As Debt Limit Looms, a Government in Disarray

The fiasco playing out in Washington brings Winston Churchill’s observation to mind: "The best argument against democracy is a five minute conversation with the average Congressman." Ok, he didn’t say ‘Congressman’, he said ‘voter’, but if he were on hand today to observe the American democracy stumbling along with its shoelaces tied together, he would have.

Raising the debt limit has always been automatic to permit the borrowing needed to pay for the obligations that Congress itself has already incurred – in seven spending resolutions in the case of this Congress. “Raising the debt ceiling does not allow congress to spend more money; it simply gives our country the ability to pay the bills that Congress has already racked up”, per the president.

But this time, Republicans, horrified by the $14.3 trillion national debt – and who wouldn’t be other than Paul Krugman – sought to tie a hike in the debt limit to trillions of dollars in spending cuts.

But none of that deficit reduction could come through new revenue, even from eliminating what loosely came to be referred to as “loopholes”. That would run afoul of pledges made by every last Republican in the House and 41 senators to someone named Grover Norquist ( see related story).

So when President Obama and House Speaker Boehner saw their chance to make history and worked out a plan to cut the debt by, variously, $3.5 to $4.5 trillion, partly from $1 trillion or so in revenue enhancements not involving outright tax increases, Republicans in the House turned thumbs down. Obama had incurred outrage from fellow Democrats – he had even put cuts in Social Security, Medicare and Medicaid on the table — but for House Republicans, handed their party’s decades-long quest to shrink the federal government, it wasn’t perfect enough. Those revenue items offended ideological purity. Conservative pundits such as David Brooks at the New York Times and Charles Krauthammer at The Washington Post despaired.

It only got stranger. In every one of his speeches and press conferences on the subject, the president had cited as revenue items the elimination of rapid write-off of corporate jet costs (which would increase taxable corporate profits), doing away with taxing the multi-million paychecks of hedge fund CEO's at no more than someone earning $16,000 a year, and ending subsidies to the big five oil companies.

Yet after an attempt to revitalize their plan, Boehner stormed out of the White House claiming that Obama had “moved the goalposts” by demanding $400 billion more in revenue than the $800 Boehner said had been agreed to — $400 billion that seemed to be those very same tax “loopholes” that the president had always publicly referred to.

"It is hard to understand why speaker Boehner would walk away from this kind of deal”, said the president. "Can they say ‘yes’ to anything"? Boehner answered with “the president would not take yes for an answer”.

After this spat, the House and Senate went off to write their own bills with no further negotiations with the president. Which brings us to where we are today.

John Boehner’s bill would dole out debt limit increases every few months, each tied to spending cuts that would total only $915 billion across 10 years. The next increase would be weighed down with Congressional approval of a balanced budget amendment. Heading into the weekend before the August 2nd deadline when the borrowing window slams shut for the U.S., that added proviso was enough for Boehner to pull in enough votes for passage in the House, but only Republican votes. Majority Leader Harry Reid at the Senate pronounced the House bill “dead on arrival” even before that proviso was tacked on, and the president has said he would veto any bill that didn’t raise the debt limit by enough to get the country through 2012.

Reid’s bill does that and attaches $2.2 trillion in spending cuts to the debt limit increase -none of them from the “entitlements” of Social Security, Medicare and Medicaid, but $1 trillion from ramping down the wars, which the House bill does not mention. The Senate is no longer waiting for the House bill before taking steps to pass its own.

Neither of these bills have the slightest revenue component, which was part of every deal contemplated by Obama, so both Boehner and Reid would be asking the president to cave in to a spending-cuts-only resolution. And now the president is saying any bill must have bi-partisan support. "The time for putting party first is over," he said.

Anyone see something palatable in this dog's breakfast?

In reaction, market indexes have dropped for four straight says as everyone from Wall Street to the man on the street scrambles their finances in search of safe havens from looming default.

Maybe Churchill, watching this dysfunctional farce over the last several weeks, would instead say about us what he once said about the Balkans, that they “produce more history than they can consume”.

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