Sunday, July 31, 2011

Outline of a Debt Ceiling Deal

The four principles of a compromise on the Debt ceiling:

1) $2.5 Trillion deal (Democrat position)
2) No new taxes (Republican position)
3) No balanced budget amendment (Democrat position)
4) One dollar of budget plan savings for each dollar of debt increase (Republican position)

This plan will rely on pragmatists in the senate to pass and will require 30 or so Democrats in the house to pass. Expect more House Republicans to vote no than on the Boehner Bill vote.

If conservatives get this through they should be very pleased. Democrats should at least be happy that they won't face this issues until after the 2012 election. The balance budget amendment is a total showstopper to the Democrats and will not pass Congress. It is also a bad idea as well.

It is often pointed out that states live under such systems. However, the federal tax system relies to a much greater extent on income taxes on income than the state tax systems that rely on taxes on the poor and midde class to a greater extend. The problem with upper income taxes is that the revenue base is much more economically sensitive than middle class and poor spending patterns, propety values, and group average incomes. So if the federal government had an annual balance budget requirement its spending pattern would be in constant chaos and varying in a way to intensify the volitility in the economic cycles.

It should be obvious that by demanding a balanced budget amendment Republicans are demanding the unconditional surrender of the Democrats. This isn't going to happen or at least not this year. My suggestion is the Congress and the President do their jobs and bring spending under control. There are many things to cut but it takes throughful and careful work to do it the right way. Just about eveny politician says they will do this when campaigning but fail to do so when taking office. It is time that they keep this promise.