Debt-ceiling pas de deux, Part Deux
posted at 10:30 am on July 24, 2011 by Ed Morrissey
Old and busted: Unified grand bargain with the President. New hotness: two-part harmony between Republicans and Democrats in Congress. After restarting negotiations with Barack Obama on a comprehensive package for a debt-ceiling hike and deficit reduction, John Boehner will now work across the aisle for a two-stage deal that will give a short-term hike to the debt ceiling with matching spending cuts and a framework for a bigger deal down the road. Byron York sketches it out:
House Republicans are finishing work on a new proposal to resolve the standoff over the debt ceiling. The proposal, set to be finished and crafted into the form of a bill by Sunday, will be in two parts. The first will combine a short-term increase in the debt ceiling with spending cuts. The second will lay the groundwork for a longer-term increase in the debt ceiling coupled with far-reaching deficit reduction. …
Work on the new proposal was underway before negotiations with the White House blew up on Friday. Sources say the plan was being created last week, even as the House leadership devoted considerable time to passing the “Cut, Cap, and Balance” proposal. Once the Senate Democratic leadership blocked “Cut, Cap, and Balance,” House leaders stepped up work on the new proposal. Right now, the new direction is believed to be the only way forward. “McConnell-Reid is just not a viable option in the House,” the aide says, referring to Senate Minority Leader Mitch McConnell’s complicated proposal to allow the president to increase the debt ceiling.
In a 2 p.m. Saturday conference call with Republicans, House Speaker John Boehner said that a new proposal was in the works, and that it would have two parts, but did not go into significant detail about what it would involve. Boehner told his fellow GOP lawmakers that he hoped to have something done by 4 p.m. Eastern Time on Sunday in time to reassure Asian financial markets, which open at that time.
Obama said that he wouldn’t sign a short-term debt-ceiling hike, but he may find himself cut out of the loop by … Nancy Pelosi:
House Minority Leader Nancy Pelosi (D-Calif.) said Saturday night that congressional leaders are considering a two-tiered approach to raising the debt ceiling and reducing the nation’s long-term budget deficit.
Pelosi reiterated that she backs “a long-term extension” of the $14.3 trillion debt limit, putting her in line with the demands of President Obama and Senate Majority Leader Harry Reid (D-Nev.). …
Aides have said the Speaker continues to insist that the size of spending cuts exceed the size of any increase in the debt limit, meaning that lawmakers would need to agree on more than $2.4 trillion in cuts to extend federal borrowing beyond 2012.
Pelosi said the leaders are looking at a two-tiered approach, which would likely combine immediate spending cuts while creating a process for Congress to enact entitlement and tax reforms over the next several months. She hinted, however, that the revenue would come in the second “tier” of the process.
Again, Boehner has already offered “revenues” — up to $800 billion over ten years, through tax reform that flattens the code somewhat, lowering rates while eliminating a series of deductions, and most importantly broadening the tax base. That is the kind of solution in which both sides can claim victory, and it’s as far as Republicans can or should go. The problem with the budget isn’t undertaxation, it’s Congressional overspending.
Beyond that, though, this is basically using the idea behind the McConnell plan, but without giving Obama control over the debt limit. A short-term debt-ceiling hike will allow more time to draft a comprehensive package, which the current time frame hasn’t allowed. It extends the fight over spending cuts vs taxes for a few more months, which won’t help Democrats, and probably won’t help the economy, either. While uncertainty remains on the corporate and personal tax codes, businesses won’t invest until they can firmly price the risk, and that may not be until early 2012 now, and that’s just on tax codes. They still can’t price risk on the extension of arbitrary regulatory regimes coming from this administration.
I don’t see S&P or Moody’s being impressed with this approach, although they may grudgingly wait for a second phase before deciding what to do with Treasury bonds. But absent any leadership at all from the White House and no plan or a hint of one from the Democratic majority in the Senate, it looks like both Boehner and Pelosi have decided to cut Obama and Reid out of the equation. If the two House leaders can agree on a deal, Reid and Obama will have no choice but to accept it — and look like lame-duck figureheads.