May 10, 2011
House Speaker John Boehner warned a group of New York business leaders and financiers Monday evening that Republicans would insist upon trillions of dollars in spending cuts in the coming decade as their price for voting to raise the debt ceiling. And he said calls for fundamental change in Medicare and Medicaid were still on the table.
“It’s true that allowing America to default [on its debt] would be irresponsible,” Boehner said in a speech before the Economic Club of New York in midtown Manhattan. “But it would be more irresponsible to raise the debt ceiling without simultaneously taking dramatic steps to reduce spending and reform the budget process.” He added that the cuts “should be greater than the accompanying increase in debt authority the president is given.”
After a confusing week of seemingly contradictory statements by House GOP leaders concerning talks with the Obama administration and Democratic leaders over a framework for a deficit reduction plan and a new debt ceiling, the Ohio Republican used last night’s speech to hit the reset button and restate his party’s bottom line:
- Republicans will insist on long- term spending cuts of “trillions, not just billions of dollars” through “real” cuts in government programs and spending instead of “broad deficit or debt targets that punt the tough questions to the future.”
- Tax increases as part of a comprehensive deficit reduction plan are out of the question. “A tax hike would wreak havoc not only on our economy’s ability to create private-sector jobs, but also on our ability to tackle the national debt,” he said. “Balancing the budget requires spending cuts and economic growth.”
- Everything else is on the bargaining table, including an “honest conversation” about how best to preserve Medicare, “because we all know, with millions of Baby Boomers beginning to retire, the status quo is unsustainable.”
GOP House leaders, including Majority Leader Eric Cantor, R-Va., Budget Committee Chairman Paul Ryan, R-Wis., and Ways and Means Committee chairman Dave Camp, R-Mich., sparked considerable confusion within the Republican ranks and glee among Democrats with a series of comments suggesting they were backing away from the most controversial aspects of their budget plan. Cantor, for example, told the Washington Post that reining in federal entitlement programs is central to stabilizing the nation’s finances, but said Republicans recognize they may need to look elsewhere to achieve consensus after the President “excoriated us” for a proposal to privatize Medicare.
Both Cantor and Ryan, the author of the budget plan that includes a plan to transform Medicare into a voucher program, said that negotiations for legislation to raise the debt limit beyond its current ceiling of $14.3 trillion would not likely include Ryan’s sweeping Medicare overhaul. Public criticism of the GOP’s controversial budget plan for overhauling both Medicare for seniors and Medicaid for the poor prompted speculation that the Republicans were getting cold feet and were backing away from the heart of their proposals.
Boehner stepped in last Thursday to insist that the Medicare and Medicaid proposals were still on the table, and last night he reiterated his party’s commitment to long-term policies to reduce the $1.5 trillion deficit and spur economic growth.
“We will not succeed in balancing the federal budget and overcoming the challenges of our debt until we commit ourselves to government policies that will let our economy achieve long-term growth,” Boehner told the New York gathering. “Our economy won’t grow as long as we continue to trip it up with short-term gimmicks from Washington… All too often, rather than providing long-term policies that will help our economy expand, government offers short-term fixes that do little right away, and end up making things worse over time.”
Democrats immediately replied that Boehner’s approach as reckless. Sen. Charles E. Schumer (N.Y.) said Monday that the speaker is “playing with fire” by not telling the captains of Wall Street that he would definitely approve an increase in the debt ceiling, no matter how far along the fiscal negotiations are. Schumer mocked Boehner’s long-running call for an “adult conversation” with the American public about the nation’s debt.
Since early last month, when the White House and Republican leaders negotiated a last minute spending cut deal for this year to avert a government shutdown, the two sides have been positioning themselves for the next battle, over raising the debt ceiling this summer to avert the first ever default on U.S. borrowing. Congress has until August 2 to reach agreement on raising the debt ceiling before the Treasury begins defaulting on federal borrowing. Over Democratic protests, Republicans are insisting on linking approval of a new debt ceiling to a long-term deal on deficit reduction to make good on promises to conservatives and tea party members to take firm fiscal action.
The two sides are in general agreement on the following:
1. Default on the debt would be catastrophic to the economy.
2. A long-term budget deal should achieve about $4 trillion of deficit reduction over the next ten to 12 years
3. Whatever savings are achieved should be locked in with budget enforcement tools.
Both political parties remain far apart on most other details and will face staunch ideological opposition to any compromise that violates core principles of the party faithful. For Republicans, that means refusing to give ground on taxes playing a role in closing the long-term deficit. They also refuse to consider increasing federal spending as a share of the economy to accommodate the health care and retirement income needs of an aging society.
During a question and answer session following last night’s speech, long-time deficit hawk Pete Peterson, co-founder of the Blackstone Group and owner of The Fiscal Times, asked Boehner how the long-term debt crisis can be solved if one side categorically says no new taxes and the other categorically says no spending cuts.
The Speaker’s adamant and almost reflexive response was: “No new taxes!”
Republicans also refuse to consider increasing federal spending as a share of the economy to accommodate the health care and retirement income needs of an aging society.
The conservative Heritage Foundation, for instance, wants tax and spending caps that will limit taxes and spending to 18.5 percent of gross domestic product, which is about two percentage points below the average levels of spending over the past several decades.
“The goal should be to balance the budget without raising taxes,” said Brian Riedl, a senior fellow at the Heritage Foundation. “Even if you brought spending down to 20.3 percent [it’s recent average], the small deficits would be generally sustainable.”
Liberals, on the other hand, are adamantly opposed to spending caps, in part because it would mean sharp cuts in health care and retirement benefits for seniors and social programs for the poor. They also argue that the current focus on budget deficits is the wrong medicine for the economy, which is still operating with 6 million fewer jobs than it had in 2007.
“Cuts now would aggravate that economy rather than helping it,” said Chad Stone, an economist at the liberal Center for Budget and Policy Priorities. “Focusing on the budget deficit to the exclusion of the jobs deficit . . . goes against what the economy needs.”
Stone was also scathing in his denunciation of budget caps. “It would make the feds just like the states,” he said. “If you have to raise money for unemployment insurance in a recession, you’d have to cut somewhere else. That’s just stupid policy. A clean debt ceiling bill is what we should do,” he said. “It’s not like there aren’t a lot of budget plans out there.”
Some budget experts predict that, at most, the White House, House GOP leaders and Senate Majority Leader Harry Reid, D-Nev., will agree to a short-term extension of the debt ceiling, with a raft of spending savings – such as cuts in farm subsidies and a freeze on most domestic programs – but no dramatic change in entitlements or tax law. “In general, I see a lot of churning but I don’t see much in the way of changing the spending path on Medicare,” said G. William Hoagland, CIGNA Corporation’s Public Policy Group director and a former Republican Senate Budget Committee staff director. Hoagland said the two sides might still come up with a handful of lesser health care initiatives, such as medical tort reform or raising Part B Medicare premiums for physician care.
Robert D. Reischauer, president of the Urban Institute and a former Congressional Budget Office director, said he doubts negotiations will produce anything with enough specificity to do more than “a relatively short term debt ceiling extension.”
He said there’s “a high probability that we will end up papering this over” with something like one of the budget enforcement spending caps and automatic spending cut provisions under consideration, including one proposed by Sens. Bob Corker, R-Tenn., and Claire McCaskill, D-Mo., that is popular with many House Republicans.
“That’s the optimistic scenario, and it probably involves [conservative lawmakers] voting down the debt ceiling once to prove to constituents [they] have hair on their chest” before finally passing it, he said.
Boehner Outlines Demands on Debt Limit Fight (The New York Times)
Boehner's hard line on debt ceiling gets cool reception from Wall St. (The Hill)
Boehner Offers ‘Red Meat’ on Debt Ceiling (CNN)