The Debt Ceiling: A Cheat Sheet

Boehner? Obama? “Don’t call my bluff?” Catch up in minutes.

If you haven’t read the news 2-3 times per day for the past several weeks, you’ve probably lost track of the dizzying mess that is the discussion about the debt ceiling. Even if you’ve read all the pundits as well, you’re still getting a lot of different views on what’s going on. Here’s your chance to get caught up in a matter of minutes.


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The Background

The U.S. government is only allowed to borrow so much money. That’s not a constitutional requirement—in fact, Congress raises the debt limit all the time, including 10 times in the last 10 years (imagine being able to raise your own credit card limit). What’s different this time, in addition to the bad economy, is that the federal government has spent unprecedented amounts of money since President Obama took office.

It’s not all his fault. Federal spending was on a crazy trajectory anyway—Social Security and Medicare alone occupy a frightening percentage of the budget, and costs for both were skyrocketing. President Bush was no paragon of frugality. But our current president, with Obamacare and his various forms of bailouts, has far surpassed any previous level of irresponsibility. (See below.)


We’re watching Europe self-destruct over less destructive spending habits. Yet nobody in either party had the guts to stand up against the runaway spending—mostly because so much of it is tied up in “entitlements” like Medicare, and nobody wanted to commit political suicide by angering senior citizens and the AARP (even though everybody from Heritage to Brookings says we have to sooner or later).

Then in April, Republicans in the House found the nerve to stand up for fiscal sanity, which earned them even the praise of the left-wing media outlets. Rep. Paul Ryan proposed a “Path to Prosperity” that included trillions in spending cuts and an attempt to redesign Medicare. The Republican-controlled House quickly passed it, but the slightly Democratic Senate voted it down (partly over concerns with the Medicare changes). President Obama proposed a counter-budget that was so blind to the problem that the Senate voted it down 98-0. No other budget was forthcoming from the Democrats.


The Debt Limit

Then we started nearing the debt limit. At the government’s current rate of borrowing, it’s going to run out of money next week. The options for Obama were these:

  1. Ask for another debt increase
  2. Start defaulting on loans, with probably catastrophic consequences for the economy
  3. Start unilaterally slashing spending and deciding what checks go out and what checks don’t

The president chose option 1, and the Democrats asked for a debt increase.

John Boehner

John Boehner

The Republicans, led by House Majority Leader John Boehner, balked. President Obama was like the teenager who sneaks out and maxes out your credit card, then comes back and asks for another one. Many Republicans, including presidential candidate Michelle Bachmann, said no way—no more borrowing, period. This was a chance to force fiscal sanity onto the government. Others, like Boehner, were worried about options 2 and 3, which didn’t look very appealing.

So Boehner offered Obama a deal: we’ll raise the limit on your credit card, if you show us how you’re going to pay off some of the balance you already have.

In other words, we’ll raise the debt limit if you cut your spending. This would only work if a lot of Republicans and all the Democrats got on board, because Bachmann’s group in the House had said they wouldn’t vote for any debt increase. Indeed, most of the group was so ideologically libertarian that it seemed perfectly willing to sacrifice the good for the dream of the perfect.

But Boehner and the House leadership were determined to try to extract some spending cuts out of the situation. For a while, Republicans negotiated with Vice President Biden (who by all accounts handled the process adeptly), and seemed to be near a deal. Then Obama stepped in and everything started over. His proposed spending cuts kept getting smaller (eventually they went down to well below $2 trillion, less than half of what Boehner wanted). And he said there wouldn’t be any spending cuts at all unless the Republicans agreed to raise taxes (“revenue increases”). He gave the Republicans some class-warfare rhetoric and insisted the rich had to pay up for, well, being rich.

At this point, there were really (at minimum) three sets of interests at play:

  • House Republicans wanted to cut spending
  • Senate Democrats wanted to increase taxes
  • Obama wanted tax increases too, but he also wanted to win reelection in 2012

The House Republicans were not about to vote for tax increases, for three reasons. First, in their view, increasing taxes when the economy is bad was a recipe for more unemployment, and fewer businesses starting or growing (and again, their ideological commitment to this idea allowed for no compromise). Second, the problem was uncontrollable healthcare spending, which no tax increases could fix (see below). Third, historically, when trades of tax increases have been made for spending cuts, the tax increases have taken effect immediately and the spending cuts have rarely materialized–so the cuts had to be serious and enforceable.


(More great charts from The Heritage Foundation here: http://www.heritage.org/budgetchartbook/)

But in Obama’s view, cutting spending without increasing revenue was only dealing with half the problem (plus, inciting the masses against the evil rich people is fun). From his perspective, the Republicans were holding the country to ransom in order to get what they wanted (the New York Times seems to agree). So Obama went to the press and told them the Republicans weren’t being “balanced;” after all, spending cuts (which the GOP wanted) in exchange for tax increases (which the Dems wanted) was “fair.”

This was clever, but untrue. If you glance a couple paragraphs back, you’ll notice Boehner was already offering a balanced deal—a debt increase in exchange for spending cuts. By adding tax increases to the bargain, Obama was telling Boehner he’d have to give Obama two things he didn’t want to give, in exchange for only one thing Obama didn’t want to give. In a display of linguistic oddity, Obama warned Republicans, “don’t call my bluff.”

They did. There has been a lot of jockeying back and forth on this (and two alternative proposals from the Senate that haven’t gotten traction in the House), but in the end, the Republicans have said they won’t take Obama’s two-for-one deal, and Obama won’t discuss anything else.

Today

In the course of all this, Obama did two things that surprised me. One, he took a hard line on the negotiations. If he had compromised, he might have irritated some Dem senators, but he probably would have set himself up well to look like the moderate savior for the 2012 election. Two, he didn’t use the bully pulpit of the presidency—he complained to the press about how immature the Republicans were, but he didn’t take the opportunity to lay out the issue in his own terms, as he has so often done before.

The first of these two things hasn’t changed, and Obama has suddenly found himself out of the negotiation process, because nobody will talk to him. Perhaps as a result, last night, the second thing did change.

The president gave a speech. And it didn’t win him popularity points. He talked (again) about corporate jets and evil rich people. He said scaling back his wild spending was as good as throwing granny off a cliff. “That is no way to run the greatest country on Earth. It is a dangerous game we’ve never played before, and we can’t afford to play it now. … We can’t allow the American people to become collateral damage to Washington’s political warfare,” the president said. (No word on why they should be collateral damage to his own profligate spending habits.) And he kept lamenting how childish the Republicans were.

David Brooks spent most of the last two weeks defending the president and criticizing the Republicans for not taking Obama’s two-for-one deal. But this was too much even for him. “Obama never should have gone in front of the cameras just minutes after the talks faltered Friday evening,” he wrote this morning. “His appearance was suffused with that ‘I’m the only mature person in Washington’ condescension that drives everybody else crazy.”

Where from here?

Now negotiations have headed back to Congress. Sen. Harry Reid (D) has a plan. John Boehner has offered a small compromise plan that would buy more time (though his friends in the House don’t like it). The good news is the negotiations are now being carried out by legislators, many of whom actually have skill in negotiations. The result has been some quick movements toward the center, and more compromise-oriented plans. But most of the Democrats still don’t want to touch entitlements, and many of the House Republicans still refuse to consider tax increases or even raising the debt limit at all.

The situation has held up to the light a stark contrast: between Obama and the Bachmanns in the House on the one hand, and Boehner and the Senate on the other. The first group is ideological–“principled” to a fault, and thus unable to govern with prudence. The second group is willing to do what politicians are supposed to do–make compromises. And many in that group are good at governing. With the second group having gained the upper hand and only a few days remaining, perhaps there is yet time for prudence to prevail.

7/27 Update: The Wall Street Journal analyzes the Boehner and Reid plans and where the GOP should go from here–fairly criticizing the hard-line/Bachmann/Tea Party Republicans for their libertarian dreaming. “The idea seems to be that if the House GOP refuses to raise the debt ceiling, a default crisis or gradual government shutdown will ensue, and the public will turn en masse against . . . Barack Obama. The Republican House that failed to raise the debt ceiling would somehow escape all blame. Then Democrats would have no choice but to pass a balanced-budget amendment and reform entitlements, and the tea-party Hobbits could return to Middle Earth having defeated Mordor.”

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Brian Brown

Brian Brown loves building the environments, habits, and networks that make people thrive. He is the founder of Humane Pursuits, where he writes a featured column and edits the Give channel. He started his consulting company, Narrator, to help great mission-driven organizations modernize and grow. He lives with his wife Christina and son Edmund in Colorado Springs, where they mix cocktails, hunt for historic architecture, and see how many people they can squeeze into their house for happy hour.

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