Debt Deal Done- 'It's Better Than Nothing'

A default was averted today when President Obama, with no fanfare, signed the debt ceiling bill into law shortly after it passed the Senate on Tuesday. Compromise was achieved, but at what price?

In a recent Washington Post/Pew Research poll, Americans put their disgust into words. The most common description was “ridiculous”, followed by “disgusting” and “stupid”. No, they weren't talking about Glenn Beck. They were talking about the budget negotiations that led up to the bizarre budget compromise.

If the debt debate proved one thing to America, it's that Washington is broken, and in need of some serious fixing. And there has been damage to the reputation of pretty much everyone in Washington.

The controversy was somewhat contrived to begin with. First of all, we call it a “debt ceiling”, but it's continually being raised. The problem this time, however, is that many Republicans, led by the right-wing Tea Party nut jobs, decided that they didn't want to compromise, default or no default.

In his televised address to the nation on July 25th, President Obama pointed out that raising the debt ceiling in America is a routine matter. “Since the 1950s, Congress has always passed it, and every President has signed it,” Obama said in his speech. “President Reagan did it 18 times. George W. Bush did it seven times. And we have to do it by next Tuesday, August 2nd, or else we won't be able to pay all of our bills.”

Obama went to Harvard, so I'm sure that he can add. And he met the August 2nd deadline with a few hours to spare, so I guess we can now pay all of our bills. But that's the problem. The debt ceiling was raised, but when it comes to the national debt, we're talking trillions. It's rising at a staggering $3.8 billion a day, so you would think we would have come up with a good way to do pay our bills by, for instance, increasing revenue in addition to cutting spending. This is where it gets confusing.

The bill allows Obama to increase the borrowing limit by $400 billion immediately and mandates an additional $917 billion in cuts over the next decade. In addition, Obama can raise the limit another $500 billion later, and only be blocked if Congress votes to disapprove, by offering what the legislation oddly describes as "a joint resolution of disapproval". Since Congress would certainly disapprove and Obama would be certain to veto, thereby guaranteeing a debt limit increase, why is this bizarre charade necessary anyway, other than to score political points?

Then there's the “super committee”, a new 12-member group, split equally among Democrats and Republicans, which would have the authority to recommend another $1.5 trillion increase in the debt ceiling, and is expected to convene in the fall. Whether such a committee is actually constitutional is another matter, but if the committee fails to approve the cuts, the President can still raise the debt ceiling, but only by an additional $1.2 trillion. However, that would result in cuts split evenly between defense and non-defense programs, unless some other “as yet not agreed upon” budget measure can be agreed upon.

In addition to increasing the debt ceiling, the "super committee" would also theoretically have the power to raise taxes. Since this "bipartisan" committee would consist of six hand-picked anti-tax Republicans, this would seem highly unlikely. Of course, there's the matter of the expiration of the Bush-era tax cuts which expire at the end of 2012. But more about that later.

If this whole convoluted budget deal sounds confusing, it is. But one thing stands out: Republicans have insisted all along on budget cuts only, without any new revenue. And that, in a nutshell, is what they got. How do you reduce this enormous budget deficit without any new revenue? Well, I'm not a Republican, so I can't answer that.

The problem with all of this is that the national debt is over $14 trillion, so a few billion here or there may add up to a trillion or two, but it won't make much difference in balancing the budget in the long run.

What is so wrong with higher taxes on the wealthy, which got the economy back on track under President Clinton's administration in the 1990s? How about taking away those silly farm subsidies for rich people with too much land? Or taxes on corporations with million-dollar loopholes? And the list goes on and on, but sadly, the Republican party is more intent on taking away college grants for poor students than on getting the rich to pay their share. So far, college grants are off the table, but they may be among the first programs to go, since the deck is stacked in favor of the wealthy.

The one good thing to come out this debt fiasco is that there is no default. Confidence in our economy has been damaged, especially internationally, by this entire spectacle. But now we have to really concentrate on creating an environment under which businesses feel confident enough to invest and ultimately to hire. Under the new compromise, however, this may be impossible. Budget cuts and no new revenue lead to less jobs, but the GOP wants us to believe otherwise.

Both Republicans and Democrats have said that they are not happy with the bill, but both sides say it was necessary to avert the disaster of a default. The prevailing wisdom is that it's “better than nothing”. And that about sums up the problems with the political system in America today.

President Obama's original intention was for a “clean”, unencumbered bill to raise the debt ceiling. Republicans, goaded on by the lunatic Tea Party fringe group, said no. The Speaker of the House, John Boehner, had to fall in line with the rest of his party of head cases and special-interest candidates and, as well-intentioned as Boehner may have seemed, he never made much economic sense.

Although it may seem to some people as if Obama is the loser in all this, he was still able to keep the core institutions intact - Social Security, Medicare and Medicaid. In addition, the deal allows Obama to focus on the 2012 election without the distraction created by another imminent default. In the end, the majority of Americans are fed up with the dysfunction of the political process as a whole, and they blame Republicans and Democrats alike. Obama's approval ratings are low, but right now, so are the approval ratings of pretty much everyone in Washington.

The debt deal is burdened by the fact that deficit reduction in the middle of a severe recession is not only a stupid idea, but a dangerous one. Reducing the deficit in a period of high unemployment will harm the economy by putting more people out of work and decreasing consumer demand.

Getting back to the Bush tax cuts, which expire at the end of 2012, this could be Obama's most powerful weapon. And therein lies Obama’s opportunity. With Republicans so focused on keeping the Bush tax cuts alive, the President could use another extension to protect the Democrats' most cherished programs when the congressional "super committee" deliberates. If Obama dangles the possibility of extending some or all of the Bush tax cuts in front of the recalcitrant committee members, he could not only gain significant leverage to influence the outcome of the committee, but he could also position himself well for the election in 2012. In this case, he would be seen as an honest, intelligent, and moderate broker between the extremes of both parties.

It was clear to all rational people that budget cuts had to at least be matched by new revenue. Obama was left with a debt crisis and since time had run out, he had no choice but to compromise.

We can always ask what would have happened had Obama refused to budge. But he wasn't willing to take that chance, and that's probably for the best. What we got was “better than nothing.”