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Morning Bell: Struggle to Solve Debt Limit Crisis Goes On

Posted By Mike Brownfield On July 29, 2011 @ 9:16 am In Economics | Comments Disabled

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Last night, the House of Representatives was set to vote on House Speaker John Boehner’s (R–OH) plan to raise the debt ceiling, as the projected August 2 deadline looms. Failing to round up enough votes to secure the bill’s passage, House Republicans closed up shop for the night and are scheduled to reconvene this morning, hoping to bring a bill back to the House floor with enough support to pass, as Politico reports [1]. Inside baseball, last-minute vote wrangling aside, a much larger problem remains: Even if the Boehner bill passed and became law, America would continue its downward spiral into a fiscal abyss with no end in sight.

Why can’t the Congress take these issues seriously? One reason is a lack of presidential leadership. Throughout the debt ceiling debate, President Barack Obama has attempted to portray himself as taking America’s spending crisis head on while calling for “shared sacrifices” to return the country to a course of fiscal sanity. Yet the President has replaced leadership with spectatorship. While the House passes bill after bill on the budget, the President can only carp, while the Senate can only bluster and stew.

Leadership requires speaking plainly and directly to the American people. Instead, the President prefers code to disguise his intentions. To the President, the phrase “shared sacrifices” means tax increases, and his end goal is to keep up his big spending ways. After all, he sees government spending as the best way to create his vision of society in the long term and the best way to spur economic growth in the short run—even though his hundreds and billions of dollars in stimulus spending have left the economy stuck in the mud. Unemployment remains at 9.2 percent, and economic growth is stagnating. The Wall Street Journal reports [2] this morning that U.S. GDP rose at a seasonally adjusted rate of 1.3 percent in the second quarter (lower than economists’ expectations), and first-quarter growth was revised down sharply to a 0.4 percent gain from 1.9 percent.

The President’s strategy is no surprise. Heritage called Obama out on his fiscal policies at the start of his Administration, noting he was pursuing a “glut the beast [3]” strategy: Pump spending up as high as possible, trigger a crisis, and use the crisis to force through higher taxes. Obama has, at least, played true to form.

Sacrifices, though, aren’t the only things he would like to share. With the nation’s focus now squarely set on massive deficits, the President has attempted to shift the blame for the country’s woes away from his policies—namely, to prior Administrations. The President repeatedly claims [4] that “neither party is blameless for the decisions that led to this problem” and often points to the George W. Bush Administration as the root cause of the crisis.

That’s simply not true. One simple number explains it well: the budget deficit figure in 2007, the last Bush year prior to the recession. The tax cuts were in full effect, both wars were raging, and the recession had not yet struck, yet the budget deficit in 2007 was $160 billion [5], or about a tenth of Obama’s deficit this year. Without a doubt, deficits during the Bush Administration were too high, especially in the early years, and more should have been done to restrain spending. But those deficits were puny compared to what Obama and his congressional allies have inflicted.

Obama’s budget would set America on a dangerous fiscal course that leads to massive deficits well into the future—hitting $1.2 trillion in 2012 and, after dipping slightly, rising back to $1.2 trillion again by 2021. (You can see an illustration [6] of where those deficits are headed here [6].) Even after the massive tax hikes included in Obama’s budget, federal deficits total $9.5 trillion. Under the President’s budget, the national debt would more than double in just 10 years, pushing America over a fiscal cliff.

The problem, in short, is too much spending—not a shortage of taxes. And the biggest driver of that spending is entitlements [7] (though Obama’s stimulus certainly didn’t help). Terrifyingly, those entitlements (which include Social Security, Medicare, and Medicaid) will consume all tax revenues by 2049 if taxes remain at their historical norms, as this chart shows. [8] And even under the President’s budget for 2012, entitlements consume 58 percent of spending [9].

Disastrous entitlement spending has fallen by the wayside in the debt limit debate. President Obama speaks grandly of America coming together to solve this collective problem, but he ignores the real long-term problem, all while economic growth slows and unemployment remains high in the Obama economy. As the White House and Congress continue to focus on a fix to the debt ceiling crisis, they ought to take a look in the mirror and see the real cause of America’s fiscal mess.

Quick Hits:

  • U.S. soldier Pfc. Naser Abdo, 21, was arrested [10] in Killeen, Texas, on Thursday for planning a terrorist attack [10] on troops near Fort Hood. Authorities said they discovered bomb-making materials in his hotel room and an article from an al-Qaeda magazine.
  • Business groups may take their fight [11] against the Dodd–Frank Wall Street reform law to the courts. Their concern centers around a whistleblower rule issued by the Securities and Exchange Commission under that law.
  • Libyan rebel commander General Abdul Fattah Younis was killed [12] in Benghazi on Thursday. His death came as the rebels’ council was seeking Younis for questioning [12] on alleged ties to Libyan dictator Muammar Qadhafi.
  • Former Egyptian President Hosni Mubarak will go on trial next week in Cairo [13] for corruption and murder charges related to his 30-year reign. It follows the 18-day revolution last spring.
  • WEB CHAT: Join us today from 12 to 1 ET for a live Web chat on the explosion of federal regulations and how they affect your life. Click here to join in! [14]

Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2011/07/29/morning-bell-struggle-to-solve-debt-limit-crisis-goes-on/

URLs in this post:

[1] Image: http://blog.heritage.org/wp-content/uploads/boehner-7-28-11.jpg

[2] reports: http://online.wsj.com/article/SB10001424053111904800304576475811201857064.html?mod=WSJ_hp_LEFTTopStories

[3] glut the beast: http://blog.heritage.org/2009/06/30/obamas-battle-of-the-bulging-deficit/

[4] claims: http://www.whitehouse.gov/the-press-office/2011/07/25/address-president-nation

[5] $160 billion: https://www.fms.treas.gov/fmsweb/viewDTSFiles?dir=w&fname=11072500.pdf

[6] illustration: http://blog.heritage.org/2011/07/28/the-truth-about-obamas-budget-deficits-in-pictures/

[7] biggest driver of that spending is entitlements: http://www.heritage.org/research/commentary/2010/07/the-bush-tax-cuts-and-the-deficit-myth

[8] as this chart shows.: http://www.heritage.org/budgetchartbook/entitlements-historical-tax-levels

[9] 58 percent of spending: http://www.heritage.org/budgetchartbook/budget-entitlement-programs

[10] was arrested: http://www.washingtonpost.com/world/national-security/awol-soldier-accused-of-plotting-fort-hood-attack/2011/07/28/gIQAvml1fI_story.html

[11] may take their fight: http://online.wsj.com/article/SB10001424053111904772304576470313933175814.html?mod=WSJ_hp_LEFTWhatsNewsCollection

[12] General Abdul Fattah Younis was killed: http://edition.cnn.com/2011/WORLD/africa/07/28/libya.war/

[13] will go on trial next week in Cairo: http://www.voanews.com/english/news/Mubarak-Trial-to-be-Held-in-Cairo-126325163.html

[14] Click here to join in!: http://blog.heritage.org/2011/07/28/lunch-with-heritage-online-chat-on-regulations/

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