John Boehner will announce in a fiscal summit put on by Pete Peterson’s outfit today that he is prepared to hold the debt limit hostage again at the earliest opportunity. The 2011 debt limit hostage crisis led directly to a downgrade of the United States’ credit rating and a significant weakening of economic performance.
“We shouldn’t dread the debt limit. We should welcome it. It’s an action-forcing event in a town that has become infamous for inaction,” Boehner will say according to excerpts of prepared remarks provided by his office. “That night in New York City, I put forth the principle that we should not raise the debt ceiling without real spending cuts and reforms that exceed the amount of the debt limit increase…. When the time comes, I will again insist on my simple principle of cuts and reforms greater than the debt limit increase. This is the only avenue I see right now to force the elected leadership of this country to solve our structural fiscal imbalance. If that means we have to do a series of stop-gap measures, so be it – but that’s not the ideal. Let’s start solving the problem. We can make the bold cuts and reforms necessary to meet this principle, and we must.”
“Reforms” have been added to the menu along with cuts, but basically Boehner affirms the same principle: for every dollar of increase in the debt limit, a dollar in reductions to the deficit must be included. I think by reforms Boehner might mean tax reform, but the Speaker also wants the House to vote this summer on a short-term extension of the Bush tax cuts, paired with a long term tax system overhaul that would presumably be either revenue-neutral or revenue-negative. This means that, at the same time that Boehner is demanding to “solve our structural fiscal imbalance,” he favors a policy that increases that fiscal imbalance by $4 trillion over the next ten years.
The other way to solve that structural imbalance is to let the Bush tax cuts expire. That will eliminate almost the entire medium-term primary fiscal gap. This is of course known as “Taxmageddon,” and must be avoided at all costs. But look at the alternative that Boehner has set up. He wants a dollar of spending cuts for every dollar of debt limit increase. A choice between those two poles is pretty obvious.
The problem is that it’s not really a choice, though it probably can be fashioned that way. Affirmative legislation must pass to extend the expiring tax cuts. Affirmative legislation must pass to increase the debt limit, barring the unlikely (though wholly Constitutional) outcome that the President allows for the minting of a trillion-dollar coin at the Treasury Department. You could see some pairing of these two issues, along with something on the trigger, the automatic cuts to discretionary and defense spending scheduled at the end of the year along with these other issues (it’s not totally clear when the debt limit will be reached, but the most educated guess is sometime around the end of 2012 or the beginning of 2013).
But this is all up in the air. The House has already passed a budget that violates the targets for spending set by the debt limit deal. And now there’s this vow of another hostage crisis. It adds up to a looming disaster in a lame duck session of Congress, possibly with a lame duck President in the Oval Office. Leaving politics aside for a moment, this is a looming disaster for the economy.