Category: democracy

Like most powers of the federal government, the power to borrow money belongs to Congress, but is exercised through delegation to the executive branch. In this case, Congress has delegated this power with an important condition: that no more than a specified amount can be borrowed. This amound is known as the “debt ceiling.”

The problem, of course, is that the federal budget is at least a little bit in deficit every year, and every deficit, no matter how small or large, adds to the total of the national debt — as a result, the debt ceiling is reached from time to time, usually at fairly short intervals. Thus, it is frequently necessary to raise the ceiling to allow more borrowing – in order to make it possible to carry out the activities Congress and the Presdient have already approved. If you want the government to spend less, the way to do it is to cut the budget – not to prohibit borrowing after the budget has been approved.

Almost everyone understands this, so usually the debt ceiling is increased with little controversy. This time, though, two things make it different. First, there are a number of new members of Congress, elected with Tea Party support, who don’t believe that the ceiling should be increased at all, and so will vote against it no matter what. Second, the Republican party, which now controls 1/3 of the policy-making organs of government, wants to use the ceiling as leverage to get its way on important policy issues. The Democrats, who control two of those policy-making organs, are naturally unwilling to give in: hence the standoff.

What to do? I want to make two basic points:

1. The eventual solution has to pass Congress, but it does not have to pass with strong support from the Republican Party. Last December, during the lame-duck session, the budget compromise passed the House with a lot of Republican opposition, but with Democratic support. This is bound to be the way it happens on the debt ceiling vote. Even as I write, Speaker Boehnert is unable to pass his Republican plan with Republican votes – so ultimately he is going to have to rely on a substantial number of Democratic votes.

2. Various compromises are being mooted, but the issues are tricky. Therefore, I’d suggest a simpler compromise: both parties should drop ALL of their policy goals. There should be no spending cuts in this bill, and no tax increases either. Instead, Congress should simply raise (or, better, eliminate!) the debt ceiling, let the government go on functioning, and find another venue for debating their budget preferences. Such a bill could pass in one hour or less, if Speaker Boehner would let it come to a vote.

The consequences of failure are enormous, much greater than a simple government shutdown. The whole banking system relies for its stability on buying and selling federal notes, commonly thought of as the most secure and stable of all possible investments. If the value of those notes is suddenly in question, the resulting chaos may well bring the economy to a complete halt. It is time for Congress and the President to act – and a simple, clean debt-ceiling increase is the easiest, least controversial way to end the crisis.

No doubt you know by now that the Chair of the House Budget Committee, Representative Paul Ryan (R-WI), has proposed to reduce the federal budget deficit by eliminating Medicare for everyone younger than 55. Here is a link to the proposal. The House of Representatives has actually passed this proposal with every Democrat and 4 Republicans voting No. It is going nowhere. The Senate will not pass it, and President Obama singled it out for criticism in his speech on the budget last week. Medicare is extremely popular, and Republicans who voted for it drew criticism in their town meetings during their recent town meetings.

Nevertheless, the Republicans have accomplished one of their goals. They now have everyone thinking that Medicare has something to do with the deficit. It does not! The basic parts of Medicare, covering physicians services and hospitalization, are paid for out of the trust fund with money from the Medicare tax we all pay. That money cannot be used for anything else, only for Medicare. Right now  that fund is in surplus.

Now there is a sense in which you can add up all federal expenditures and federal revenues, including both Medicare and Social Security, and call the result a deficit or a surplus. However, that is just an accounting trick. If those part of the budget that are not either Medicare or Social Security (or a few other, much smaller trust funds, like the one you contribute to if you buy a duck stamp) are in deficit, the government will still have to borrow to pay for them.

So if we want to reduce the deficit, we have to look elsewhere. And there are really only two places to look: stopping all these wars, and ending the Bush tax cuts. Other cuts can be made, but there is not enough money there to have an impact on the deficit.

As I’ve said in other posts, I think a deficit that creates jobs would actually be good right now, but that means the money has to be spent productively. Giving it to the super-rich doesn’t provide any stimulus at all, since they do not increase their consumption, they just invest it to make even more money. So ending the Bush tax cuts for the rich today would not hurt the economy.

There is a problem with Medicare. The trust fund is in surplus now, but it is declining; present estimates are that it will run out in 2029. That gives us some time to find solutions, but there is no need to end the program. Obama’s health care plan, which goes into full effect in less than 3 years, saves some money already. In addition, we can get big savings by allowing the government to negotiate prescription prices. (Everyone knows that prescriptions are cheaper in Canada, but sometimes we forget why: it’s because Canada makes the big drug companies sell at the lowest price that lets them make money, while Congress requires Medicare and Medicaid to pay them their asking price. Go figure!) We also need to reduce health-care profiteering radically. There’s a good reason why more and more non-profit hospitals are being taken over by profit-making corporations: there is a lot of money to be made.

There are many other ideas out there, and they are all worth considering. My point is not that I have the answer, just that we can solve the Medicare cost problem without ending the program. And let’s be clear about that. Ryan’s proposal does end Medicare. He claims he is trying to save it, but he’s not. He wants to end it and replace with something completely different – instead of paying your medical bills, with the usual deductibles and copayments, the new “Medicare” would give you a coupon for a fixed amount, good for the purchase of health insurance. If health insurance costs more than your coupon, you have to pay the rest yourself.

Moreover, the value of each year’s coupon increases at a set rate that is less than the annual increase in the cost of the insurance – so every year either you have to pay more yourself, or you have to switch to a plan with poorer coverage. That’s noe Medicare.

Even though people are rejecting Ryan’s plan, if we end up believing that Medicare is a big part of the deficit, we will think it has to be cut. That’s the sneaky victory that Ryan is putting across on the public.