June 25, 2017

Washington Budget Report: July 26, 2011

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Parties Pursue Competing Plans on Debt Limit

With time running short to raise the federal debt limit, Republicans and Democrats are planning votes this week on competing plans that President Obama and House Speaker John Boehner championed in speeches to the country Monday night.

Obama called for “shared sacrifice” and objected to Republican efforts to ensure another debt limit battle before the 2012 election. Boehner said the President wanted a “blank check” and said Democrats were relying on “phony accounting.”

The Democratic plan, put together by Senate Majority Leader Harry Reid, promises to reduce projected deficits by $2.7 trillion without revenue changes and without affecting Medicare, Medicaid and Social Security. Boehner’s plan calls for $3 trillion in cuts, raising the debt ceiling in two phases, and no tax increases. Both plans include new bipartisan committees to identify savings.

The Treasury Department warns of a government default if the limit is not raised by Aug. 2. Credit rating agencies are considering downgrading U.S. debt, which would create enormous turmoil in the global economy. Some states and cities could also face credit downgrades.

On Saturday former lawmakers in both parties who serve on The Concord Coalition’s Board of Directors called on elected officials to quickly raise the debt ceiling while embracing a comprehensive fiscal reform plan by the Senate’s bipartisan “Gang of Six.”

The plan, released last week, “serves as a beacon for those who wish to support meaningful bipartisan solutions,” the Concord board members said. “ It confronts the inevitable trade-offs that must be made and defies those who insist that compromise is a fool’s errand. . . . With this proposal, the Gang of Six has become the Gang of Sense.”

Earlier last week, the House approved but the Senate rejected the Republicans’ “cut, cap and balance” proposal. It included spending cuts, a cap on future spending and congressional approval of a balanced budget amendment to the Constitution. Concord argues that the version of the amendment under discussion recently is deeply flawed.

College Students Urge Compromise and Action

Underscoring the high stakes involved for younger Americans, student body presidents from more than 120 colleges around the country have called on President Obama and congressional leaders to set partisan politics aside, raise the federal debt ceiling and agree on long-term deficit reduction plans.

“Your decisions will determine what kind of country we will inherit,” the students said in a letter released at a press conference Thursday in Washington. “So please hear us clearly: It is time to put the politics aside. It is time to put the parties aside. It is time to put the pledges aside. Now is the time to do what is right for the country.”

The letter, written on behalf of nearly two million students in 40 states, supported the recommendations of the President’s bipartisan fiscal commission and the Senate’s bipartisan Gang of Six.

“Shared sacrifice and common purpose must underpin whatever compromise is reached,” said the students, who have launched an initiative titled “Do We Have a Deal Yet?”

At a town hall at the University of Maryland on Friday, Obama met with Kaiyi Xie, the student body president at the university and one of the signers of the letter, to express appreciation for it.

The Concord Coalition strongly supports this student initiative, which serves as a model for greater engagement by young Americans in the cause of fiscal reform.

Comeback America Initiative Highlights Fiscal Options

The Comeback America Initiative has released a report with illustrative options to put the country on a sustainable fiscal path under two different scenarios. The report, "Restoring Fiscal Sanity,” includes options on domestic and defense spending, entitlement reform and tax reform.

“Putting our nation’s finances in order is a critically important and challenging endeavor, said David M. Walker, former comptroller general of the United States and the founder and CEO of the Comeback America Initiative. “In order to effectively address these challenges, Congress and the White House must act soon.”

The report’s “Preemptive Framework” includes the reduction of discretionary spending to 2008 levels but with $500 billion for infrastructure and other investments to prevent a double-dip recession and stimulate job growth. It also includes reforms to Social Security and Medicare, reductions in our international military commitments, and expiration of the 2001 and 2003 tax cuts.

The report’s “Reactive Framework,” while addressing the same areas, is designed as a backup plan in the event of a financial crisis similar to 2008. To reassure the American public and foreign lenders, it has dramatic changes that include a Presidential line-item veto, a debt cap and a balanced budget requirement except in times of war or other significant events.

Debits & Credits

Seizing the Teachable Moment: Rep. Nan Hayworth (R-N.Y.) has helped educate dozens of her colleagues on the dangers of a government default, recently hosting a briefing with analysts from top financial firms. She has been a welcome advocate of compromise, noting that a budget deal must “involve the assent of members of both parties.”

No Big Deal, and Maybe We’ll Just Lose One Knee-Cap: Financial experts warn that a government default would deal a catastrophic blow to the United States. Based partly on his views on gold and silver, however, Rep. Ron Paul (R-TX.) says he can “see no reason why defaulting on a small amount of debt this August would cause any major changes.”