The federal fiscal year runs from October 1st through September 30th. The current fiscal year 2010-2011 was a product of congressional compromise four months ago that was passed with Tea Party support. Congress already approved federal borrowing that would exceed the current debt limit. There are only two months left before this fiscal year ends and another fiscal year begins for which there is no budget in place.
Debating all federal spending and taxing policies should be part of the annual budget process that normally concludes before October 1st of each year. Since 1917, the Federal Debt limit has been raised with little fight or fanfare over 100 times. This formality occurred nearly 30 times during the terms of Presidents Ronald Reagan and George W. Bush. Somehow ultra-conservative tea party members cannot now perform this perfunctory act of government without going utterly insane over a budget they approved just 4 months ago. This is simply a denial of reality, a manifestation of spite against all those who don’t share their worldview, and a total waste of the nation’s time, energy and patience.
Currently, federal expenditures exceed tax revenues by approximately $140 billion each month. There are two remaining months in fiscal year ’10-’11. This would require an additional $300 billion in additional borrowing by the U.S. Treasury to finance this year’s approved budget. Partisans can argue ad infinitum what prior policies created the accumulated debt, what bills the President should pay in the event of a default, whether there are legitimate 14th Amendment arguments to pursue in avoiding a technical default, and what domestic and global economic fallouts would occur from the U.S. not paying all of its ongoing expenses in a timely fashion. The rest of us need a sane solution to this huge impasse.
During the next few days before August 2nd, there will not be any grand bi-partisan bargain struck over spending and taxing between the petty and selfish politicians in Washington DC. Instead, everyone just needs to make it past the November 2012 elections and this might be the only solution.
At this late point in time, it would be easier if Congress and the Administration simply agreed to raise the US debt limit for a period of 60 days by $300 billion – or an amount that would simply conclude this fiscal year by September 30th. This compromise would be a modest 3-part agreement consisting of (1) a clean but small short-term debt-limit increase, (2) a provisional agreement on the 2011-2012 Fiscal budget including an approved debt limit through September 30, 2012, and (3) no mention whatsoever by anyone of raising or reducing any taxes.
The Bush tax cuts are now scheduled to end at the end of 2012. If reelected, President Obama would likely veto any congressional effort to continue them after 2013. If a Republican is elected president in November 2012, and Congress is principally in Republican control, then all or some of the Bush tax cuts would probably be made permanent after 2013. However this tax and revenue debate should occur after the next Presidential elections.
Most of the proposed cuts presented by President Obama and various Congressional leaders would not start until the next fiscal year or even later. Projections by all sides in this surreal debate with respect to GDP growth, unemployment rates, tax revenues, and spending programs are all shots in the dark and cannot be relied upon for any length of time, particularly when many current officeholders may not be around after 2013.
Furthermore, there will be another 5 federal elections within the next 10 years barring the intervention of other unpredictable factors. To bitterly argue about speculative future spending and taxing policies under perpetually changing national and global circumstances is just ludicrous.
A formal federal default on August 2nd would not be one of necessity as a result of fiscal and economic problems faced by many smaller nations around the globe that do not have the world’s reserve currency and largest economy. It would be only because of political choice of the most partisan, short-sighted kind. Dismissing the strong possibility of many direct and collateral bad events is not rational.
Some things that are predicted and feared might not occur so drastically or immediately. Other completely unforeseeable “black swans” may arise as a result of the choices made within the next few days. It is a certainty that millions of people working directly or indirectly for the Federal Government (including this author’s spouse) would be out of work. To callously dismiss the tens of millions of existing unemployed Americans and millions more future out-of-work people is not what most Americans expect from any group of elected officials in a representational democracy. (It is debatable that anyone in Washington DC cares much about the vast majority of citizens and instead most are beholden to their large business cartel campaign contributors.) However, the nation does not need to experience some very real, nasty and preventable repercussions this faux crisis would create in the real world.
This entire fabricated crisis is merely a short-term temper-tantrum that does not look beyond the November 2012 elections but its solution may have to reflect such a political reality. At the very least, our political leaders should “hedge” the nation’s future, listen to the warnings from business leaders and foreign governments, and seriously consider the best interests of the majority of people in order to avoid any fabricated debt default. There are many things wrong with our corrupt and bankrupt financial, economic and political systems, but this is not the proper time or method to address them.
There probably is not enough time or political will to pass a Budget for fiscal year ’11-’12 that starts on October 1st. This proposal also addresses this likely impasse for the foreseeable future. It appears politicians in Washington do not want the responsibility of actually making decisions, setting priorities or even governing. They prefer automatic controls and outside panels to decide for them.
In the event there is no budget in place by October 1st, the current budget would continue month-to-month but with all ’10-’11 spending decreased by 10% for the upcoming fiscal year, except for Social Security. Under current law there will be more people reaching the qualifying ages and the benefits are already stipulated for them. Social Security costs will increase through population changes outside the control of Congress, based upon the laws prior Congresses have passed. Eligibility requirements and cost of living increases should be debated at some later date.
As part of this proposed August 2nd compromise, the federal debt limit would be increased to cover the entire year of anticipated borrowing through the end of the next fiscal year – September 30, 2012. This is probably far from ideal but in the current political landscape, it is probably the only thing at this late date that can get sufficient support in both Houses of Congress and a Presidential signature.
This across-the-board 10% reduction in all spending (except for Social Security) would create a projected accounting reduction in the projected total Federal Debt of over $3 trillion over 10 years if we assume current spending levels continue or increase steadily as in the past. Everyone involved in this pseudo-debate and faux crisis already understands the difference between “projected” and “actual” cost “savings” and “reductions” but they don’t bother thinking about those realities very much.
It is more important for both Republicans and Democrats to claim something for the November 2012 elections than actually addressing real priorities and reality. However, it would accomplish enough legal and accounting fictions to satisfy everyone involved.
During the next two months (and possibly beyond) Republicans and Tea Party members in the U.S. House of Representatives could propose whatever specific spending and taxing levels for the federal fiscal year ’11-’12 and negotiate with the Senate and Administration to come up with a final version that would replace the provisional ’11-’12 budget that would be part of the August 2nd compromise to raise the Federal Debt Limit. The nearly universal 10% reduction in federal spending – including Defense, Homeland Security and other direct financial subsidies to various business cartels that are major campaign contributors – would be a strong incentive to come up with a budget that pleases all the special interests in Washington DC.
Republicans could be radical in their proposals for the next fiscal year but at least the debt limit would be approved until September 30, 2012. They could try to eliminate most all non-defense domestic discretionary spending of around $400 billion a year. They could propose to eliminate Medicaid entirely and hope that most of the 50 states pick up the slack. They could cut Medicare reimbursement rates and increase copayments. They could try to raise the eligibility ages to qualify for Medicare and Social Security to those over 70 years old. They could wisely wait to propose these things after the November 2012 elections when the political landscape could be radically different.
Republicans could propose to eliminate all federal income taxes for “C” Corporations and for corporations subject to subchapter “F” (foreign income tax) under the IRS code and related regulations. This might render the debate over all business deductions, exemptions, credits, loopholes and the repatriation of foreign income to the US completely irrelevant. They could also propose reducing the marginal income tax rates (for individuals making over $250,000 or couples earning more than $500,000 a year in wages) to even lower rates than they are now. They could eliminate all taxes on interest, capital gains, rents, and royalties – thereby putting most of the thousands of DC lobbyists out of work.
This quick and limited compromise does not discuss, address or even raise any taxes. It properly moves this type of debate to where it belongs – the annual budget process which ideally would consume the next two months and be concluded by September 30th. If Washington cannot pass a 2011-2012 budget, this compromise sets out a clear temporary budget and debt limit increase until one is passed by most of the disparate political factions and that will hold for the next 14 months.
This proposal quickly restores some limited sanity without requiring any compromises from either Republicans, Democrats, or lunatics on the fringes of reality. It merely continues the debate ad infinitum but outside the ministerial realm of raising the debt limit which should simply comport with prior budgets passed by Congress and signed by the President.
This proposed compromise would reestablish a modicum of global confidence in the U.S. economy, U.S. debt instruments, and the U.S. dollar. This might be the only solution everyone in Washington DC can live with before August 2 and for the next 14 months until the November 2012 elections.
Submitted on 7/26/11 by Marc Pascal from Phoenix, Arizona. ([email protected])