Saturday, April 16, 2011

Raising the debt limit a GOP dilemma

Rep. David Schweikert vividly recalls the reaction he got in February at the Tea Party Patriots summit in Phoenix when, almost immediately after he started speaking, he said Congress shouldn't play risky political games with the federal debt ceiling because of possible negative ramifications to the economy.

"Have you ever seen a speaker get a standing ovation and booed within 60 seconds?" Schweikert, R-Ariz., said.

The "tea party" crowd's hostile reaction to Schweikert, a like-minded fiscal conservative, illustrates the pressure that he and other GOP House freshmen face as a high-stakes vote to increase the $14.3 trillion legal debt limit approaches.

Some conservative critics seem to view the federal government's statutory debt ceiling as akin to a credit card's limit. Raising it, they say, would enable more government spending and borrowing, which is what they want to avoid.

But it's not that simple. Congress already has cut the deals and borrowed the money that is causing the country to careen toward the limit. A congressional refusal to raise the ceiling could result in the United States defaulting on its financial obligations for the first time in history.

"The right analogy is to say you've already incurred the debt on your credit card," said Paul Posner, a professor at George Mason University in Virginia and the U.S. Government Accountability Office's former director of federal budget and intergovernmental relations. "Do you refuse to pay your credit-card bill when it comes due? That's exactly what this is."

Still, Schweikert and establishment Republican leaders are hoping to use the looming debt-ceiling vote to wring budget-reform and spending concessions out of President Barack Obama and Democrats who control the Senate. Their goal is to change the trajectory of the rocketing debt that they say sooner or later will have catastrophic consequences for the nation. But, for the most part, they can't see in the short term a way around lifting the ceiling, a conclusion not necessarily shared by the tea-party activists who helped Republicans retake the House last year.

In a speech Wednesday at George Washington University, Obama laid out his own new plan to trim the federal deficit (the difference between the government's revenue and its spending) by $4 trillion over 12 years.

"Our debt has grown so large that we could do real damage to the economy if we don't begin a process now to get our fiscal house in order," Obama said.

Rep. Ed Pastor, D-Ariz., said that what should be a bipartisan vote on the debt ceiling could be imperiled if House Republicans pile on too many terms and conditions.

"They're in the majority, and they have the responsibility to make sure the government runs smoothly," Pastor said. "If they decide not to raise it, it's on their watch."
Must-pass measure

The statutory debt limit was first enacted in 1917 and has been legislatively increased 10 times since 2001, according to an April report by the Congressional Research Service, Congress' nonpartisan research arm.

The ceiling amount covers the publicly held debt and the debt owed because of government raids on the Social Security Trust Fund and similar accounts. The U.S. Treasury expects the total debt, which was $14.251 trillion on April 1, to hit the current limit by May 16, although the Treasury may be able to take emergency steps to stretch its borrowing power to July 8, congressional researchers said.

Right now, the federal government borrows about 40 cents for every dollar it spends, meaning steep spending reductions are certain if the ceiling is never lifted. But if the United States stiffs its creditors - those who own Treasury bonds, bills and notes - the harm to its global credit and its currency, which could include stifling inflation, could be long term, experts say.

"We've never failed to pass a debt ceiling; we've never failed to pay our bonds back; and to do so now would be economically cataclysmic," Posner said. "Basically, if you want to see interest rates go through the roof and the recovery choked off, that would be the best formula to do it."

Such dire predictions so far haven't stopped the rhetoric by some lawmakers, who continue to either vow to oppose raising the ceiling or demand deep spending cuts. Because it is viewed as must-pass legislation, some Republicans are determined to use the vote to force changes in budget policies.

In past years, some lawmakers cast symbolic votes against raising the ceiling, knowing there was little chance it would fail.

In 2006, Obama, then a senator from Illinois, voted against the debt-ceiling hike, at the time characterizing the need to increase the limit as a "leadership failure" and "a sign that we now depend on ongoing financial assistance from foreign countries to finance our government's reckless fiscal policies."

Obama this week told ABC News that the vote was an example of a new senator casting "a political vote as opposed to doing what was important for the country."

"When you're a senator, traditionally, what's happened is this is always a lousy vote. Nobody likes to be tagged as having increased the debt limit for the United States by a trillion dollars," Obama said Thursday in an interview with ABC's George Stephanopoulos. "As president, you start realizing, 'You know what? We can't play around with this stuff. This is the full faith and credit of the United States.' "

Others worry that just the brinkmanship and ongoing threat of a debt clampdown could rattle the bond markets and spike still-stable interest rates.

"It's political theater right now," said Jeff Chapman, an economist and professor of public affairs at Arizona State University. "I can't believe anybody really wants to default."
Willing to be 'tough'

Sen. Jon Kyl, R-Ariz., agreed that Congress will eventually have to raise the debt ceiling, but, like other Republicans, called some of the doomsday scenarios over the top. The Obama administration has the authority to prioritize obligations, he said, and decide which bills are to be paid based on the revenue that will continue to come in.

But Kyl acknowledged "problems and dislocations and inconveniences" are likely the longer the United States goes without increasing the limit.

"What we are trying to say is, 'But we don't want to keep doing this,' " said Kyl, the Senate minority whip. "So, instead of asking the credit-card company to keep giving us more credit so that we can put more and more stuff on the credit card, eventually we are going to take the credit card away."

Schweikert said he hopes Congress can conduct the discussion that signals to the world that the United States is serious about reforming its finances.

"I think there will be lots and lots and lots of political theater . . . and right at the end, we will come to some kind of agreement that will hopefully help save the republic," said Schweikert, who serves on the House Financial Services Committee, which oversees the Treasury. "But there are a lot of us who are willing to be really tough on this one."

by Dan Nowicki The Arizona Republic Apr. 15, 2011 12:00 AM

Raising the debt limit a GOP dilemma

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