US House set for key debt vote on Republican bill
Washington hit its debt ceiling in May, but has used accounting adjustments to continue operatingA key, revised bill put forward by US Republican leaders to try to avert a debt default next week is set to go to a vote in the House of Representatives.
But House Speaker John Boehner's bill faces a conservative revolt, unanimous opposition by Senate Democrats and a White House veto threat.
Republicans hold 240 of the 433 votes to be cast, and need 217 of their members to back the bill to pass it.
Mr Boehner told dissenting colleagues on Wednesday: "Get your ass in line."
The US Treasury has warned the government will run out of money to pay all its bills unless a $14.3tn borrowing limit is increased by next Tuesday.
Mr Boehner's plan would trim $917bn from the US budget deficit over 10 years and raise the debt limit by up to $900bn.
President Barack Obama supports another plan by top Senate Democrat Harry Reid, which would cut $2.2tn from deficits, and raise the debt ceiling by $2.7tn.
But that is thought unlikely in its current form to pass the Republican-controlled House.
Both Republican and Democratic plans underwent revisions on Wednesday after congressional budget analysts said the savings advertised by each one had been overstated.
The Boehner and Reid plans overlap in key ways - trimming spending over 10 years, shunning President Obama's call for tax increases on the wealthy and creating special lawmaker committees to craft future cuts.
But Mr Boehner's approach would force another debt-limit showdown during next year's presidential campaign, something Mr Obama has fiercely opposed.
Senate Majority Leader Reid's plan would see the ceiling lifted until after the November 2012 elections.
Analysts say success in the House for the Boehner plan would lend it legitimacy, but it would not be able to pass in the Senate.
The most probable scenario is thought to be a frantic last-minute hunt for a compromise and final, razor's-edge votes in both chambers, with the high-stakes game of legislative brinkmanship expected to go down to the wire all weekend.
Mr Reid hinted of a compromise as he told reporters on Wednesday: "Magic things can happen here in Congress in a very short period of time under the right circumstances."
Senate Finance Committee Chairman Max Baucus predicted an endgame that would see lawmakers modify Mr Reid's bill to make it more appealing to Republicans.
Washington hit its debt ceiling in May, but has used accounting adjustments, as well as higher-than-expected tax receipts, to continue operating.
On Wednesday, Mr Boehner and his lieutenants met restive members of the House rank and file - including some who oppose lifting the debt limit under any circumstances - to persuade them to back his plan.
In a new twist that analysts say illustrates the discord among the Republican party, Republican Senator John McCain, the party's 2008 presidential nominee, took to the Senate floor to criticise some freshman House Republicans' stance on the debt issue as "foolish" and "bizarro".
In recent decades, the US Congress has increased the government's borrowing authority dozens of times as a matter of routine, but this year newly elected conservative Republicans have demanded steep cuts to the budget deficit as the price of an increase.
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LeftieAgitator16 MINUTES AGO
This is more about political manoeuvring by the Reps to try and set a trap for Obama in the run up to the Presidential election in 2012, than a matter of principle. Congress has raised the debt limit countless times before, why not now?
A meaningful deficit reduction program would require spending cuts and increases in tax revenue. Anyone with half a brain can see that.
http://www.bbc.co.uk/news/world-us-canada-14328183
2011 U.S. debt ceiling crisis
The 2011 United States debt ceiling crisis is the ongoing debate over whether the debt ceiling of the United States should be increased and, if so, by how much it should be raised, what future spending policies and/or tax code policies should be associated with it, and what structural changes for future budgeting processes, if any, should be associated with it (i.e. spending caps, Balanced Budget amendment).
The debate is controversial and contentious due to the implications of not raising the debt ceiling, political ideologies, long-term debtconcerns, and competing plans to address these concerns.[1]
Contents
[hide][edit]Background
If the United States Treasury does not collect enough in revenue to pay for expenditures by the Federal Government, it is authorized by Congress to issue debt (in other words, borrow money) to pay for the federal budget deficit. The Treasury can only borrow money as long as the total debt (excepting some small special classes) does not exceed a ceiling stated by law. To change the debt ceiling, Congress must enact it and the President must sign it into law.
The debt ceiling at this time is $14.3 trillion set by law.[2] According to the Treasury, the debt ceiling was reached on May 16 at which time the Treasury began extraordinary measures to temporarily finance the government (see Debt issuance suspension period and alternate methods of funding). The Treasury estimated that these measures would last until August 2, 2011 and then it could not fulfill all of its obligations.[3]
As of May 2011, the federal government borrowed approximately 40 percent of what it spends. Raising the debt ceiling would allow the Federal Government to continue to borrow money to support these spending levels. If the debt ceiling is not raised, the Federal Government would have to immediately cut spending by 40 percent which could impact daily operations of the government and payments for Social Security benefits, Medicare benefits, military salaries, government employee salaries, outside contractors, interest for the national debt and many other things.[4] The Treasury would determine what items would be paid. If the interest payments on the national debt are not paid, this would be considered a national default and would likely have catastrophic economic consequences for the United States, and the wider world as well (because the United States has a very high gross domestic product with the world's largest single national economy, is a major trading partner to many countries and to other major world powers who hold its debt and could demand repayment, and its spending and investment power and role as a mediator and economic model in the world as the remaining superpower).
According to the US Treasury, "failing to increase the debt limit would... cause the government to default on its legal obligations – an unprecedented event in American history".[5] These legal obligations include paying Social Security and Medicare benefits, military salaries, interest on the debt and many other items. If the debt ceiling is not raised, then the Treasury prioritizes the items to pay with its ongoing revenue stream and it could choose to pay interest on the debt so the U.S. does not default on the sovereign debt.
The United States has had public debt since its inception. Debts incurred during the American Revolutionary War and under the Articles of Confederation led to the first yearly reported value of $75,463,476.52 on January 1, 1791. Every President since Harry Truman has added to the National Debt. The debt ceiling has been raised 74 times since March 1962,[6] including 18 times under Ronald Reagan and 7 times under George W. Bush. Without policy changes, the United States public debt is expected to continue to increase in the long term.[7]
Raising the debt ceiling neither directly increases nor decreases the budget deficit, but it can lead to a debate on fiscal policy to change the future trajectory of deficits and debt. The Government Accountability Office explains, "the debt limit does not control or limit the ability of the federal government to run deficits or incur obligations. Rather, it is a limit on the ability to pay obligations already incurred."[8]
[edit]Debt issuance suspension period and alternate methods of funding
When the debt ceiling is reached, the U.S. Treasury can declare a debt issuance suspension period, and utilize methods other than issuing new debt to acquire funds to meet federal obligations. Several of these methods are described in detail in an Appendix attached to Secretary Geithner's April 4, 2011 letter to Congress[9] These "extraordinary measures" include using federal employee payroll deductions directed to the G-Fund, which is part of a 401(k)-like program known as the Thrift Savings Program (TSP), and to the Civil Service Retirement and Disability trust fund. These methods have been used in several previous episodes in which federal debt neared its statutory limit.[10]
These methods were implemented as of May 16, 2011, as the current debt ceiling was exceeded, when, in a letter to Congress, Secretary Geithner declared a "debt issuance suspension period", which provides the Secretary authority to sell assets from the Civil Service Retirement and Disability Fund and the Government Securities Investment Fund of the Federal Employees Retirement System. According to this letter, this period could "last until August 2, 2011, when the Department of the Treasury projects that the borrowing authority of the United States will be exhausted".[11] In others words, on August 2, without a raise in the debt ceiling, the Treasury will reach the point at which it will, in addition to being unable to further borrow money, be unable to gather enough funds from alternative sources to pay for all of the federal governments obligations. Choosing which appropriations to pay for, if it can not afford to fund them all, would amount to default, as the government would be choosing which appropriations to selectively default on.
[edit]Envisaged consequences of not raising the debt ceiling
At issue is that the failure to extend the limit may leave the federal government unable to pay all its obligations, including paying interest on existing debt, a default that could have serious repercussions. This would probably include causing panic in bond markets and damaging the economic recovery from the Great Recession.[8][12] Such a crisis could throw the United States back into a recession.
Former Treasury Secretary Lawrence Summers warned of serious consequences of a default in July 2011, including: (a) higher borrowing costs for the U.S. government (as much as 1% or $150 billion/year in additional interest costs) and (b) the equivalent of bank runs on the money and other financial markets, potentially as severe as September 2008.[13] Bank failures and a potential bank run, curbed bygovernment intervention, were a major catalyst of the Global Financial Crisis that caused the Great Recession.
Nevertheless, many analysts and politicians predict that a deal will be reached before the August 2 deadline.
In response to Jim DeMint and other Republican Senators, who suggested that the current level of the debt ceiling could be maintained by prioritizing payments on the debt above other government spending, Treasury Secretary Timothy Geithner wrote a letter of reply in late June. He said that this would require "cutting roughly 40 percent of all government payments", which could only be achieved by "selectively defaulting on obligations previously approved by Congress". He argues that this would harm the reputation of the United States so severely that there is "no guarantee that investors would continue to re-invest in new Treasury securities", forcing the government to repay the principal on existing debt as it matures, which it would be unable to do under any conceivable circumstances. He concluded: "There is no alternative to enactment of a timely increase in the debt limit."[14]
[edit]Deadline
According to the Treasury Department, the deadline to increase the debt ceiling is August 2, 2011, when the U.S. government would run out of cash to pay all its bills.[15] According to Barclays Capital the Treasury may run out of cash around August 10, when $8.5 billion in Social Security payments are due. According to Wall Street analysts, the U.S. Treasury can't borrow from the capital markets after August 2, but still has enough cash to meet its obligations until August 15. Analysts also predict that the U.S. Treasury will be able to roll over the $90 billion in U.S. debt that matures on August 4 and gain additional time to avert a crisis.[16] No one knows how the financial market and investors will react if U.S. Treasury is unable to borrow additional funds or meet its financial obligations.
[edit]Proposed resolutions
Congress is now considering whether and by how much to extend the debt ceiling (or eliminate it), and what long-term policy changes (if any) should be made concurrently.[17] Republicans, who control the House of Representatives, have refused to raise the debt ceiling without deficit reduction, voting down a 'clean' raise in the House, with many Democrats in the House voting in protest against what they called a "political stunt" given that Republicans had the votes to ensure a clean raise would not pass.[18] The Republicans largely believe a deficit reduction deal should be based solely on spending cuts, including cuts to entitlements, without any tax increases, to reduce or solve the long term issue of debt.[19] President Obama and the Democrats in the US Congress want an increase in the debt ceiling to solve the short-term borrowing problem, and in exchange support a decrease in the budget deficit to be funded by a combination of spending cuts and revenue increases.[20] Some prominent liberal economists, such as Paul Krugman, Larry Summers, and Brad DeLong, and prominent investors such as Bill Gross, go even further, and argue that not only the debt ceiling should be raised, but it should be accompanied by a short-termincrease in federal spending (and, therefore, deficit), which would stimulate the economy, reduce unemployment, and ultimately reduce the deficit in medium to long term.[21][22]
Some Republicans, however, (including, but not limited to, Senators Jim DeMint, Rand Paul, and Mike Lee, and Representatives Michele Bachmann, Ron Paul, and Allen West, etc.) are skeptical about raising the debt ceiling altogether (with some suggesting the consequences of default are exaggerated), arguing that the debt ceiling should not be raised and "instead the federal debt be "capped" at the current limit,"[23] "although that would oblige the government to cut spending by almost half overnight."[24] For more, see "consequences of not raising the debt ceiling."
Among others, in a report issued by the credit rating agency Moody's, analyst Steven Hess suggested that the government should consider getting rid of the limit altogether, because the difficulty inherent in reaching an agreement to raise the debt ceiling "creates a high level of uncertainty" and an increased risk of default. As reported by The Washington Post, "without a limit dependent on congressional approval, the report said, the agency would worry less about the government's ability to meet its debt obligations."[25]
Additionally, some argue the debt limit is unconstitutional, and suggest that the President could simply declare the debt ceiling as such to resolve the crisis. For more, see the section entitled "constitutionality of the debt ceiling" below.
[edit]Constitutionality of the debt ceiling
There is some debate regarding whether the President can effectively ignore the debt ceiling by calling it "unconstitutional." Some believe theSection 4 of the Fourteenth Amendment to the United States Constitution, passed in the context of the Civil War Reconstruction, prohibits questioning the validity of all lawfully authorized United States public debt.
Jack Balkin, looking into the Legislative History of the Fourteenth Amendment, argues that Section 4 was adopted precisely to guard against politically-determined default. Referencing the sponsor of the provision, Senator Benjamin Wade, Balkin argues that "the central rationale for Section Four... was to remove threats of default on federal debts from partisan struggle." Whereas the debt ceiling gives Congress the power for the United States to default on its debts by requiring approval of a higher debt limit; Balkin quotes Senator Wade: "every man who has property in the public funds will feel safer when he sees that the national debt is withdrawn from the power of a Congress to repudiate it and placed under the guardianship of the Constitution than he would feel if it were left at loose ends and subject to the varying majorities which may arise in Congress." Balkan claims that this reveals "an important structural principle. The threat of defaulting on government obligations is a powerful weapon, especially in a complex, interconnected world economy. Devoted partisans can use it to disrupt government, to roil ordinary politics, to undermine policies they do not like, even to seek political revenge. Section Four was placed in the Constitution to remove this weapon from ordinary politics."[26]
Bruce Bartlett, a libertarian former Reagan adviser and columnist for The Fiscal Times, argues that Section 4 renders the debt ceiling unconstitutional, and that the President should disregard the debt limit.[27] In July 2011, The Nation editor Katrina vanden Heuvel argued that the President could use the public debt section of the Fourteenth Amendment to force the Treasury to continue paying its debts if an agreement to raise the debt ceiling is not reached.[28]
Laurence Tribe, professor of Constitutional Law at Harvard Law School, has called the argument that the public debt clause can nullify the debt ceiling "false hope" and has noted that nothing in the Constitution enabled the president to "usurp legislative power" with regards to the debt. Tribe also notes that since Congress has means other than borrowing to pay the federal debt (including raising taxes, coining money, and selling federal assets), the argument that the president could seize the power to borrow could be extended to give the President the ability to seize those powers as well.[29]
Garrett Epps argues that the President would not be usurping Congressional power by invoking Section 4 to declare the debt ceiling unconstitutional, because the debt ceiling exceeds Congressional authority: calling it legislative "double-counting," as paraphrased in The New Republic, "because Congress already appropriated the funds in question, it is the executive branch's duty to enact those appropriations."[30] In other words, given Congress has appropriated money via federal programs, the Executive is obligated to enact and, therefore, fund them; the debt ceiling's limit on debt prevents the executive from carrying out those instructions given by Congress, on the constitutional authority to set appropriations, and is therefore unconstitutional. President Bill Clinton endorsed this line of argument, saying he would eliminate the debt ceiling using the 14th amendment, calling it "crazy" that Congress is allowed to first appropriate funds and then gets a second vote on whether to pay for them.[31]
Furthermore, Matthew Zeitlin argues that, were Section 4 invoked, members of Congress would not have standing to sue the President for allegedly usurping congressional authority, even if they were willing to do so; and those likely to have standing would be people "designed to elicit zero public sympathy: those who purchased credit default swaps which would pay off in the event of government default."[30] Relatedly,Matthew Steinglass argues that, because it would come down to the Supreme Court, the Court would not vote in the favor of anyone who could and would sue: it would rule the debt ceiling unconstitutional. This is because, for the Court to rule to uphold the debt ceiling, it would, in effect, be voting for the United States to default, with the consequences that would entail; and, Steinglass argues, the Court would not do that.[32]
George Madison, General Counsel to the US Treasury, wrote on 8 July 2011 that "Secretary Geithner has never argued that the 14th Amendment to the U.S. Constitution allows the President to disregard the statutory debt limit" and that "the Constitution explicitly places the borrowing authority with Congress." He additionally affirmed that "Secretary Geithner has always viewed the debt limit as a binding legal constraint that can only be raised by Congress."[33]
President Obama himself later stated that he would not use this method to solve the crisis.[citation needed]
[edit]Timeline
[edit]See also
[edit]References
Full coverage
Boehner, other GOP leaders ramp up pressure on Republicans to pass debt plan
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