Break It Down!: The Debt Ceiling Induced Default Averted: What's Next?

It's time to Break It Down!

The GOP-T Party’s hue and cry to save the wealthy from even the appearance of higher taxes struck a resonant chord, if the brand new Debt Deal is any indication. The Tea Party and far Right Wing elements of the Republican Party pushed for even more, including, ratcheting down entitlements, such as Social Security, which incidentally have yet to contribute to the AnnualDeficit…May God help us all! One popular factoid and related contention is 49% of Americans do not pay taxes; as a result, the wealthy already pay a disproportionate share.

In actuality, this analogy is skillfully skewed to mislead the already uninformed. While it is true, a number of low income persons do not pay Federal Income Taxes, most do pay a variety of taxes, including taxes on gas, personal income, sales and food. It should also be noted that, alternately, due to tax loop holes, and various deductions, many corporations and wealthy citizens also pay little or no taxes. In other words, that knife cuts both ways.

In the final days of the Debt Ceiling saga, a number of twists and turns ensued as the White House and Congressional Leaders took turns trying to bring a deal home. One of the more interesting bits of intrigue to unfold was the Republican-led House of Representatives voting down the so-called Boehner Bill at the end of last week.

Mr. Boehner, Speaker of the House, proposed to provide the Senate with his bill by the end of the day last Friday. However, intransigent Republicans led by the so-called Tea Party Caucus, and the House portion of the 87-memberFreshman Class of Republicans balked at approving their own leader’s bill. As a result, Speaker Boehner was forced to go back to the drawing board and add even more of what Democratic Senator Chuck Schumer, NY, called, “partisan red meat.”

The key change added was the inclusion of a mandatory Balanced BudgetAmendment, which would be required to pass the House, the Senate, and initially in 38 States, before raising the Debt Ceiling in the future. Much has been written about the basic common sense associated with requiring the government to balance its books, as most individuals and families must do. Even 49 of the 50 States, all except Vermont, have some version of Balanced Budget requirement.

Sounds good in theory; it’s just not that simple, however. The fact that the provision is required to pass before a specific action is taken, in this instance, raising the Debt Ceiling, is the rub. The baseline parameters necessary for passing a Balanced Budget Amendment include:

Passage by a 2/3 majority vote in the House of Representatives

Passage by a 2/3 majority vote in the Senate

Passage by 38 States

When one considers the tenuous nature of existing voting blocs in both Houses of Congress, especially the House of Representatives, the prospect of getting a 2/3 majority vote on any question in today’s environment is at best a long shot. On this matter; it is flat out improbable. Mr. Boehner’s bill, a decidedly Right Wing Manifesto from the start, even after being getting the supercharged hard Right treatment, passed by only the slimmest of margins.

Of 435 possible votes, 218 members voted in favor. The actual tally was 218-210, which simply means several Congresspersons didn’t vote. There are currently 2-3 vacancies inn the House. Of course, the Speaker had to ensure he had an absolute majority; he could not risk all members showing up and voting, and losing a vote on his own bill, which no Democrats supported. In fact, as it were, 22 Republicans voted against the bill. Any more political friendly fire and the bill may not have passed.

A concern at least equal to that surrounding the difficulty of cobbling together the 2/3 majority votes required by both branches of Congress is that it would very likely take years to get approval of the Amendment by the required 38 States. For all practical purposes, the net result is, there is no viable pathway to raising the Debt Ceiling if a Balanced Budget measure is added as an integral step.

The weekend saw a proverbial frenzy of activity around the Debt Ceiling question. Eventually, the House measure was defeated by the Senate, a Senate bill, where Democrats hold a majority, was defeated by the House, and early Sunday evening, President Obama announced a deal had been reached between the House and Senate leadership, and the White House.

On Monday evening, after a long day of cajoling, arm twisting, and information sharing by Speaker Boehner, Minority Leader Pelosi, and Vice President Biden, the House approved the compromise measure by a vote of 269-191. That vote was split along and within Party lines. Among Democrats, the vote was evenly split 95-95, while Republicans supported the measure by a 174-66 vote.

The Senate, which dealt with the matter yesterday, approved the bill by a vote of 76-24, with all 100 members voting. As in the House, Senate votes were split along and within Party lines. Among Democrats, 6 Senators voted against the bill, as did one Independent who caucuses with Democrats; 19 Republicans voted no.

Each of the last 3 days leading to deadline was marked by significant action:

Sunday, President Obama reached a deal with House & Senate Leaders

Monday, the House of Representatives voted to approve the bill

Tuesday, the deadline, the Senate approved the bill; the President signed it

So, with what are we working?

The agreement has two distinct stages:

The initial phase includes $917 billion in savings and a $900 billion dollar increase in the debt ceiling, consistent with the GOP-T Party stipulation that there be at least as much savings as any increase in the debt limit

In the second phase of the agreement, a special joint committee of Congress will devise and recommend to both Houses of Congress a package of reductions totaling $1.5 trillion or more, with Congress obligated to vote the package up or down by the end of the year, without the option to make amendments.

The special joint committee will be comprised of 12 members, 6 from each chamber, equally divided between Democrats and Republicans. The group is scheduled to tender its recommendations by November 23^rd; Congress, in turn, must vote the provisions up-or-down by December 23^rd.

In reaching the additional reductions, the panel is expected to consider reforms to the tax code and entitlement programs. On one level, given the polar positions of the two Parties on these questions, and in particular on the matter of Republican opposition to revenue (tax) increases, it is difficult to foresee a successful outcome for the special joint committee.

However, if Congress fails to enact the recommendations, any debt ceiling increase must be offset by a budget trigger, which would impose mandatory across-the-board spending cuts equal to the debt ceiling increase. Such cuts would be split between defense and non-defense programs, including entitlements, which would be an exceedingly unpopular option.

Ultimately, any final debt ceiling agreement must be voted on by Congress. This vote may engender a veto by President Obama. The agreement also calls for both Houses of Congress to vote on a Balanced Budget Amendment, though passage of this amendment is not required for the enactment of a debt limit increase; a stipulation the Tea Party had demanded in earlier negotiations.

“The Debt Ceiling Induced Default Averted: What’s Next?” In President Obama’s remarks noting the passage of the Debt Ceiling Agreement, he acknowledged the agreement was not perfect, but lauded it as a solid first step. He lobbied for a balanced approach moving forward that included adjustments in Medicare, reforming the tax code, getting rid of taxpayer subsidies and loopholes. Moreover, he cited new jobs, higher wages, and faster economic growth as the things Americans care most about.

It is clear, the President will endeavor to immediately push the reset button on the National Agenda and place the focus on jobs and the economy. And it is clear he needs to do just that. The signs of economic stagnation abound:

Unemployment remains around 9.2%, and the numbers for July, due this Friday, are not expected to improve

Gross Domestic Product (GDP), released last Friday showed a tepid 1.3% increase for the Second Quarter of 2011

Banks and a number of major employers are hoarding cash, while continuing to lay-off workers

The number of homeowners is at its lowest level since 1998

On Monday, the U.S. Treasury reported an operating balance of $53.575 billion

That compares to a report that Apple had a total cash reserve of $75.876 billion at the end of June

U.S. stocks fell 2% yesterday, despite the debt deal

It is instructive to note, since World War II, no President has won re-election with unemployment at more than 7.2% (Ronald Reagan in 1984). In the 40 years before that, the bar was pegged at 5.3%. On top of other indicators, gas prices are again trending upward, the Congressional stalemate on the Federal Aviation Administration (FAA) continues, even as Congress takes off until after Labor Day, and though default was averted by the debt deal, Moody’s lowered its outlook on

U.S.

debt to “Negative" (Standard & Poor's did so in April). In other words, it is probably wise to buckle up; all indications are we are in for a bumpy ride.

I’m done; holla back!

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