. Capitulation is what they did earlier this year on the 2% Social Security tax holiday.

Some conservatives are calling for letting all the tax hikes take place. This is a brave position since it won't be popular with people getting smaller paychecks. In the meantime, Democrats have been promising in two presidential campaigns to maintain those lower tax rates for the 98%. If the Republicans don't go along, they will likely be seen as the enemies of the common man at worst, or hard-nosed realists at best.

The GOP hasn't resisted the 'common man' pressure before, so I don't predict it happening now. But you never know. This is a strange time for the GOP, being on the brink of the first tax increases for over 15 years, in the era that has brought us Norquist, Rove, and the Tea Party populism.

Maybe the GOP will try something new--hard-nosed fiscal conservatism. But my money is on capitulation. I won't know how complete until we see non-core issues such as estate tax, tax rates on incomes between $250 - 400K, unemployment insurance extensions, and low income credits.

Throw in the cards, save the chips for the next round

Image: apowerpoint.blogspot.com

Correction 12/31/12. According to this article, the GOP wants to keep the sequester, and the Dems want to delay it until 2015. When I wrote that the GOP wanted to avoid the sequester, it was based on their presidential campaign stance, which was against cuts in defense spending. I remain in favor of the sequester.

Note: I first described on Dec. 22 (in comments on this post) that the GOP would end up capitulating. They're getting closer.



Update 1/1/13 9PM. The final timeline for capitulation is nearly certain now.  

Quick Capitulation - Tonight

The House is going to vote this hour on whether to amend the Senate-negotiated deal. They need 217 votes to pass an amendment of $330 billion in spending cuts added onto the Senate bill (a package from someone's files, no doubt). 

Any Republican who doesn't vote for the amendment has a target on his back and can expect a primary challenge. However, maybe enough Republicans will have the courage to defy the pack, and defeat the amendment. If so, the Senate bill as is will be (or should be) voted on and pass.

Drawn out Capitulation - Thursday

 

If the amendment passes, presumably the amended bill will also pass. Then it will sit untouched in the Senate--a piece of political theater that won't be going on the road.  The House will be forced to act on the Senate bill without amendment.

Outcome -- Slighter Quicker Capitulation

That didn't take long at all. Almost all of the House voted to debate the Senate bill without amendment. The Senate bill passed 257-167, with 85 GOP and 172 Dems voted yea. 

 

Negotiations at the edge of the fiscal cliff

This will be an unsourced piece, and unfortunately, that means I'll be doing that reviled job called punditry. But I've actually been pretty pleased with some bits of my own punditry, so here goes.

Congress and President Obama have 7-9 weeks to work out a deal prior to the expiration of the Bush tax cuts. When these tax cuts end, almost all the paycheck earners in America will have some nasty news, hence there is HUGE incentive for both parties to strike a deal. (For those who need a review: The GOP wants to keep all the tax cuts. The Dems want to end the tax cuts for the highest earners.)

Obama has issued a veto threat, but he won't have to veto anything. The Senate won't be passing anything the prez can't sign. Boehner is pretending he won't budge, but he surely will due to the huge incentive I mentioned above. There is also the recent history, which includes Dems and GOP negotiating the August 2011 debt deal and the GOP caving on the Social Security tax cut extension.

So there will be a deal, either before the end of the year or early in January. It might be a deal to extend the tax cuts a few months as serious negotiations take place, but there will be something. The exact form of the deal I can't predict. However, I definitely predict that Dems will include sunset provisions or other provisions that don't take effect yet, but require additional votes. This will provide Dems with leverage that is so valuable. The Dems will also try to reduce GOP leverage by including automatic debt ceiling increases without a vote.

I predict some very disappointed Republicans/conservatives. This is an easy prediction because the Dems have a lot of leverage, and the GOP is in a very weak position.

Elections have consequences

Image: dailykos.com

By the way, the sequester issue is not nearly as major because Obama has a fair amount of control over the timetable for parceling out the sequester cuts. He can make them tougher or gentler as he needs for his negotiating position. He's already announced that they will start off gentle, especially on defense contractors. Again, this is a leverage advantage for the Dems.

Update 11/17/12. There are so many angles on this, that I forgot a few that I wanted to mention. The deal will come out of the Senate, and the House will reluctantly pass amid much gnashing of teeth and perhaps some vomiting. In this way, the House will continue its tradition of NO COMPROMISE, that  is, passing dozens of grandstanding bills before caving to the deals worked by some senators. Sigh. I'm tired of these children--maybe we should abolish the House.

The Unbearable Debt Deal Quantified

As I wrote before, the wily Dems managed to get the Republicans to agree defense spending cuts that they now find unpalatable. Republicans are looking for ways to avoid those cuts.

• One way is for the House, Senate, and whatever president we have in 2013 to agree not to make those defense cuts. That's a pretty big stretch. It won't happen if Obama is re-elected. Even with a Republican president, Democratic senators could block moves to void the defense cuts.

• Another way is for the super committee to agree on another plan that the House, Senate, and president all accept.

The Republicans are now in the weaker position:

• They want to reduce the defense spending cuts.
• They want to maintain Bush tax cuts, which are worth $3.7 trillion over 10 years.
• They have no leverage for either of these goals.

The Democrats are now in the stronger position:

• They have largely accepted cuts to Medicare that are capped at 2% a year.
• The debt ceiling deal protected Social Security and Medicaid from cuts.
• They have leverage using defense spending cuts and the expiration of the Bush tax cuts at the end of 2012.

Despite their weak negotiating positions, the best offer from the Republicans is:

• $250 billion higher tax revenues through limiting deductions if...
• Tax rates are frozen at below Bush tax rates.

It's no wonder that the Dems aren't agreeing. They hold a lot more leverage now, and the Repubs' offer is paltry. Republicans only seems serious about deficit reductions when social programs pay the price. They can dish out the austerity, but they can't take it. We'll have to see if they'll threaten a government shutdown by holding up appropriations next year. As far as I can see (for what that's worth), that is the only leverage they will have until after the election.

The debt ceiling fight was the historic crisis that prompted me to start this blog. If looks even more historic now. It's quite a reversal for the Republicans. I wonder if that's the price they paid for playing chicken, and which Democrat was responsible for that advantageous outcome.

 Who dunnit?

Despite this apparent win for the Democrats, the 2012 election is still up for grabs. I'm not going to predict which party is going to win, or which party is able to spin this to their advantage. So often, it has been the Republicans, so I won't count them out.