Stop the Wash­ing­ton bud­get games; Get real

The Washington Times Weekly - - Commentary - Tony Blank­ley

In Atlanta, the teach­ers cheat on ex­ams so the stu­dents don’t have to. It doesn’t raise the knowl­edge level of our chil­dren but it gets the school sys­tem past the next exam — even as the sys­tem con­tin­ues its death spi­ral. We will know the spi­ral has reached its ter­mi­nal sta­tion when there is full union­ized teacher em­ploy­ment and com­plete stu­dent il­lit­er­acy.

Now, in this same spirit of treat­ing the symp­toms at the price of the pa­tient’s life, Moody’s credit rat­ing agency, ac­cord­ing to Reuters, has pro­posed that the United States “should elim­i­nate its statu­tory limit on gov­ern­ment debt to re­duce un­cer­tainty among bond hold­ers.”

It’s true. Elim­i­nat­ing the legal re­quire­ment that lim­its debt is­suance will as­sure (for awhile) the con­tin­ued is­suance of debt — a clas­sic ex­am­ple of win­ning the battle and los­ing the war.

Moody’s help­fully of­fers two al­ter­na­tive meth­ods of in­duc­ing fis­cal re­spon­si­bil­ity for the United States. One would use “Maas­tricht cri­te­ria which de­ter­mines that for EU mem­ber coun­tries the ra­tio of gov­ern­ment debt to [gross do­mes­tic prod­uct] should not ex­ceed 60 per­cent.” Moody’s con­cedes that such a rule is of­ten breached by the gov­ern­ments: to wit Greece, Spain, Por­tu­gal, Italy, Ire­land and oth­ers are ap­proach­ing or ex­ceed­ing 100 per­cent of debt to GDP — and are a grow­ing threat to in­duce a global fi­nan­cial and eco­nomic cri­sis.

Moody’s other sug­gested al­ter­na­tive is to fol­low Chile’s fis­cal man­age­ment of its so­cial se­cu­rity sys­tem. But Chile has no so­cial se­cu­rity prob­lem be­cause it pri­va­tized it 30 years ago, so it is fis­cally sound and pop­u­lar. But the Democrats here in the United States would not per­mit that al­ter­na­tive. In fact, Moody’s pro­posal is just an­other fis­cal trick that won’t work. So what trick can we turn to avoid the cur­rent dan­ger?

Un­for­tu­nately, with the ex­cep­tion of the House Repub­li­cans and some sen­a­tors of both par­ties, most of Wash­ing­ton is look­ing for yet an­other trick that will get us by the cur­rent cri­sis.

No, let me be more pre­cise. Se­nior el­e­ments both in the White House and the bi­par­ti­san Se­nate may be plan­ning a trick not to avoid the Aug. 2 cri­sis but to bet­ter ex­ploit po­lit­i­cally the pos­si­ble chaos that would fol­low a debt cri­sis.

This re­minds me of the scene in the 1962 black com­edy about the Cold War, “Dr. Strangelove,” in which the lu­natic Ger­man sci­en­tist starts cal­cu­lat­ing how he and a se­lect group of male politi­cians and gen­er­als could sur­vive the nu­clear an­ni­hi­la­tion of both the United States and the Soviet Union by liv­ing in mine shafts with many sexy young women and a nu­clear en­gine to pro­vide the en­ergy for such a lux­u­ri­ous, fast-breed­ing, mole­like ex­is­tence.

Plan­ning for po­lit­i­cal sur­vival af­ter a debt cri­sis is about as dis­rep­utable and fool­ish as Dr. Strangelove’s mi­ne­shaft sur­vival plan.

Now, as sum­mer 2011 reaches its steamy zenith, it falls to the only group of Wash­ing­ton politi­cians still try­ing to ac­tu­ally fix the debt prob­lem — the House Repub­li­cans — to deny those po­lit­i­cal ni­hilists in both par­ties and in both branches the re­al­iza­tion of their truly ab­hor­rent plans.

This is a mo­ment for both prin­ci­ple and cool re­al­ism on the part of the House Repub­li­cans. The prin­ci­pled part still re­quires them to use the debt ceil­ing re­quire­ment to make real cuts in the deficit in the cur­rent fis­cal year.

Here is the re­al­ism part: 1) Is Aug. 2 the real date? Truth is, the Amer­i­can sys­tem is so big and com­plex that no one knows when and whether the bor­row­ing runs out on any given day; 2) could the pres­i­dent use the ac­tual tax rev­enues to pay in- ter­est, So­cial Se­cu­rity, Medi­care and armed ser­vices salaries? He doubtlessly could, but Congress prob­a­bly can­not com­pel him to do so with­out a Supreme Court de­ci­sion, which would take many months to ob­tain; 3) would fully ra­tio­nal in­ter­na­tional bond and equity mar­kets re­act dan­ger­ously to Aug. 2 with­out the debt ceil­ing be­ing raised? No, but we do not have fully ra­tio­nal mar­kets cur­rently. Mis­lead­ing head­lines, un­sup­ported ru­mors about un­named bankers in Europe have driven world equity and bond mar­kets ca­reen­ing all over the place in the past two years.

The re­al­ity that House Repub­li­cans have to deal with is that be­tween the words com­ing out of the ex­ec­u­tive branch and the main­stream me­dia and given the gen­eral ner­vous­ness of the mar­kets, we can­not rely on ra­tio­nal­ity to win the day on Aug. 2.

So here is my pro­posal for prin­ci­ple and re­al­ism. The House should pass a debt ceil­ing ris­ing for 190 days that raises the ceil­ing by about $1 tril­lion.

The pres­i­dent said he would not sign a short-term bill less than 180 days. Give him some­thing he can sign with­out con­tra­dict­ing him­self.

At­tach to it about $1 tril­lion in dis­cre­tionary spend­ing cuts as iden­ti­fied by Vice Pres­i­dent Joseph R. Biden Jr.’s ne­go­ti­a­tions. That gets real cuts and doesn’t let Wash­ing­ton kick the can past the next elec­tion.

Then the House Ways and Means Com­mit­tee should start hear­ings and mark-up on gen­eral cor­po­rate tax re­form that would lower rates, re­duce or elim­i­nate many cred­its, de­duc­tions and ad­vanced sched­ules. That will take at least three or four months to ne­go­ti­ate but should yield both a more efficient sys­tem and more rev­enue (about $100 bil­lion a year, while low­er­ing rates).

The Ways and Means Com­mit­tee also should start hear­ings and mark-up on en­ti­tle­ment re­form for Medi­care, So­cial Se­cu­rity and Med­i­caid. Let Democrats and Repub­li­cans bring their pro­posal hear­ings and markups open to the pub­lic.

Thus, we get past the cur­rent Aug. 2 cri­sis and we do so with real cuts.

By next spring’s bud­get sea­son, we can have an hon­est de­bate dur­ing the pres­i­den­tial and con­gres­sional elec­tion cy­cle on the two par­ties’ longterm so­lu­tions to debt and deficit.

Let the elec­toral chips fall where they may.

Tony Blank­ley is the au­thor of “Amer­i­can Grit: What It Will Take to Sur­vive and Win in the 21st Cen­tury” (Reg­n­ery, 2009) and vice pres­i­dent of the Edel­man pub­lic re­la­tions firm in Wash­ing­ton.

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