Guest Post:Debt Limit Showdown In March And More

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By Pete Davis, of Capital Gains and Games

Debt Limit Showdown In March And More

Congress will return on January 5th to battle over the budget for much of the year.
The new House Republican majority (242R-193D) won't wait for the
normal budget process to send the Senate weekly spending cuts, which the
Senate won't take up. President Obama's State of the Union address
(expected on January 25th) will be the next focal point, as will his
FY12 Budget to be presented February 14th. The Budget Committees will
produce resolutions that might pass their respective houses, but a
compromise seems unlikely. The government is funded only through March
4th, so another continuing resolution will be required. The ultimate
showdown will occur over extending the $14.294 trillion debt limit,
probably by early March.
House Republicans
will do away with the Gephardt rule that automatically passed a debt
limit increase as part of the budget resolution.
From now on, the
House will have to explicitly vote on every debt limit increase. Since
many Republicans and a few Democrats have long campaigned on never
voting for a debt limit increase, passing one will be very difficult
indeed. With the pre-Christmas $856 b. extension of the Bush tax cuts
and extended unemployment benefits, a debt limit increase will be
required in March or so according to an informal CBO estimate. Speaker
John Boehner (R-OH) will face a big challenge coming up with enough
spending cuts or other sweeteners to pass a debt limit increase or more
likely a series of short-term debt limit increases that could prove
disruptive to the Treasury market, as was the case leading up to the
debt limit increases of 6/28/02, 3/29/96, 10/28/90, 8/10/87, 8/21/86,
12/12/85, 11/14/85, 10/13/84, 7/6/84, and 5/25/84. The Senate (53D-47R)
will probably have an easier, but still difficult time passing a debt
limit increase. Looking to the 2012 election, 23 Senate Democrats will
defend their seats with three rated
by Charlie Cook as toss-ups and four as leaning versus only 10
Republicans up for reelection with only two rated as toss-ups and none
as leaning. Some vulnerable Senate Democrats may not vote for a debt
limit increase.
"CUTGO" will replace of "PAYGO." The current "pay-as-you-go" limit on mandatory (entitlement) spending would be replaced with "cut-as-you go," so tax increases could not pay for increased entitlement spending. Reconciliation
could not be used to increase direct spending. A point of order would
be established against any bill, amendment, or conference report that
raises mandatory spending by more than $5 b.
House rules changes would require that all bills and resolutions
contain a statement citing the specific authority in the Constitution
authorizing their enactment and would increase transparency by
establishing a point of order against consideration of any bill or
resolution not available for three calendar days, a 3-day minimum notice
for committee meetings, a 24-hour minimum electronic posting of mark-up
language and amendments and 48 hours for posting votes.
Here's a summary of the proposed rules changes, and here's the legislative language.
Weekly Republican House spending cuts will be ignored by Senate Democrats. House
Republicans have vowed not to wait for the normal budget process to
start sending the Senate weekly spending cut bills to reduce federal
spending by $100 b. in the first year. Senate Majority Leader Harry
Reid (D-NV) is unlikely to take them up.
President Obama's State of the Union address and FY12 Budget. Although
no date has been set yet, 8 PM Tuesday, January 25th is likely for
President Obama to address Congress and the nation. Any new budget
initiatives would be described, and some of them will probably be leaked
to the media shortly before. He has consistently proposed significant
spending cuts in both his FY10 and FY11 budgets, but nothing near what
Republicans will demand. The biggest question is my mind is whether he
will venture a tax reform proposal. Treasury is working on options.
Tax reform is a top priority for House Republicans. Ways
and Means Chair Dave Camp (R-MI) wants to dramatically lower income and
payroll tax rates and pay for it by eliminating loopholes as detailed
in this December 23rd George Will column.
It will be quite a challenge to overcome all the opposition that would
generate from charities, real estate, health care, retirees, and many
more, especially on a revenue neutral basis. Recall that the Tax Reform
Act of 1986 depended crucially on large business tax increases. If President Obama surprises us with his own tax reform proposal,
which Treasury is reportedly working on, there's a chance it could pass
the House this year. Getting anything like the House bill through the
Senate within the next two years would be very difficult. U.S.
multinationals are very intent on lowering the 35% top corporate tax
rate and moving toward a territorial tax regime, but achieving that
without losing revenue will probably leave too many net losers to pass
Health reform repeal will pass the House, but not the Senate. Spending
cuts to cripple the implementation of health reform won't pass the
Senate either. There are changes that both sides might agree upon, but
passing such a bill would be quite difficult because killer amendments
would be hard to ward off.
Health reform future is also in the hands of the Supreme Court. It's
not clear whether the Supreme Court will expedite its consideration of
conflicting district court health reform rulings that have yet to wind
their way through the appeals process. Normally, it would take at least
a year or two for a case to reach the Supreme Court. Many, but hardly
all, constitutional scholars think the Supreme Court would not strike
down the mandate for individuals to buy health insurance, but that's not
much reassurance given how massive an undertaking health reform
implementation is