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Debt Ceiling Talks and What Boehner Is Doing

by John on 05/17/2012

Republicans are pushing debt ceiling talks — now — for the end of the year.

Here’s the Informed Not Inflamed look.

  • First, this is a campaign tactic.  Speaker John Boehner wants to keep the deficit hawks and the Tea Partiers fed with the red meat as we head into the elections –even though the debt ceiling talks won’t happen until the Lame Duck Congress after the elections.
  • Second, and this is a Democratic talking point, if talks fail on maintaining or raising the debt ceiling, then the stock market will drop as ratings agencies threaten a downgrade on U.S. debt.  That could reflect badly on the “Obama economy.  However, it won’t hurt the GOP since a down-grade or government stalemate won’t happen until after elections.
  • Third, don’t dismiss the GOP’s – and the Tea Party’s – stance. 

Sure, there are arguments against the GOP’s tactics.

  • First, the GOP is reneging on a deal made earlier this year with the President.  They don’t seem to act conciliatory to anyone outside their opinions.  They will also not consider any tax increases which are needed.
  • Second, many in the GOP are trying to spare defense cuts – to keep their defense contractor donors (bribers) happy along with some jobs for constituents.  Remember most of the GOP gains are in the House with gerrymandered districts that are heavily Republican.
  • Third, the majority of our out-of-control spending will happen over the next decade with Medicare and Social Security agreements that can’t handle retiring baby boomers.  So, yes, we could maintain spending now, create growth, and then plan to make massive cuts down the road.

But here’s where I get what they’re saying.  I don’t think all the media understand.  But it is something we should consider.

The Tea Party and the GOP deficit hawks feel like they are dealing with a family addict

“Just keep feeding my habit so I can get off this horrible spending binge.”

They keep asking: if we don’t stop spending now, then when?  Do you really think we will cut spending in 2015 until 2020 to keep entitlements under control for generations?  Congress today passes that and then a future Congress finds a reason to unwind that legislation.  When they have seen this happen for decades, and what we face, you understand why they will not compromise.

In short, the Tea Partiers and deficit hawks realize – but they won’t say it — that Richard Nixon or Economist Milton Friedman was wrong.  One of them allegedly said, “We’re all Keynesians now.”  That’s because all U.S. governments – under Republicans and Democrats — have tacked on spending and spending for decades for their own political gain.

But here’s what the Tea Partiers and the deficit hawks know:  A true Keynesian would have cut spending and taxes — once the economy returns to health.  The reality: no one does that.

George W. Bush went to war and cut taxes and our deficits boomed.  His Fed Chairman kept rates ridiculously low as the housing market went from warm, hot, to a nuclear meltdown.

The last ones to actually do something close to what they want were Bill Clinton and Ronald Reagan.

Clinton, thanks to good times in the 90s, increased taxes and cut spending. 

In the 1980s, Reagan cut some taxes and raised others.  He also raised military spending to help end the Cold War.  But, and here is the big but, along with Congress he overhauled the tax code, and wiped out billions of dollars in deductions and give-backs.  That was 1986. 

And since then, Congress after Congress has added those give-backs that now add up to a trillion dollars. This year alone, the mortgage deduction costs the government $131 Billion.

Yes, there is a move to reform the tax system.  But that won’t happen until 2013.  So, as Boehner says, “We’re kicking the can down the road again.”

The reality is this:

Once the election is finished, no matter who wins, most of these measures pushed by the deficit hawks and the Tea Partiers will have to be enacted in some form.

The compromise will be higher taxes, a cut in spending, drastic reduction in deductions, and the outline is … dare I say it again… the Simpson-Bowles plan.

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