By Bill Wilson – With White House talks ended over Obama’s insistence on job-killing tax increases, it is time for House Speaker John Boehner to turn up the pressure for spending cuts on the Senate.
On July 22, just minutes after defeating the House-passed “Cut, Cap, and Balance” plan to trim the deficit by $5.8 trillion over the next ten years and balance the budget by amending the Constitution, Senate Majority Leader Harry Reid took to the floor to proclaim that his work was done.
Calling the legislation “dead,” Reid then made headlines by also taking his and Senate Minority Leader Mitch McConnell’s proposal off the table for Senate action that would have let Barack Obama raise the debt ceiling without any spending cuts of substance included. He also made no mention of the so-called “Gang of Six” proposal.
Instead, Reid alluded to ongoing negotiations between House Speaker John Boehner and the Obama White House. He said, “The product on which they are working would address, as I understand, both taxes and spending. And under the Constitution, the House of Representatives must originate all revenue measures.”
Reid continued, “Therefore, the path to avert default now runs first through the House of Representatives.”
If Reid had a proposal of his own, he easily could have offered it as an amendment to the “Cut, Cap, and Balance” bill, had it passed, and then gone to conference to work out the differences between the House and Senate versions of the same bill.
Instead, Reid punted. Because he has no plan. He’d rather have Republicans negotiating against themselves. Instead, both houses of Congress must work on legislation that cuts borrowing, puts a ceiling on spending, and eventually, balances the budget.
But Speaker Boehner can take at least part of Reid’s advice, and pass legislation in the House that would indeed avert a default on the $14.3 trillion national debt, especially now that talks with the White House have completely failed.
The only possible way the government would default on its debts would be if the Obama Administration consciously decided not to make interest payments and refinance existing debt up to the limit when the debt ceiling is reached. So, the House should simply enact a temporary extension of the debt ceiling of about $200 billion (which probably buys about 30 days), attached to no less than $400 billion of immediate spending cuts, along with the “Full Faith and Credit Act.”
The bill would take default off the table by instructing the Treasury as a matter of law to make interest payments first and to refinance debt up to the limit. Then, there couldn’t possibly be a missed payment to creditors, because there’s more than enough revenue coming in to prioritize the redemption of principal and interest on the debt. The bill would simply say what must be done with that revenue if the debt ceiling is reached.
What’s left over in revenue would prioritize entitlement recipients and the military. This would eliminate the possibility of denying Social Security checks to seniors or veterans’ benefits or combat preparedness, meanwhile providing ample time to negotiate a longer-term solution — without a loaded gun on the table.
If Obama wanted to veto that, he would be telling the American people that he would rather hold the country hostage until he gets his tax increases. He would in effect tip his hand and tell the nation that what he really wants is to keep his leverage.
The bond markets and credit agencies don’t care what deal is enacted in Washington per se, just that principal is redeemed and interest is paid, and that the growth of the debt not become unsustainable. So long as interest is paid out of revenue and principal refinanced, there’s no default.
A solution is not the same thing as a deal, and is something that needs to also be on the table as the House and Senate hash out differences. What ultimately passes must cut at least $4 trillion in borrowing, and then S&P, and Fitch will not have to make good on their threat to downgrade the nation’s Triple-A credit rating.
Obama’s leverage right now on this issue is default and withholding entitlements checks; the “Full Faith and Credit Act” takes those threats off the table by prioritizing how revenue is spent, and a mere short-term extension with $400 billion of immediate cuts will provide both houses the time to enact a long-term measure that adheres to the principles of “Cut, Cap, and Balance.”
So, Boehner should take away Obama’s loaded gun — before someone gets shot.
Bill Wilson is the President of Americans for Limited Government. You can follow Bill on Twitter at @BillWilsonALG.
