A Deal Was Reached - Now End The Debt Limit For Good!

The useless and stupid debt limit needs to be ended for good. Here is how the editorial board of The Washington Post puts it:

Finally, President Biden and House Speaker Kevin McCarthy (R-Calif.) have reached a deal to avert an embarrassing — and potentially disastrous — U.S. default. It’s hard to view this as a celebratory moment given how close the nation came to being unable to pay its obligations to investors, the military, hospitals and more. But there’s relief that the worst-case scenario has been avoided and that there is still some possibility for bipartisanship in U.S. politics. That is a low bar, but Mr. Biden and Mr. McCarthy cleared it.

The agreement “in principle” still has to pass Congress this week, which is not a given, especially in the House where far-right members are already bashing it. The June 5 deadline for default leaves little room for antics.

 If this passes, the nation won’t face another debt limit crisis until 2025. The basics of the deal appear sensible, and most Americans will probably approve of them.

It imposes spending caps, but they are not onerous, as the cuts in the initial House Republican bill were. After several years of discretionary budget increases, this will force what is essentially a two-year pause at most federal agencies. Unspent coronavirus funds will also be clawed back — a reasonable compromise that this Editorial Board had advocated in recent weeks. The deal avoids the mistake the Obama-Biden White House made in 2011 when it agreed to caps for a decade that slowed the recovery and hampered its ability to do much in its second term.

If any sort of political center still exists in Washington, the tentative deal is about as close as it comes to finding it. Both sides got some of what they wanted: Republicans achieved some cuts, including to Internal Revenue Service funding, and Democrats preserved spending on important domestic programs from the environment to education at about current levels. Even on contentious issues such as tying work requirements to government assistance, Mr. Biden and Mr. McCarthy appear to have taken the least controversial route, which is increasing them for older Americans with no children who receive food stamps.

What should not happen now is for Americans to breathe a sigh of relief and move on. Yes, a last-minute compromise occurred, but a dangerous precedent has been set. House Republicans have now used the debt limit twice to create a hostage-like situation that brings the nation close to an unthinkable default. Expect that a future Republican Congress would be willing to go over the cliff to extract more.

The debt limit itself needs to be scrapped. Enacted in World War I, it was created so Congress would not have to keep approving debt issuances. A century ago, the limit was set high to avoid hitting it. Over time, the debt ceiling took on a different role as a useful check on bipartisan spending largesse. It played a role in the 1990s in pushing lawmakers to reduce the national deficit and enact a balanced budget at the turn of the century. In recent years, as the normal budget process in Congress has broken down, the debt ceiling functioned as one of the few moments of reckoning on the increasingly alarming fiscal outlook.

But this latest deal has shown that this isn’t a substitute for coming up with an actual, forward-looking fiscal strategy. Republicans employ the debt limit to force cuts to nondefense discretionary spending, which is only about 16 percent of total government expenditures. But this slice is not a key driver of the nation’s debt problems. The refusal of either party to tackle rapidly rising Social Security, Medicare and health-care costs — along with Republican’s opposition to any tax increases — means the debt limit isn’t forcing the tough choices that are needed.

Almost no other nation has anything like a debt ceiling because it no longer makes any sense. Congress has already approved the spending that forced the debt to rise; there should be no question, much less the possibility of an economic cataclysm, when the bills come due. Members of both parties have called for an end to the debt limit because it risks too much for the United States — and the entire global financial system, as well as the livelihoods of federal workers, veterans and businesses who need to be paid.

This crisis may pass, but 2025 is coming soon.

Biden Should Ignore GOP Demands And Keep Paying Bills

 I agree with this post by Robert Reich. President Biden should ignore GOP demands and keep paying America's bills.

I want to start today with a bit of history that sheds some light on what’s happening in Washington this week, and what Biden should do about the debt-ceiling crisis created by Kevin McCarthy’s Republican House. 

On October 22, 1985, Treasury Secretary James A. Baker III told congressional leaders that if Congress failed to raise the debt ceiling by the end of the month, the Reagan administration would pay the nation’s bills by taking back Treasury securities in which Social Security had invested. 

I remember being stunned at the time. It was an extraordinary move. It meant Social Security would lose interest paid on its funds.

 

If Congress still didn’t raise the debt ceiling, Baker said the administration would borrow from the railroad retirement and military retirement trust funds.

 

And if the impasse continued, the administration would begin selling gold from the U.S. gold reserve “even though that could undercut confidence here and abroad based on the widespread belief that the gold reserve is the foundation of our financial system,” Baker said. 

Baker’s point was that the Reagan administration would continue to find ways to pay the nation’s bills, come hell or high water.

 

An agreement was finally reached after the Reagan administration had begun raiding Social Security but before it took any other measures. 

The Comptroller General of the United States later found Baker’s raid on Social Security technically illegal but concluded nonetheless that Baker “did not act unreasonably” under the circumstances.

I recount this history to give you some perspective on the current debt-ceiling crisis, and what I believe should be Biden’s next move.

First, showdowns over the debt ceiling have been going on for a long time.

Second, they have often been fueled by soaring national debts due to Republican tax cuts for the wealthy and big corporations. (The 1985 standoff involved a refusal by senate Democrats to support a balanced budget, even though Reagan’s mammoth spending on the military and huge tax cut had doubled the national debt in less than five years.)

Finally, fights over the debt ceiling have required Treasury secretaries to do extraordinary things to keep paying the nation’s bills — sometimes technically illegal.

Hence, there have never been “X-dates” at which time the Treasury runs dry. There are just ever more extreme government bookkeeping measures.

 

And there is no end to the measures the Treasury might use to keep paying the bills. Although their legality of some might be dubious, who is to complain? Who is to say a Treasury secretary acted unreasonably in paying a lawful claim on the U.S. government?

This standoff is different in one respect. Previous standoffs have been carefully-crafted dramas in which both sides demonstrate their commitments to their position, knowing full well how the play will end — with the debt ceiling lifted. 

This time, though, gonzo lawmakers like Marjorie Taylor Greene and raving nut-jobs like the current Republican frontrunner for president have considerable influence.

And unlike Bob Dole in 1985, these players have no real commitment to cutting the government debt. (Were that their goal, presumably they wouldn’t have supported the massive 2017 tax cuts for the wealthy and big corporations that fueled the debt, or would now urge its repeal. And they certainly wouldn’t demand cuts in staffing for the IRS, which House Republicans are also now doing.)

Their only commitment is to power — gaining dominance over, and submission from, Democrats, progressives, putative “coastal elites,” and so-called “deep state” bureaucrats.

For them, this is not play-acting. It’s not for show. It’s for real. If they don’t get their way, they’re prepared to blow up the economy. 

In fact, as the so-called X-date appears to loom ever closer, their demands have escalated. And as Biden appears ready to give in to some of those demands, the demands will continue to escalate. 

Which is why it’s critical for Biden to stop negotiating. 

Meanwhile, he should continue paying the government’s bills and Treasury Secretary Janet Yellen should continue using every bookkeeping scheme imaginable to find the means to pay those bills.

And they must never declare an “X-date.” And must never default.

If Kevin McCarthy and his band of radicals don’t like this, let them take the Biden administration to court.

Let House Republicans argue in the courts that the 1917 act establishing the debt ceiling has precedence over Section 4 of the 14th Amendment, which requires that the “the validity of the public debt …. shall not be questioned.”

Let them claim in the courts that the 1917 debt-ceiling act takes precedence more recent acts of Congress which require the president, for example, to pay interest on the federal debt, distribute Social Security benefits, and pay bills from defense contractors and everyone else who has relied on the full faith and credit of the United States.

 

Let McCarthy and House Republicans argue that they have standing to sue Biden for having the audacity to pay the government’s debts as they come due.

Finally, let McCarthy, Marjorie Taylor Greene, and the other loonies demand openly and publicly in court that Biden not honor the full faith and credit of the United States — with the predictable results that the cost of borrowing skyrockets, bond markets crash, the stock market plummets, the global economy is in turmoil, the dollar’s status as the world’s major currency is up for grabs, America is plunged into a deep recession, and millions of jobs are lost.

In other words, let McCarthy and House Republicans seek to enforce their dangerous nonsense about the debt ceiling — so that Americans can see clearly what they’re up to. 

GOP To Cut Help For Poor To Protect Tax Cuts For Rich

 

The following is by E.J. Dionne, Jr. in The Washington Post:

The moment negotiations over the debt ceiling with House Speaker Kevin McCarthy started, it was obvious President Biden would have to give in to Republican demands for some spending cuts. The question now is how big they’ll be and how long they’ll last.

Here’s what must not happen: Our country’s least advantaged citizens should not be forced to pay the largest price to prevent an economic catastrophe. Making the poor poorer should never happen; it certainly shouldn’t happen on a Democratic president’s watch.

That issue is at the heart of this needless and destructive battle. House Republicans decided to hold the economy hostage to slash assistance for low-income Americans while protecting tax cuts for the wealthy.

That’s a factual statement, not a partisan complaint.

McCarthy (R-Calif.) is not only refusing to put any of the Trump-era tax cuts for the best-off and corporations on the table; he also wants to make them permanent, adding $3.5 trillion to the deficit over a decade. So much for “deficit reduction” as the central purpose of this exercise.

In the meantime, the GOP’s desire to concentrate cuts on what is blandly called “domestic discretionary spending” would force the heaviest reductions on programs that help the least well-off, such as Head Start and assistance for food, child care and housing. Republicans mercifully say they want to protect veterans’ programs, but that only forces deeper reductions elsewhere.

A revealing example: The House appropriations bill for agriculture released last week guts the 2021 pandemic-era increase to benefits for fruits and vegetables under the Women, Infants and Children program, which the Center on Budget and Policy Priorities (CBPP) reported affect “nearly 1.5 million pregnant, postpartum, or breastfeeding participants and roughly 3.5 million children aged 1 through 4."

Then there is the GOP’s insistence on “work requirements” for recipients of various government assistance programs. These would not help anyone get jobs but would tie up working people eligible for assistance in bureaucratic red tape.

“Despite rhetoric rooted in racist stereotypes, most people who can work do work,” said CBPP President Sharon Parrott. People turn to core government programs, she told me, “because their jobs don’t pay enough to make ends meet or they are out of work, often temporarily. If we want to help people succeed in jobs and have the freedom to thrive, we should invest in high quality job training and child care, not take away basic assistance they count on.”

Parrott’s view is shared well beyond the Democratic Party’s progressive wing. House Minority Leader Hakeem Jeffries (N.Y.) flatly declared last week that “work requirements are a nonstarter.”

This speaks to the difficulty of building majorities in the House and Senate for any accord McCarthy and Biden might reach. Because his party’s right wing will oppose anything short of its maximum demands, McCarthy cannot deliver a majority for a deal without large numbers of Democratic votes. They will be hard to get for a proposal remotely as draconian as his ultras want, one reason progressives are pushing Biden to bypass the debt ceiling by invoking the 14th Amendment’s requirement that the government honor its obligations.

“Kevin McCarthy does not know how many votes he has,” Rep. Alexandria Ocasio-Cortez (D-N.Y.) told Politico, speaking not just as a leading progressive but also a shrewd vote counter. “He can’t even go to the White House and say, if you give me this, I will have X votes.”

McCarthy also has to wonder if coming to terms with Biden would prompt a challenge to his leadership from hard-liners. He no doubt hoped that Friday’s brief Republican walkout from the talks would persuade his right flank that he’s taking a hard line.

Democrats once hoped that enough Republicans who represent districts the president carried in 2020 would be amenable to a clean debt ceiling increase. But these vulnerable members of the GOP had close ties to McCarthy and an aversion to handing Democrats a victory. So to get McCarthy into the room with Biden, they went along with some harsh cuts in the speaker’s bill even while saying they opposed them — clearly hoping that Democratic negotiators would save them from themselves.

Biden’s lieutenants and his allies in Congress insist that they are not repeating the errors of President Barack Obama’s debt ceiling strategy in 2011. They say they have already pushed Republicans back from some of their more extreme demands, forced them to make public the sweep of the cuts they originally sought, and are trying to avoid binding future Congresses to budget decisions won through extortion. And they expect to save Biden’s signature programs on clean energy and student debt.

But this sorry episode, made possible by an irrational debt ceiling law that ought to have been repealed long ago, should never have happened. The fact that Americans with the lowest incomes are political pawns in this exercise is a moral stain on our country.

Biden Should Ignore The Unconstitutional Debt Limit

The following is part of an op-ed by legal expert Laurence H. Tribe:

At this moment, at the White House as well as the Departments of Treasury and Justice, officials are debating a legal theory. . .

Section 4 of the 14th Amendment says the “validity” of the public debt “shall not be questioned” — ever. Proponents of the unconstitutionality argument say that when Congress enacted the debt limit, effectively forcing the United States to stop borrowing to honor its debts when that limit was reached, it built a violation of that constitutional command into our fiscal structure, and that as a result, that limit and all that followed are invalid. . .

The question isn’t whether the president can tear up the debt limit statute to ensure that the Treasury Department can continue paying bills submitted by veterans’ hospitals or military contractors or even pension funds that purchased government bonds.

The question isn’t whether the president can in effect become a one-person Supreme Court, striking down laws passed by Congress.

The right question is whether Congress — after passing the spending bills that created these debts in the first place — can invoke an arbitrary dollar limit to force the president and his administration to do its bidding.

There is only one right answer to that question, and it is no.

And there is only one person with the power to give Congress that answer: the president of the United States. As a practical matter, what that means is this: Mr. Biden must tell Congress in no uncertain terms — and as soon as possible, before it’s too late to avert a financial crisis — that the United States will pay all its bills as they come due, even if the Treasury Department must borrow more than Congress has said it can.

The president should remind Congress and the nation, “I’m bound by my oath to preserve and protect the Constitution to prevent the country from defaulting on its debts for the first time in our entire history.” Above all, the president should say with clarity, “My duty faithfully to execute the laws extends to all the spending laws Congress has enacted, laws that bind whoever sits in this office — laws that Congress enacted without worrying about the statute capping the amount we can borrow.”

By taking that position, the president would not be usurping Congress’s lawmaking power or its power of the purse. Nor would he be usurping the Supreme Court’s power to “say what the law is,” as Chief Justice John Marshall once put it. Mr. Biden would simply be doing his duty to “take care that the laws be faithfully executed” even if doing so leaves one law — the borrowing limit first enacted in 1917 — temporarily on the cutting room floor. . . .

For a president to pick the lesser of two evils when no other option exists is the essence of constitutional leadership, not the action of a tyrant. And there is no doubt that ignoring the debt ceiling until Congress either raises or abolishes it is a lesser evil than leaving those with lawful claims against the Treasury out in the cold. . . .

Some will say that letting the president ignore the statutory limit on borrowing would give him too much power and represent a dangerous step in a tyrannical direction. Wrong. What I propose would in truth give the president a lot less power than entrusting him to decide which of the government’s promises to honor and which creditors to stiff — a power that the Supreme Court denied him when it handed down a 1998 decision that prevented him from vetoing line items within a budget.

In any event, Section 4 prohibits the president from permanently stiffing our creditors — even those required to wait their turn after the Treasury runs dry. So even if Speaker Kevin McCarthy and those pulling his strings succeed in making some of those creditors wait, it wouldn’t eliminate our debts; it would merely replace them with i.o.u.s. And that’s just debt in another form.

All Congress would have done is create economic catastrophe on top of constitutional crisis — and without securing compliance with the debt ceiling that Republican claim to want. The only way out of this forest is through the trees. 

Biden Should Not Give In To GOP Extortion On Debt Limit

 The Republicans are holding the American economy hostage to force drastic cuts to the budget. This is dangerous and crazy, and President Biden should not give in to it. Here is economist Paul Krugman's take on the situation:

The United States is barreling toward a debt crisis; the possibility of default on U.S. debt is already beginning to roil markets.

What’s odd about this potential crisis is that it has nothing to do with excessive debt. Maybe you think the federal government has borrowed too much over time. We can argue about such things. But they’re beside the point right now. America in 2023 isn’t like, say, Greece in 2009 or Argentina in 2001, cut off by investors because they have lost faith in our solvency.

Our looming crisis will, instead, be entirely self-inflicted — or, more accurately, Republican-inflicted. If it happens it will be because the party controlling the House refuses to raise the debt ceiling, a quirk of the U.S. budget process that lets Congress prevent the government from making payments that have already been approved through past legislation.

There are three things you need to know about this crisis.

First, whatever courts may say about the constitutionality of the debt ceiling, budget decisions should be dictated by votes over spending and taxing, not by hostage-taking in which the party most willing to destroy the economy gets what it wants.

Second, if the politics of extortion do lead to a debt default, the consequences will be catastrophic.

Third, there is no economic downside to the various ways the Biden administration might seek to bypass Republican extortion and continue normal governance. Contrary to a lot of misinformation out there, things like issuing premium bonds or minting a platinum coin would not be inflationary. They sound undignified, but creating a global depression because we’re afraid of looking silly would be utterly irresponsible.

Here’s how budgeting is supposed to work: Congress passes bills that set tax rates and determine spending, which become law if the president signs them. Much of the time the legislated spending exceeds revenue, so the government must borrow to cover the difference. So be it. But under a quirk of U.S. law, with complicated origins, Congress must vote a second time to authorize the borrowing required by its own previous votes.

What would it mean if Congress refused to authorize that borrowing, that is, refused to raise the debt ceiling? It wouldn’t be a way to restrain spending. It would, instead, amount to preventing the president from making payments Congress has already mandated. It would be like buying a bunch of home furnishings, taking delivery, then refusing to pay the bill.

And it would be hugely destructive.

A new report from the White House Council of Economic Advisers lays out potential costs from a default induced by Republican refusal to raise the debt ceiling. The analysis suggests that a protracted default could cost eight million jobs as a result of shocks to consumer and business confidence, increased interest rates on U.S. debt (which investors would no longer consider safe) and drastic forced cuts in government spending.

Even these projections may understate the likely damage. Until now, the world has viewed U.S. government debt as the ultimate safe asset; as a result, Treasury bills play a crucial role as collateral in many financial transactions. Make these bills unsafe — I.O.U.s that the U.S. may not honor — and the whole global financial system could freeze up.

In fact, this almost happened for a few days in March 2020, and it’s not clear whether a rescue could be engineered in today’s political environment.

So what can be done? Let’s not make a deal: Republicans are effectively engaged in a fiscal version of Jan. 6, using the threat of destruction in an attempt to exert total control even though voters gave them only one house of Congress. President Biden shouldn’t give in to extortion, let alone make any deal acquiescing to demands of the extremists who control the House G.O.P.

It’s possible that Biden could simply declare that he must implement duly enacted fiscal legislation and that a debt ceiling that prevents him from doing so is unconstitutional.

Beyond that, there are those gimmicks. Yes, they would be gimmicks. I don’t have space to explain premium bonds, but they would involve playing games with the definition of “debt.” As for the platinum coin, the law allowing the government to mint a trillion-dollar coin was never intended as a way to bypass debt-limit extortion — but the debt limit was never intended to provide a mechanism for extortion, either.

And there are no significant economic downsides to using these gimmicks. I’ve been shocked to see people who should know better, including mainstream media outlets, report as fact the myth that, say, minting the coin would be inflationary. It wouldn’t; it would simply be a backdoor way to continue normal financing, bypassing the letter of a debt ceiling that shouldn’t exist in the first place.

I’m not sure what specific approach the Biden administration will adopt. But the guiding rule should be to do whatever it takes to get through this — whatever it takes, that is, other than giving in to extortion.