The Tea Party is ceil­ing the spend­ing cuts deal

The Washington Times Weekly - - Commentary -

There are a lot of pieces to the debt­ceil­ing deal. There are the taxes upon taxes, as The Wall Street Jour­nal ed­i­tors de­scribe it. That’s the roughly $1 tril­lion in new Obama taxes on top of what he’s al­ready signed into law. It’s an econ­omy and jobs killer.

Then there’s the en­ti­tle­ment piece, which may be more in­ter­est­ing since Obama is ap­par­ently open to ex­tend­ing the So­cial Se­cu­rity and Medi­care re­tire­ment age and us­ing the so-called chained-Con­sumer Price In­dex, which would lower cost-of-liv­ing ad­just­ments (and in­crease in­come-tax thresh­olds). Whether the pres­i­dent is se­ri­ous about these en­ti­tle­ment mea­sures, no one knows. It’s note­wor­thy that he’s at least talk­ing about them, al­though he’s link­ing them to higher taxes.

But there’s an­other piece to the debt-ceil­ing deal that hasn’t yet seen the light of day. It’s the non-en­ti­tle­ment spend­ing piece. That is, do­mes­tic and de­fense dis­cre­tionary spend­ing plus so­called small en­ti­tle­ments like food stamps, un­em­ploy­ment ben­e­fits and so forth.

Here’s my thought: The pub­lic wants spend­ing cuts. That’s their first pri­or­ity, and that’s why polls over­whelm­ingly show op­po­si­tion to a debt­ceil­ing in­crease. So re­gard­ing those spend­ing cuts, the thing that mat­ters is the firstyear spend­ing de­cline. That would be 2012. If the spend­ing base­line is brought down sig­nif­i­cantly in year one, then the out-years will fol­low suit. The gov­ern­ment’s cost curve will ease down.

For ex­am­ple, go back to the Paul Ryan bud­get. Ryan in­cludes a $110 bil­lion re­duc­tion from the Con­gres­sional Bud­get Of­fice base­line for fis­cal year 2012, which re­flects a $179 bil­lion cut from the pres­i­dent’s bud­get base­line. Over 10 years, that’s roughly $6 tril­lion in sav­ings. That would be real money. It would be sig­nif­i­cant. In fact, Ryan’s to­tal bud­get in 2012 would ac­tu­ally come in about $100 bil­lion 2011. That’s

deep

be­low

only

in­cred­i­ble. It’s al­most al­ways that so-called spend­ing cuts are mere re­duc­tions in growth. Hats off to Ryan.

But even so, his 10-year bud­get would still rise by about $40 tril­lion.

So, again, 2012 is the only year that re­ally counts for spend­ing cuts in the debt deal. My guess is that any en­ti­tle­ment re­duc­tion will take decades. So if Speaker Boehner sticks to his ar­gu­ment that there must be more than $1 worth of spend­ing cuts to off­set a $1 in­crease in the debt ceil­ing, then 2012 must be his tar­get year.

As the con­gres­sional ne­go­tia­tors hag­gle with Pres­i­dent Obama, we the tax­pay­ing pub­lic have no idea what they’re cook­ing up on 2012 spend­ing. It could be a worth­while re­duc­tion or not. Out-year dis­cre­tionary de­creases and small en­ti­tle­ment cuts for 2019 to 2021 are sim­ply not re­li­able or cred­i­ble. Con­gresses change. Deals are bro­ken. Out­comes are, well, kind of like a scam.

And the pub­lic is onto this. The highly ac­cu­rate IBD/TIPP poll­sters have just re­leased an in­cred­i­ble re­sult. Get this: The pub­lic re­jects a debt-ceil­ing in­crease by a huge 58 per­cent to 36 per­cent. That in­cludes 59 per­cent of in­de­pen­dents and even 38 per­cent of Democrats.

is the tea party revolt. I be­lieve the pub­lic agrees with peo­ple like Michele Bach­mann. She told me in an in­ter­view last week that Congress can di­rect the Trea­sury to “first pay off the in­ter­est on the debt, make sure our mil­i­tary men and women get paid, and then deal with our pri­or­i­ties. Yes, we have very sac­ri­fi­cial con­se­quences, but when are we go­ing to get se­ri­ous about deficit re­duc­tion?”

On this logic, Bach­mann and other tea party Repub­li­cans, in­clud­ing most on the pres­i­den­tial cam­paign trail, op­pose a debt-ceil­ing in­crease. This pop­ulist spend­ing revolt runs di­rectly counter to the Tim Gei­th­ner, Wall Street, big-busi­ness view that we must at all costs have a debt-ceil­ing in­crease to make good on our fed­eral debt.

That

Tea party pop­ulists are say­ing no, no: We can still make good on our debt, but this debt bill is the only lever­age we have to force Wash­ing­ton to cut spend­ing.

Main Street is in revolt against Wall Street, al­though it should be noted that Wall Street bond in­vestors are not pan­icked by any means. The 10-year Trea­sury con­tin­ues to trade be­low 3 per­cent. Maybe that will change by Aug. 2, or the next Gei­th­ner debt-limit dropdead date.

But right now the bond mar­ket seems to be aligned with the tea party.

Pres­i­dent Obama says it’s time to “eat our peas,” mean­ing the debt deal should have huge tax in­creases. That ar­gu­ment is be­ing re­jected. In­stead, the grass­roots sees a big bowl of por­ridge and wants to shrink that bowl sub­stan­tially, no mat­ter what the “sac­ri­fi­cial con­se­quences.”

I’m with the por­ridge.

Larry Kud­low is Na­tional Re­view On­line’s Eco­nom­ics Edi­tor.

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