Debt Default Lies

A liar is a person who makes a statement knowing that it’s not true. Simple enough.

How about a person who makes a statement that is superficially or partially true but made in the spirit of misleading others to believe something not true? Well, I’ll let God sort that one out.

The good book says that liars have their place in Hell so there should be a lot of politicians there.

Obama, Reid, Pelosi, Treasury Secretary Lew, and the media have been a Greek chorus of late, warning of the perils ahead if the limit on Congress’ credit card is not immediately and unconditionally raised. They falsely claim that the federal government will default on its debt unless the debt ceiling is raised, they falsely claim that King Obama can raise the debt ceiling on his own authority if he chooses, and they falsely claim that entitlement programs are constitutionally protected. All lies.

Let’s take them in order.

A debt default means that a contractual obligation to service a debt was not performed at the time required. If the debt ceiling isn’t raised, it means our government, which borrows 40¢ of every dollar spent is going to have to make some choices. But servicing the national debt is not one of them. The revenues taken in as taxes are ten times the interest on the national debt – ten times! About $250 billion per month is received as government revenue and about $23 billion in interest is paid to the holders of the national debt. Maturing obligations that require the redemption of debt principal are simply rolled over into new debt using the proceeds to redeem the maturing debt without a net increase (or decrease) in debt.

The assertion that a debt default will occur unless the debt ceiling is raised is laughable. The money is there and there’s no choice – payment of national debt obligation is a constitutional compulsion. It’s called the 14th Amendment, Section 4.

Let’s just check that Section out for the benefit of the Greek chorus, shall we?

The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned …

Hmm. Not a lot of wiggle room there.

The 14th Amendment was adopted in 1868 as part of post-Civil War Reconstruction. The “debt shall not be questioned” clause was put in to assure that if the new Southern members of Congress were to gain a majority, they couldn’t repudiate the Northern war debt. In other words, “shall not be questioned” meant a Southern legislator couldn’t challenge that his constituents shouldn’t be paying taxes to reduce a debt that was created to defeat the South, kill Southerners, and destroy their property. Taken as a generalization, it means debts must be paid.

So, why do you think the Greek chorus is lying, claiming that a failure to raise the debt ceiling is tantamount to a debt default? I’ll give you three guesses and the first three don’t count. To scare the pants off of a public that is marginally literate in how its government works – of course!

Conceivably, the debt ceiling might have to be raised in the future to pay obligations on the national debt. Let’s hope that day never comes. The country would be in economically sad shape. Thankfully that isn’t the case today because there is sufficient cash coming in to pay the debt with a lot left over. But not enough is left over to pay all of the obligations at the current level of spending. So, excluding debt payments, spending obligations must be prioritized. Gee. Isn’t that what families do until they can reduce their spending to align it with income?

Establishing a debt ceiling was one of the few intelligent things Congress has done. It forces the issue to the forefront periodically, usually grabbing the headlines for a few weeks and rousing the public from its slumber. The people’s representatives are forced to do combat over what price will be exacted and how much will the ceiling be raised. But the ceiling always gets raised.

Raising the debt ceiling simply allows Congress on both sides of the aisle to run up new debt, which lately they’ve been able to do pretty quickly, and then the hogs are back at the trough and locked in another debt ceiling fight. But eliminating the debt ceiling altogether and allowing Congress to spend as it wishes, which some have suggested, is sheer folly. There are no adults in Washington and giving kids a credit card with no limit is stupidity on stilts.

As much as I hate this periodic kabuki theater of closing public parks and pretending the economic sky is falling, it fills a useful purpose. Who knows? Maybe one day the public will wake up, realize debt default isn’t possible, and that spending reductions are a more sensible way to reduce the frequency of these charades. The Left is terrorized that this might happen.

And the Left says, “Well, if you're going to get “constitutional” about this, show me where in the Constitution a debt ceiling is established.” Can’t. It’s not in there. The debt ceiling is a congressional procedure, not a Constitutional provision.

So, why can’t King Obama raise the debt ceiling on his own authority, the Left whines? Because he doesn’t have the Constitutional authority. The power of the purse resides exclusively in the House – not the President, not the Senate. The power to tax the credit of the United States with debt was meant by the Founders to rest with the people’s representatives, who could throw those representatives out of office every two years if they disagreed with the Representative. (Oh, that we might have an electorate so informed.)

The debt ceiling is the step-child of a bygone era in which every issuance of public debt had to be voted on and its purpose challenged. Laziness and expediency have rolled the individual obligations into a general “debt ceiling” number that gets fought over when Congress spends itself to the limit. We would be better off if every bill funded by debt had to be fought out on its merits. The fact that we have to raise the debt ceiling so often suggests rolling all borrowing into one ball isn’t working.

King Obama apparently looked into the possibilities of by-passing Congress on the debt ceiling debate several years ago. His lawyers told him that taking over the role of Congress wasn’t a winning play. Hmm. Just when he was considering Congress irrelevant.

This brings us to the third false claim by the Greek chorus – that entitlements are Constitutionally protected, presumably under the 14th Amendment mandate to service the public debt. Ahh. Nice try. But the Constitutional wording says “debts” not obligations. The original draft of the Amendment used the word “obligations,” but an astute Congressman replaced it with “debts” which not only zeroed in on the real intent of Article 4, but also narrowed the focus specifically to debts – transactions that involved borrowing and repayment.

Entitlements never involved borrowing and are not debts. They represent a future liability – unfunded mostly, such as Social Security, Medicare, and Medicaid – but never transactions with Constitutional protection. The debts incurred by one Congress bind future Congresses under the 14th Amendment. Not so with entitlements, which are political programs. Entitlements passed by one Congress can be repealed by a future Congress, defunded, expanded, or modified in scope. Each Congress may have its way with entitlements because they aren’t debts, even though they are implicit promises.

FDR knew Social Security lacked Constitutional protection and he may have had enough foresight to know future Congresses would try to repeal or diminish the program. Responding to a critic who questioned the economic soundness of the program, he said,

I guess you’re right on the economics, but those taxes were never a problem of economics. They are politics all the way through. We put those payroll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions … With those taxes in there, no damn politician can ever scrap my social security program.

Well, notwithstanding the fact that payment on the national debt was never in doubt by the shutdown, the Republicans led by McConnell the Dinosaur and Boehner the Weak caved and gave the Democrats a new credit card until early next year. They are busy running up its balance to the limit.

Twenty-seven Republicans signed the surrender document in the Senate along with 87 House members. I hope they can explain their perfidy to the folks back home. Of course, all House and Senate Democrats voted “aye” before rushing for their Committee checkbooks.

Not so subtly hidden in the voting stats is this: 40% of McConnell’s caucus and 62% of Boehner’s voted against their leader. I’d say both have cause to worry when they stand for reelection as the Senate and House leaders – assuming they have the gall to run.

How the “Cliff Deal” Was Done

As I argued in last week’s blog, this country is facing a life-threatening spending problem that has piled up a national debt exceeding the value of goods and services we produce annually. There is no painless way out of this mess. The American people’s addiction to government services will make it very difficult for self-serving politicians to ignore constituent whining, put their careers at risk, and do the right thing for the country not just their home districts and states. Since the core of the American addiction is entitlements it’s hard to be sanguine that this mess can be cleaned up before an economic Armageddon compels it.

Entitlement programs – Social Security, Medicare, Medicaid, Welfare and other entitlements – represent 62% of federal spending, programs. They have always been taken off the table in previous spending negotiations. Obviously no meaningful reduction in spending can happen without shrinking entitlements significantly. Add in defense spending (19%) and interest on the national debt (6%), and a total of 87% can’t be cut immediately or without shrieks and howls from citizens and their Washington representatives. Solutions exist, like privatizing all or part of Social Security, giving Medicare recipients greater choices and incentives to be wiser healthcare buyers, and allowing states more flexibility to manage Medicaid delivery. But these programs have strong advocates who are curiously less concerned with their unsustainability in the long term than with continuing them in their original and outdated incarnations.

Couple the impending entitlement spending train wreck with Obama’s my-way-or-the-highway negotiating style and it’s hard to see how the current congressional make-up and White House could agree on anything regardless of the consequences. The art of political negotiation must involve some degree of compromise so that a win/win outcome is possible even if neither side is particularly happy with it. In Obama’s world, only he is allowed to win. A Wall Street Journal op-ed this week summarized its writer’s interview with Speaker Boehner after the cliff deal was inked sans spending cuts. Boehner revealed that during his negotiations with Obama, at one point Boehner made an $800 billion new tax concession and asked Obama, "What am I getting?" Obama responded, "You don't get anything for it. I'm taking that anyway."

While negotiations were going on between Boehner and White House aides, Obama relentlessly demagogued Republicans in his speeches. He mocked their proposals for spending cuts, asserting that the country had no spending problem, as Republicans claimed, and that they were just trying to protect their rich friends from higher taxes. Boehner told Obama that “… we have a very serious spending problem,” to which Obama replied, "I'm getting tired of hearing you say that." Aside from his abrasive negotiating style, by denying that a spending problem exists, the man apparently believes in an alternate universe.

Obama’s remarkable lack of conciliation has won him no friends among Republican Senators and Representatives who see him as a partisan extremist. This is going to make any agreement in resolving our fiscal crisis almost impossible as long as he occupies the White House.

At some point during their Christmas negotiations it became apparent to Boehner that he couldn’t make a deal with Obama. The Maximum Leader’s round trip back from Hawaii cost taxpayers $3 million and all he contributed to the negotiations was to say “no” to every Boehner proposal. In hindsight everyone would have been better off if he’d stayed in Hawaii and had the final cliff deal FedEx’d for his signature. Negotiations with the White House were broken off when it became apparent that there would be no spending cuts.

Negotiating with Senate Majority Leader Reid wasn’t much different. As the clock wound down and the cliff approached, Boehner made repeated offers to Reid who, instead of responding promptly as the urgency of the situation demanded, often took 24 hours before sending a counter offer. Finally, Reid’s aides called Boehner’s aides to tell them Reid would not be sending a counter offer. Reid seemed to work harder at poisoning their relationship than reaching an agreement. After learning that Reid had given a Senate speech in which he called Boehner a dictator and other uncomplimentary terms, the Speaker became so frustrated that the next time he saw Reid at a White House meeting he told him to “go f--- yourself.”

Only when Minority Leader McConnell became concerned that going over the cliff could roil the US economy, if not the world’s, did he decide to contact Joe Biden directly and ask if he wanted to do a deal. The two veteran negotiators were able to hammer out an agreement in one day. The baby was ugly but McConnell was able to get all but eight Senate Republicans to vote for it. Reid sent the Senate bill to Boehner with a note that the House could make no changes to it. Most of the House Republicans balked at Reid’s take-it-or-leave-it decree and its absence of spending cuts. Only 85 Republicans voted for the Senate-crafted bill and were joined by 172 Democrats. The majority of Republicans – 150 of them – voted against the bill joined by 16 Democrats. Ryan and Boehner voted for the bill. House Majority Leader Eric Cantor voted against it. Over on the Senate side Marco Rubio voted against the bill setting up an interesting conflict between Ryan and Rubio – two likely Republican presidential contenders in 2016.

The House vote occurred two days before Boehner would stand for reelection as Speaker. His nominal opponent was Nancy Pelosi, but several Republicans were waiting in the wings to put their names forward if Boehner failed to get a first ballot win. He needed 214 votes, a simple majority, to win. He got 220 with 12 Republican defections for other candidates. It was originally thought that there would be 30 defections, which would have forced a second ballot. Pelosi got 192 votes. Boehner’s reelection was the closest first ballot win since Newt Gingrich’s close win in 1997 which followed his ethics wrist-slapping.

The passage of the “cliff” bill gave Obama bragging rights that he increased taxes on the rich. His original definition of “rich,” however, included couples making $250,000 or singles making $200,000. The deal that passed has thresholds for couples of $450,000 and $400,000 for singles. To that end, instead of increasing taxes on the “top 2%” as Obama had boasted his proposal would do, the deal he signed is in fact a tax increase on only the top 0.6%.

However, taxpayers will see their deductions capped beginning at the $250,000 and $200,000 thresholds which raise their effective tax rates. This stealth tax was accomplished by restoring the Personal Exemption Phase-out and the Pease provision, which expired in 2010. Obama resurrected it during negotiations for the tax increases. The personal exemption had been $3,800 per family member. Absent it, a married couple with two kids and a joint income above $250,000 will see an effective marginal tax increase of 4.4%. With four kids, that increases their marginal rate by 6%. Itemized deduction limitations add another 1% starting at the $200,000 and $250,000 thresholds.

Taxes on capital gains increased from 15% to 23.8% for individuals making more than $200,000 a year and couples earning more than $250,000, which includes the new 3.8% ObamaCare surtax on investment income. Capital gains haven’t been taxed this much since the first Clinton term. Taxes on dividends also increased from 15% to 23.8% for high earners, including the new 3.8% ObamaCare surtax on investment income.

Whereas Obama wanted an inheritance tax exemption of only $1 million, the exemption was increased to $5 million and indexed for inflation. However, the tax rate on inheritances above the exempted amount increased from 35% to 40%. Republicans wanted the inheritance tax – aka the “death tax” – eliminated. It is a hateful symbolic tax. Tax receipts from inheritance make up only a third of one percent of total tax receipts. People with potentially large estate tax liabilities avoid them through legal estate planning techniques so there is no economic argument for retaining the Estate Tax.

The Alternative Minimum Tax was created in 1969 because 155 high income households paid no income tax. At the time of its passage, the geniuses in Washington didn’t think to index it to inflation, thus in time this “class tax” became a “mass tax” as more middle class taxpayers were ensnared by it.  In recent years, Congress had to pass stop gap measures to set the threshold above middle class incomes. The cliff deal permanently patches the AMT and indexes it to inflation, rescuing 26 million taxpayers from it unless another temporary stop gap was passed this year. The AMT is the poster child for reforming the federal tax code.

The cliff deal didn’t extend the 2% payroll tax reduction that has been in place for the past two years. Therefore, despite Obama’s protestations that the middle class will not see tax increases, and that only the top 2% would see their taxes increased, the nonpartisan Tax Policy Center announced that 77% of taxpayers will be paying more taxes. Households earning between $40,000 and $50,000 will have an average tax increase of $580 and household incomes between $50,000 and $75,000 will average tax hikes of $820.

However, the cliff deal did extend unemployment benefits for another year, arguably reducing the incentive to aggressively look for work or accept a job whose pay is comparable to the unemployment benefit. Now, let me see if I’ve got this correct … we are going to reward unemployment and penalize employment (by increasing taxes 2%.)

Although it was not part of the cliff deal, the 2.3% medical device tax goes into effect this year. The rationale for ObamaCare was to bring down healthcare costs, but to pay for it medical devices are taxed, raising healthcare costs. By golly, I believe Obama really did discover an alternate universe!

Oh, and ObamaCare added 20 new taxes, so in combination with the “cliff taxes” 2013 should be an interesting year for the economy.

Negotiations over the debt ceiling, the deferred sequestration spending cuts, and getting a budget passed in the Senate loom in the near future. It’s hard to see how the Republicans can win any of these fights. Their leaders are inept if not cowardly. They can’t seem to muster the courage or competence to take their message to the people. If they fail to raise the debt ceiling and the government shuts down, they will get blamed, so why not get something for it – like budget passage by the Senate before agreeing to raise the ceiling? It ought to be easy to convince Americans that the country hasn’t had a budget since 2009 because Harry Reid won’t bring it to a vote, while the House Republicans have passed a budget every year since taking control.

Another tack would be to tie ceiling increases to entitlement reform – incrementally. The sequestration battle isn’t going to produce any sweeping spending cuts, certainly not in entitlements which are what must be reformed. Obama will just dig in his heels and let the automatic cuts occur as across the board cuts in domestic and defense spending, knowing that the Republicans will walk the plank to avoid defense cuts. So here’s the deal: conform Medicare eligibility to the Social Security retirement age which is 67 for people born after 1960 and Obama gets the equivalent of one month of spending in the debt ceiling increase. Raise the Social Security retirement age to 70 and the early retirement age from 62 to 67 over the next decade and he gets another month’s spending added to the debt ceiling. The price of another month is, for example, means-testing food stamps recipients, or block granting Medicaid to the states, or reducing unemployment benefits, or any of a long menu of quid pro quo spending reductions that get traded for offsetting incremental increases in the debt ceiling. Such a strategy is far more workable than haggling over sweeping spending reforms. It’s a message that can be taken to the people that they might understand: “We offered to raise the debt ceiling for X months’ worth of spending in return for Y and they turned us down.”

Obama will ask for more taxes in the coming negotiations. He saw Boehner’s near-death reelection, McConnell’s loss of eight in his caucus, and the almost two to one Republican vote against the McConnell-Biden bill. If he can continue getting the Republican leaders to buy into bad deals, he can divide and conquer their caucus and possibly regain the House majority in 2014. With Pelosi back in control, the last two years of his presidency would have smooth sailing as he completes his transformation of America into a welfare state.

Obama won Round One of the cliff deal. As he walked to Air Force One on New Year’s Day, he must have thought to himself, “Not a bad return for giving up a few days of my Hawaii vacation. And all I had to do was say ‘no’ repeatedly.”

“Eat your peas …”

In a press conference last week, Obama once again resorted to his gelatinous whine that the current economic crisis engulfing the US is really a carry-over of the mess he inherited from the Bush Administration. You’d think that after two and a half years in office, not even Obama could fob off that line with a straight face.

As I recall, the budget deficit in Bush’s second term was headed in the right direction, and in 2007 it had gotten to a figure that looks paltry next to Obama’s deficits – a measly $160 billion, down from $400 billion at the end of Bush’s first term. The budget was moving toward balance when the 2008 financial market meltdown occurred, causing what the CBO called a “record” budget shortfall of $438 billion. This year’s deficit will be almost four times that amount – about $1.5 trillion. Obama inherited $9 trillion in national debt at the end of Bush’s term and quickly raised it to over $14 trillion in two years.

USA Today’s October 7, 2008 edition reported:

The deficit is virtually certain to balloon even higher next year as the government sorts out the financial crisis and taps a $700 billion Treasury fund to buy toxic mortgage-related securities.

The next president is likely to have to scale back campaign pledges as he inherits a likely deficit for 2009 exceeding $500 billion. But neither GOP standard-bearer John McCain nor Democratic nominee Barack has given much detail regarding what promises they won't be able to keep …

The deficit numbers for 2008 represent about 3% of the size of the economy, which is the measure economists consider the most relevant. By that measure, the deficit is smaller than the deficits of the 1980s and early 1990s that led Congress and earlier administrations to cobble together politically painful deficit-reduction packages.

The TARP and Fannie and Freddie bailouts weren’t cheap, but a steady hand on the tiller could have managed their aftermath and restored the economy to its pre-meltdown deficits. Instead, Obama and his band of merry novices decided to exploit the crisis, following the advice of his Chief of Staff, Rahm Immanuel, to never let a crisis go to waste. Government spending exploded and the figure “trillion” became the new normal of its measure. The Obama Administration enacted a feckless stimulus, passed an eye-popping budget, and shoved ObamaCare through Congress without a single Republican vote, since both houses had bullet-proof Democrat majorities and could do what they wanted.

Trillion dollar deficits abounded. The debt that Obama inherited from Bush, which was 20% of the GDP – already high by historic standards – sky-rocketed to 25%.

As federal spending sped like a runaway freight train toward the nation’s debt limit, Obama did nothing. Oh sure, he appointed a bipartisan debt commission to look into the fiscal Frankenstein he had created, but then he ignored their findings and recommendations when they were delivered to him last December.

The 2010 elections should have been a wake-up call that voters didn’t like Obama’s new normal. The Republicans regained the House but failed to get a majority in the Senate, so Obama’s transformation of America into a Eurostate labored on. His 2011 budget was such a joke, however, that even his Democrat-controlled Senate voted it down 97-0.

With deficits piling on at a rate of $1.5 trillion per year and the national debt at a stratospheric $14 trillion plus and rising, somebody must have elbowed Obama in the ribs during one of his many golf outings and told him he was going to run out of money this summer, because suddenly he got fiscal religion. Besides, the 2012 election was coming up and, as he reminded his audience in a recent fund-raising speech, he had 5 ½ more years to go in the White House.

Initially, Obama sent Biden the Blowhard as his representative to negotiate spending cuts and tax increases with the leaders of both parties in the House and Senate. He sent no plan, however, forcing witless Republicans to negotiate against themselves. The talks were held in secret sessions, a mistake that allowed Democrats to feign support for deep spending cuts without giving specific public evidence – like a budget. It also allowed Obama to demagogue the Republicans for wanting to preserve “tax cuts for the wealthy,” his standard class warfare horse hockey. Republican Rep. Cantor and Sen. Kyl walked out of the meetings when they were hopelessly deadlocked while images of Obama playing golf and flying about on fundraisers filled the evening television news.

Obama had to get involved.

He did. He gave a $38,500 per plate fundraiser speech in New York after talks collapsed saying,

The tax cuts I’m proposing we get rid of are tax breaks for millionaires and billionaires, tax breaks for oil companies and hedge fund managers and corporate jet owners. ... Before we ask our seniors to pay more for healthcare, before we cut our children’s education, before we sacrifice our commitment to the research and innovation that will help create more jobs in the economy, I think it’s only fair to ask an oil company or a corporate jet owner that has done so well to give up that tax break that no other business enjoys.

Conveniently left out of this agitprop was any reference to the fact that Obama’s own stimulus package two years previously had contained a provision shortening the depreciation of corporate jets from seven to five years in order to stimulate US sales of jets.

And he kept it up. In a press conference several days later, Obama mentioned corporate jets not less than six times, excoriating Republicans for opposing this “tax loophole.” Also conveniently omitted was that Obama wanted to count loophole closings as spending cuts because the federal government was subsidizing them. In other words, if I was going to steal your wallet and decided not to, that nets outs the same as giving you the money I would have taken. A couple of rounds with that kind of logic and you ain’t right anymore!

Incidentally, plugging the corporate jet “loophole” would raise $3 billion over ten years, or as Charles Krauthammer put it, 5,000 years would pass before the loophole generated last year’s budget deficit. Or if you collected all the corporate jet taxes and oil depreciation allowances for 100 years, you wouldn't cover the amount that Obama added to the national debt last February.

With the venue for talks shifted to the White House, and with Obama leading them, the sides grew farther apart than they were with Biden on Capitol Hill. Since the rate at which Obama is spending money requires 40 cents of every dollar spent to be borrowed, there is no way in the short term to cut spending enough to avoid borrowing, which means the debt ceiling has to go up. But Republicans want debt ceiling increases to be matched dollar for dollar by spending cuts, whereas, Obama wants a “balanced approach” in which a dollar increase in the debt limit is matched by 75 cents in spending cuts and 25 cents in tax increases. Obama had to know that the tax increases would poison the well. And yet he put them in anyway, probably to make political hay because there is no economic rationale for raising taxes on job creators in the middle of a recession. There also was no way that the Republican majority in the House would approve tax increases, so predictably, the talks stalled.

After sitting through two days of talks, McConnell was ready to bolt. The schedule of spending curbs offered by Obama was a pittance. Only $2 billion would occur in 2012, with “empty promises of more to follow,” McConnell said. He strode to the well of the Senate and delivered a sharply worded speech, saying, “I have little question that as long as this president is in the Oval Office, a real solution is unattainable. In my view the president has presented us with three choices: smoke and mirrors, tax hikes, or default. Republicans choose none of the above.”

Obama countered with press conferences, knowing that they usually preempt regular TV programming. If there are a thousand ways of lambasting Republicans for protecting their millionaire and billionaire friends from “paying their fair share of taxes” Obama used them all in his press conferences. His claim that the rich aren’t paying their fair share, however, is his usual redistribution barnyard refuse. In the first place, Obama considers anyone making $200,000/year or a couple earning $250,000/year to be “rich.” In the second place the CBO has shown that the top 40% of income earners pay 99% percent the taxes and the top 1% pays more than the bottom 95% combined. While the top 40% of income earners make three times as much money as the bottom 60%, they pay 75 times as much in income taxes. The bottom half of all income earners pay no income taxes whatsoever. The US is the most progressively taxed nation among the Western democracies. But it will never be enough for Obama because his fiscal policies are driven by ideology, not economics.

The US has never failed to pay its obligations on time, and the 14th Amendment forbids default. If a debt ceiling limit standoff isn’t resolved by early August, tax receipts will pay about 60% of current obligations and the Federal Reserve will print the rest. It isn’t the best solution, but neither is continuing Obama’s reckless spending or raising taxes.

Believing that he can persuade or scare the public into taking his side, on July 11 Obama again called a press conference and said he couldn’t guarantee that Social Security checks would be paid. That was designed to get Grandma on the phone to her congressional representatives.

Republicans wet their britches and signaled they were willing to pass a small $500 billion (that’s small?) increase in the debt ceiling for a $500 billion reduction in spending or to do a dollar for dollar deal for 30 to 60 days. Obama said he would veto it. He wanted a “grand bargain” that would pull the issue out of the TV news hole until after his reelection. Trying to appear presidential, if not parental, he glowered at the press corps and snorted that he had bent over backward to accommodate Republicans and that it was time to “eat our peas.”

Republican legislators were furious. “What the hell kind of talk is that – ‘eat our peas’?” one ranted. It was Saul Alinsky Chicago-style politics, of course. Belittle, intimidate, and attack your opponent’s impure motives. As ancient wisdom teaches, politics ain't beanbag.

McConnell caved. He began crafting what he called a “backup plan” that he believed would cause Obama to suffer voter wrath for raising the debt ceiling while keeping Republican skirts clean. The onus would be on Obama to request three tranches of debt ceiling increases from Congress and concurrently propose spending cuts. Congress would vote each time on a resolution to disapprove Obama’s request but it would have to muster a two-thirds majority to override a veto and prevent the increase.

McConnell apparently hasn’t read Article I, Section 8 of the US Constitution, which expressly grants to Congress, not the Executive, “the power to borrow money on the credit of the United States”. Republican Sen. Tom Coburn called the McConnell plan a political rather than a fiscal solution whose sole purpose was to give Republicans political cover and hang the debt limit solution around Obama’s neck. House Republicans warned McConnell that his “Cut, Run, and Hide” plan wouldn’t pass the House in contrast to their “Cut, Cap, and Balance” Act which passed the House Tuesday night. It would cut spending, cap future spending at its historic level of 20%, and call for a balanced budget amendment to the Constitution – which requires a two-thirds majority approval in both houses before states vote on it in their legislatures. Obama has already announced he would veto Cut, Cap, and Balance. It’s an empty threat. He knew the House bill will never get through the Democrat-controlled Senate, which voted Friday 51-46 to kill it before rushing to get out of town.

Late Tuesday afternoon, the so-called Gang of Six, a bipartisan group of Senators not consumed with Obama’s class warfare resentment, has been meeting since the beginning of the year. They pitched their $3.7 trillion plan to reduce the deficit to an audience of 50 other Senators from both parties. It’s not written in legislative language – really little more than a list of talking points and lethally short on details. Here’s the good, bad, and ugly of their proposal.

The Good: the alternative minimum “theft” tax is repealed, corporate taxes are reduced to 29% (they’re 23% in Europe), and ObamaCare’s budget-busting CLASS Act is repealed. The Bad: net tax increases of $1 trillion, no spending caps or entitlement reform, income-based limitations on mortgage interest and charitable deductions, no deduction of second home mortgage interest, and Sen. Baucus, the author of ObamaCare, will write the bill. The Ugly: Washington math is used therefore a reduction in the rate of increased spending, like the Afghan war, is called a “spending cut,” the CPI is rejiggered to reduce cost-of-living adjustments and inflate tax brackets, and capital gains and dividends get double-taxed.

On balance, the Gang produced more bad ideas than good which Baucus will only make worse if he writes the legislative language. Keep in mind that in 1982, Congress promised Reagan it would cut spending by $3 for every dollar raised in taxes in order to reduce the deficit. Taxes went up but not one dime of spending was cut. Reagan’s 1986 Tax Reform Act reduced the top tax rate from 50% to 28%, where Reagan promised it would stay in return for the elimination of certain tax havens. That promise lasted until he was out of the White House, but the prohibition of tax havens stuck. Last year the freshman who swept out many in the 111th Congress promised to eliminate $100 billion in spending. That was then “prorated” for the fiscal year to $66 billion, and then whittled down to $38.5 billion. The CBO scoring on the final cuts: $352 million.

Congress can’t be trusted.

During the White House “negotiations” between Obama and congressional leaders, House Majority Leader Eric Cantor argued relentlessly for spending cuts and against raising taxes. When he brought up the possibility of an abbreviated extension of the debt limit last week, Obama lectured Cantor and threatened: “Don’t call my bluff. I am not afraid to veto and I will take it to the American people. ... This may bring my presidency down, but I will not yield on this.”

Tough talk from a guy who has no plan of his own and who’s hiding behind the skirts of a Democrat-controlled Senate which protects him from having to use a veto that could come back to haunt his reelection campaign next year.

And the beat goes on. Friday evening the “grand bargain” unraveled when, after agreeing to about $2.7 trillion in spending cuts over ten years in return for $800 billion in new taxes, Obama reneged and said he needed $400 billion more in taxes in order to win the Democrat votes needed to pass this scheme. Obama’s “balanced approach” – 75% in spending cuts and 25% in tax increases to match a debt ceiling increase dollar for dollar – had now gone to more like 67% and 33%. "Dealing with this White House is like dealing with a bowl of Jell-O," Boehner said. “The White House moved the goalpost,” he added.

Two telephone calls from Obama to Boehner were not returned. Then the Speaker called Obama and said the talks were off. Glory be! I didn’t think the guy had it in him. Republicans never miss an opportunity to miss an opportunity. Or maybe Boehner knew that he was going to have a lot of defections among House Republicans, and that the Democrats whose vote would be needed to pass a bill had also bailed because spending cuts were too much and taxes were too little.

So the guy who threatened Eric Cantor with a veto if an abbreviated extension was offered may get no more than that. Maybe it will keep him in town and off the campaign trail and golf course for a while.

Advice to Boehner: Get the spending cuts enacted by the Senate before passing a debt ceiling increase – even for an extension of a few months. As Reagan’s experience and history has shown, the Democrat’s batting average on upholding their end of a spending cut bargain should make you as nervous as a long-tailed cat in a room full of rocking chairs.

The Debt Ceiling Kabuki Dance

In 1917 the US Congress instituted the debt limit as a mechanism for keeping its spending in check. It worked for a while, but then in the 1960s the Johnson Administration began spending money like a drunken sailor. (Actually that gives drunken sailors a bad name. When they run out of money, they have to stop drinking.)

Throughout the last 50 years Congress has been drinking heavily, but unlike sailors whose money supply limited their consumption, Congress found it could keep its habit going by borrowing money to drink. When it hit the spending limit imposed by the debt ceiling, not to worry – just raise the ceiling.

Since 1962, the Congress has raised the debt ceiling 74 times, about once every eight months, and in the past 10 years, Congress has raised the debt limit 10 times. Little fanfare accompanied this spending alchemy and little was done to slow down the excesses that necessitated going back to the banker – the American people – to put more future generations on the line to pay for the gluttony of their parents and grandparents. Only when opposing parties held the White House and Congress did the participants drag out their Kabuki costumes so they could overdress and overact as if either party gave a flip about the consequences of increasing the spending limit. And when the Kabuki charade was over and each party had postured in righteous indignation for its respective constituency – at least enough to assure reelection – the two sides went back to the hard task of spending more money.

This time may be different.

The current occupants of the House of Representatives and a third of the Senate were elected in 2010 by an electorate which seemed intent on ending juvenile delinquency in Congress. Voters will be paying attention as never before to the debt ceiling debates that will begin in just a few weeks. One hopes that enough of them are sick of the profligate spending in Washington to make it the key issue in the 2012 elections. If those Representatives sent to Congress in 2010 fail to get the job done, they should be thrown out and replaced as their predecessors were. And while the newly minted and reelected 2010 Senators are safe for six years, another third will be on trial for their lives as well as a president who doesn’t seem to know the meaning of restraint.

The American people want government downsized and spending reduced. Those they elected in 2010 talked the talk; if they don’t walk the walk, off with their heads and bring in the next group of try-outs.

No more debt ceiling increases as usual!

Why have a debt ceiling at all if it is going to be routinely increased every eight to 12 months? Why don’t we just get rid of the debt ceiling altogether? Oh, because Congress needs some restraint. Okay, then, let’s restrain them. Don’t raise the debt ceiling. Or if it is raised, make the incremental increase so small that it only gives the big spenders in Washington no more than a month to get serious about cutting spending. Giving Congress another trillion in breathing room on top of the $14 trillion they’ve already blown just delays the inevitable. But a few billion in additional credit? That’s decimal dust and will force Congress to focus. More importantly, it will cause the American people to focus because small incremental increases will make the debt issue the subject for the evening news talking heads for years until the problem is solved.

The US will bump up against the current $14.3 trillion debt ceiling this month. Don’t be fooled by what you hear coming out of the Democrat camp and Tim Geithner, Obama’s hapless deer-caught-in-the-headlights Treasury Secretary. Both would have you believe that the US will suffer an economic Armageddon if the debt ceiling isn’t raised immediately and raised big. Phooey! The US will not default on its debt, and if Geithner truly believes that, he needs to resign his cabinet post and look for a real job.

Here’s why.

If Congress refuses to raise the debt ceiling, the federal government will still have more than enough money to fully service our debt. Next year, about 7% to 10% of all projected federal government expenditures will go to interest on our debt. Tax revenue is projected to cover at least 70% of all government expenditures. So, under any circumstances, there will be plenty of money to pay our creditors.

Moreover, as the Congressional Research Service has noted, the Treasury Secretary himself has the discretion to decide which bills to pay first in the event that a cash flow shortage occurs. Thus, it is Geithner who would have to consciously, and needlessly, choose to default on the national debt if Congress chooses not increase the debt ceiling.

Geithner, however, disagrees, using this analogy of a typical American homeowner to explain why: "A homeowner could decide to 'prioritize' and continue paying monthly mortgage payments, while opting to cease paying other obligations, such as car payments, insurance premiums, student loan and credit card payments, utilities, and so forth. Although the mortgage would be paid, the damage to that homeowner's creditworthiness would be severe."

Geithner, however, mistakenly assumes that American homeowners always pay their expenses with borrowed funds because that’s the way the government does. Most do not. When tough times come, families eat out less, go to fewer movies, buy fewer clothes, and postpone vacations. If those things don't save enough, then they might borrow money to pay bills or skip payments, but their credit limit will always keep their spending in check.

Congress has largely avoided the cost-cutting that families are forced to do. The feds have not reduced spending despite lower tax revenues during the current recession. Now, the Obama administration says if we don't raise the debt ceiling, the nation could go into catastrophic default.

Congress has never before refused to raise the debt ceiling. But it has frequently taken its sweet time to do so. In 1985, Congress waited nearly three months after the debt limit was reached before authorizing a permanent increase. In 1995, 4-½ months passed between the time the country hit the debt ceiling and congressional action. No, the sky did not fall. And in 2002, Congress delayed raising the debt ceiling for three months. In each case, the U.S. and the economy survived.

Federal revenues will reach $2.2 trillion this fiscal year. Interest payments on the nation’s debt are estimated to be $205 billion this year. Taking interest payments off the top leaves $1.9 trillion for Congress to spend. That’s enough to pay for Social Security ($741 billion), Medicare ($488 billion), and Medicaid ($276 billion), with $395 billion left for other programs.

Clearly $395 billion is not going to pay for the bloated government the country has come to tolerate under Bush and Obama without ever thinking about how to pay for it. Assuming entitlements mentioned above are not touched, $395 billion won’t pay the defense budget, for example. The DoD requested a jaw-dropping $553 billion for next year – about $1,800 for every man, woman, and child in this country (excluding illegals, of course.) DoD also wants an additional $118 billion for “overseas contingency operations” whatever the heck that is. A couple of hundred bombs dropped on Libya maybe?

So, there is no more money and $395 billion can’t cover the nearly $700 billion for the Pentagon, and it certainly can’t be further stretched to cover $115 billion or so for homeland security, $82 billion for HHS, $77 billion for education, $42 billion for HUD, $21 billion for DOJ, $22 billion for agriculture, $14 billion for Treasury, $13 billion each for the Labor and Transportation Departments, $12 billion for the Interior Department, $10 billion for EPA, and on and on and on. And we still have to pay for the excesses of ObamaCare down the road whose price tag we don’t yet know.

The people running this government are never going to deal with our unsustainable spending situation unless and until it becomes unavoidable for them to ignore it. The only way to make that happen is for Congress to refuse to raise the debt ceiling and force Obama to prioritize payment of those obligations that must be paid to maintain the full faith and credit of the United States. Only when there is no way around it will the American people, more particularly the taxpayers, get serious about what government should and should not do, and what kind of welfare state they are willing to pay for.

If America truly demands all this spending by the feds, then let's pay for it now. Let's raise taxes to cover it all. But if we paid for current spending with current revenue it would require hiking taxes almost $1.7 trillion. That's the projected deficit for 2011, and it dwarfs this year's individual income tax receipts, estimated to be $956 billion. Even if we doubled this year's total budgeted tax receipts, about $1.614 trillion, we still couldn't cover the deficit for 2011.

So given the current level of spending, all Americans – including the 50% who pay no taxes – should be compelled to pay for what Obama and Congress spend, instead of shifting it to future generations. As long as there are free loaders who pay no taxes, they will take no interest in government spending. Yes, I mean taxing even the little old blue-haired ladies. Once everyone got interested in what government spends, there would be blood and rioting in the streets. The economy would crash and maybe, just maybe, voters (included the current free loading voters) would demand an end to the insane spending or throw out the big spenders.

But as long as our wrong-headed government continues to run budget deficits, its access to cheap borrowing – i.e. low interest rates – is the only way it can avoid default. For example, assume that interest rates don't change and continue to stay low. Then in 2020, 70 cents of every federal dollar will be spent on interest to service the debt, Social Security, Medicare and Medicaid. But if interest rates rise by just 1%, 90 cents of every dollar would go toward the debt, Social Security, Medicare and Medicaid, leaving just 10 cents to split among education, defense and all other discretionary items.

Perhaps the strongest argument for not raising the debt ceiling, as these figures show, is that the US is bound to default the debt in the next decade or so. It will either explicitly renege on payments – unlikely – or it will print so much money that it pays its debt in cheap dollars – the most likely scenario. The government's own projections show the debt quickly rising to alarming levels under reasonable assumptions, and none of their models considers the possibility of a continued recession and a collapsing dollar.

The debt ceiling, boys and girls, is the key in stopping the politically-motivated spending insanity. It will prevent the inevitable collapse of the dollar and the economy, which will happen if Washington keeps to its spendthrift ways, and it is the best way to enforce restraint on the cowards in Washington. Of course voluntary spending reductions would be better than capping the credit spigot. But absent that, cutting up the Congressional credit card is better than the Kabuki dance that Congress is about to embark on.

Refusing to raise the debt ceiling would be a "balanced-budget amendment with teeth," as one pundit observed. Politicians are notorious for avoiding budget cuts that might alienate the powerful interest groups which contribute to their campaign coffers. But if the newly elected budget "hawks" really want to impress us, let them refuse to raise the debt ceiling regardless of John Boehner’s or Mitch McConnell’s rants. That will give the old guard no choice but to start slashing.

Almost five years ago, in March, 2006, the usually silent junior Democratic senator from Illinois, Barack Obama, unexpectedly piped up to oppose increasing the nation's debt ceiling, explaining:

The fact that we are here today to debate raising America's debt limit is a sign of leadership failure. It is a sign that the US government can't pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our government's reckless fiscal policies. ... Increasing America's debt weakens us domestically and internationally. Leadership means that "the buck stops here." Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.

Of course, George Bush was president then. Senator Obama's insight five years ago about the ever rising debt as a "failure of leadership" and that "Americans deserve better" is one of the few things he’s ever gotten right.