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June 13, 2011 Public Engagement

Debt ceiling roulette | Using government default as a weapon of blackmail undermines the public interest

Supporters of drastic cuts to Medicare, Social Security, Medicaid, student financial aid, small business loans and other federal programs are holding the nation hostage. They threaten to have the government default on its credit obligations unless they get their way. Health care and retirement security for millions of seniors and the educational and entrepreneurial aspirations of millions of low- and middle-income Americans are all on their chopping block. The shock could lead markets to retreat and put capital essential to business growth at risk.

Failure to raise the nation’s debt limit would have catastrophic consequences, nationally and internationally. But an equally important concern is that the terms of a debt ceiling deal could hurt vast numbers of our people and undermine our fragile economic recovery. Despite partisan political differences, most observers are confident that Congress will act in time. So the real question is not “Will we raise the debt ceiling?” but rather “What strings will be attached?”

Unacceptable consequences

Sen. Bob Corker of Tennessee and others have advanced proposals to cap total federal spending. Some cap critical programs that prevent seniors from living in poverty, provide health care to low-income families and children, and keep disadvantaged children from going hungry. Such proposals would force automatic, indiscriminate and deep cuts if Congress fails to meet the caps.

Achieving the savings the Corker proposal mandates through across-the-board cuts over the first eight years (2013-2021) would require slashing Social Security by $1.3 trillion, Medicare by $860 billion and Medicaid by $550 billion. Such massive cuts would unavoidably gut the health reform law. It would require converting Medicare into a system of vouchers that cannot keep up with the ever-increasing cost of health insurance. It would inevitably transform Medicaid into a block grant far too small to meet the needs of elderly people in nursing homes, poor children and people with disabilities.

A global spending cap would also result in cuts in important investments like education, roads and bridges, environmental protection, and research and development. State and local governments, which receive one-third of all federal, non-security discretionary spending, would experience crippling cuts. Cities and towns would have to consider raising property taxes, cutting services and laying off workers, despite irrefutable evidence that investing in people, infrastructure and services are keys to long-term growth.

The Corker global spending cap is a backdoor to the fiscally irresponsible and misguided goals of the “Ryan Budget,” the House of Representatives-passed resolution named after budget committee Chair Paul Ryan of Wisconsin. The Ryan Budget could, for example, cause 48,000 Mainers — including thousands of children — to lose food aid through the Supplemental Nutrition Assistance Program (SNAP) in 2012. All four members of Maine’s congressional delegation deserve credit for voting against the Ryan Budget.

A global spending cap would also take the revenue side of the budget equation out of the discussion. Both recent national deficit reduction commissions (the president’s commission chaired by Erskine Bowles and Alan Simpson and the bipartisan Domenici-Rivlin Commission) recognized that revenue must be on the table and that meaningful deficit reduction is not possible through either spending cuts or revenue increases alone. Under such a cap, even closing egregious tax loopholes would not count as deficit reduction. The Corker spending cap opens the door to making the Bush tax cuts for the wealthiest Americans permanent.

A better approach

Congress must adopt a balanced and thoughtful deficit-reduction plan that secures savings from all parts of the budget, including revenues, while protecting programs for the most vulnerable Americans. Every major deficit reduction agreement since 1985 has exempted key programs for poor Americans from cuts and automatic budget enforcement mechanisms. Such efforts should adhere to two principles:

  1. First, all three major components of the budget — discretionary spending, entitlement spending and revenues — should contribute to deficit reduction.
  2. Second, deficit reduction proposals should not force families into poverty, make lower-income people worse off, or widen the gap between rich and poor. The president’s fiscal commission included a similar principle in its recommendations.

The best, more balanced approach is to increase the debt ceiling while leaders from both parties in Congress and the administration negotiate comprehensive, meaningful deficit reduction that puts all options on the table.

Using government default blackmail to cut spending or to score political, ideological points undermines our economic stability, jeopardizes the availability of capital for our small businesses, and threatens the financial security of our seniors and our low- and middle-income families. Congress must not let politics trump the public interest.

 

Dan Coyne, legislative director of the Maine Center for Economic Policy, can be reached at dcoyne@mecep.org. Read more Public Engagement here.

 

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