Debt Limit 'Gang' breaks down in Senate.

[SirNitram]

Link

Updated at 1:55 p.m.

Two of the top Democrats in Congress are calling out their Republican counterparts for abandoning high-stakes debt talks, and have provided new details about the tax proposals that sent the GOP packing.

"To paraphrase speaker Boehner, this was not an adult moment," said Sen. Chuck Schumer (D-NY) on a conference call with reporters. "There needs to be revenues in any deal."

Schumer was not a member of the bipartisan debt discussion group led by Vice President Joe Biden. But Rep. Chris Van Hollen (D-MD) was, and on the call he explained the tax proposals Democrats tried to put on the table that the GOP rejected.

In essence, Van Hollen said, Republicans chose to "protect taxpayer subsidies for big oil companies, tax breaks for corporate jets, and tax breaks for millionaires."

Democrats want to close tax loopholes that benefit oil companies, and eliminate a tax preference that gives corporate aircraft a friendlier depreciation schedule than commercial aircraft. Additionally, Van Hollen said, Democrats were proposing to phase out tax deductions and certain credits for people making more than $500,000 a year. These would be paired with a reduction in the tax burden on lower earners, by eliminating existing limitations on their deductions.

"Folks with over $500,000, we're going to phase out your deductions and some of your tax credit," Van Hollen said.

Brad Dayspring, spokesman for House Majority Leader Eric Cantor suggest this is only part of the story -- it wasn't just loopholes that blew up the talks, but broad rate hikes.

"While Congressman Van Hollen's selective memory is amusing, the bottom line is that the proposals pushed by Democrats would increase taxes by hundreds of billions of dollars on individuals, small businesses, and employers at a time when we need to focus on job growth," Dayspring said -- language Republicans often use to describe previous Dem proposals to create a new tax bracket for millionaires, or let the Bush tax cuts for high-income earners expire.

The full extent of the proposals Dems brought to the table thus remain unclear. But in any event, Republicans balked.

"The message Republicans sent was...unless we accept their lopsided approach...they're prepared to tank the economy," Van Hollen said.

Democrats, Schumer noted, had agreed to extensive spending cuts painful to their interests, but "when it comes time to talk about things that are painful to them, they walk away."

The new Democratic demands come as Republicans re-up their insistence that tax increases are completely off the table. "The president and his party may want a debt limit increase that includes tax hikes, but such a proposal cannot pass the House," said House Speaker John Boehner (R-OH) in a press statement. "The president and his party may want a debt limit increase without spending cuts that exceed the amount of the debt limit hike, but such a proposal cannot pass the House. The president and his party may want a debt limit increase without budget reforms that will restrict Washington's ability to spend in the future, but such a proposal cannot pass the House. These are the realities of the situation."

Aside from the humor of Boehner trying to lecture anyone on reality, this is an increasingly normal song and dance. Republicans arrange to have a sit down with a few Dems to arrange a deal. They take up months of time, delaying the bill in question. They water down the bill hard in negotiations. Then, they jump ship and walk into studios, where they can spread the idea that Dems are just unwilling to compromise, those tyrants, etc, and what we're left with is a half-assed bill that took ages to get to. Demoralize liberals and enthuse conservatives. Very clever.

[Fiji_Fury]

What you've said seems like a good reason for these negotiations to start taking place in public hearings. At least that way everyone's statements can be a little more transparent than "he said/she said". It is after all, a major national issue. I doubt it would happen, or really fix the hostage taking of the economy and budget though.

[mingo]

Time for the Dems to stop blinking in these games of chicken. Wall street will force the GOP to deal if it looks like the government is going to default.

[Crossroads Inc.]

I think one of the telling bits about this is what caused the Repubs to leave.
The unforgivable act that made them storm out in fury, the thing which they simply could NOT budge on no matter WHAT!

Raising Taxes...
Specifically Getting rid of the Bush Tax cuts on Billionaires as well as ending Subsidies to Big Oil companies.
It really is maddening that we are at the point where trying to raise taxes on REAL Billionaires and Multi Billion dollar companies is seen as a ruthless tax hike on "Small Business"

The GOP loves, just LOVES to talk about how they want to run the US as a "business" Because business make money! And yet they seem to have no concept of how a business works.
I mean this is grade school stuff. A business makes money by INCOME. Taxes are the governments INCOME. Ask some of the big business that have failed massively... No matter HOW much you cut spending, unless you raise your income, you go bankrupt. This isn't rocket science!

[darthdavid]

And just like in a business, while cutting spending can be a productive measure at a certain point it will start having a negative effect on your ability to take in more money. And if your hammer is spending cuts, well, that's when the downward spiral starts...

[Patrick Degan]

The GOP loves, just LOVES to talk about how they want to run the US as a "business" Because business make money! And yet they seem to have no concept of how a business works.
I mean this is grade school stuff. A business makes money by INCOME. Taxes are the governments INCOME. Ask some of the big business that have failed massively... No matter HOW much you cut spending, unless you raise your income, you go bankrupt. This isn't rocket science!

Even if you take growth out of the consideration and focus entirely on debt, as the Republicans constantly gibber about, you can't get rid of the national debt without INCOME. I tried explaining this to a relative of mine who should know a lot better, especially for being in business. Even if you were to totally eviscerate the domestic budget, as Paul Ryan whips his skippy at the thought of doing, there's still the existing debt that has to be paid down. The debt doesn't disappear just because you don't spend another dime. Anybody who's had a fucking credit card (and the Republicans just love to trot out that analogy at every opportunity) knows that you can cut the cards and stop buying things, but if you've still got to pay off a $50,000 balance with interest charges piling up, you can't do that without money coming in or you go bankrupt. The debt doesn't disappear. Grade school stuff? Embarrassingly so. Anybody who's found themselves in a debt trap should know enough to call bullshit on Boehner and his gang. These people have no clue about the most basic concepts of finance, at any level.

Either that, or they just simply do not care if the government and the economy crash.

[Broomstick]

Either that, or they just simply do not care if the government and the economy crash.

There are actually some who WANT this - so they can reform the US into their idea of utopia.

[Darth Fanboy]

Please provide names of US politicians that want the government to collapse and evidence of that desire. I disagree with the Tea Party and the Far Right on just about everything but I find it difficult to believe they are actively trying to run the government into the ground.

[D.Turtle]

The government in Minnesota is currently shutdown, after negotiations failed because of Republicans demanding far reaching concessions on abortion rights, stem cell research, union rights, and voting rights - all measures that have pretty much nothing at all to do with the budget.

Presidential candidates Tim Pawlenty and Michelle Bachmann both cheered the shutdown. Presidential candidate Ron Paul, (R-PA) Mike Kelly, (R-GA) Ron Price, and others have all come out in favor of shutting down the government. (See first few minutes of the Rachel Maddow Show here).

[Darth Fanboy]

The state government shutdown in Minnesota is not equivalent with the collapse of the Federal Government and US Economy, which was the claim made. While what right wingers in Minnesota are doing is deplorable, they are not advocating that the system be abolished and are in fact using it to work to their advantage.

[D.Turtle]

They are not in favor of destroying the US Economy. hey are in favor of not raising the debt limit and potentially seeing the US default on its debt because they think that is a good thing.

Pretty much every economist out there disagrees with them and thinks that not raising the debt limit is going to end catastrophically.

Luckily, there is the potential of using the 14th Amendment to simply tell them to piss off and continue paying the debt, merely leading to a full-blown constitutional crisis instead of a full-blown economic crisis.

[Johonebesus]

They are not in favor of destroying the US Economy. hey are in favor of not raising the debt limit and potentially seeing the US default on its debt because they think that is a good thing.

I'm not willing to give them that much credit. I suspect some at least do want the economy to crash and burn. That would make it easier to beat Obama next year and justify (in their minds) further reducing government regulations and the social safety net.

And don't say the People will blame republicans so the strategy is suicide. If the past decade has taught us anything it is that we cannot underestimate the electorate. A lot of people just aren't going to bother voting, especially disillusioned liberals, so if there are more voters angry and wanting change than there are afraid of republicans, Obama can lose.

[aerius]

They are not in favor of destroying the US Economy. hey are in favor of not raising the debt limit and potentially seeing the US default on its debt because they think that is a good thing.

Question: can someone explain to me how not raising the debt limit leads to a debt default?

[Zed]

Presumably, because not loaning any more prohibits them from paying back their loans.

[Dave]

Question: can someone explain to me how not raising the debt limit leads to a debt default?

As I understand it, it is because the US government is running at a deficit, and is thus continuously incurring more debt. When the amount owed hits the debt ceiling they are legally unable to borrow more money, which means things they were expecting to pay for with borrowed money cannot be paid for because the money cannot be borrowed.

This includes things like paying interest and principle on previous loans.

It seems like a simple concept to me; did I miss something?

[Magis]

Raising Taxes...
Specifically Getting rid of the Bush Tax cuts on Billionaires as well as ending Subsidies to Big Oil companies.
It really is maddening that we are at the point where trying to raise taxes on REAL Billionaires and Multi Billion dollar companies is seen as a ruthless tax hike on "Small Business"

I agree that the taxes in the US must be raised, but you're not doing that side of the argument any favours by mischaracterizing the Bush tax cuts like this. The Bush tax cuts established a new tax bracket, and lowered the marginal rate for existing brackets. It was not a tax cuts for just "billionaires". It was a tax cut for everyone, including billionaires.

If the Democrats were advocating a true billionaire tax (the concept of which doesn't even make sense, since taxes are levied against income, not worth), then they could propose a new tax bracket that kicks in at an income of $200 million/year, or similar. But they are not proposing that. They are proposing tax increases on people making something like $200,000+ per year. Those people should probably see a tax increase, but to label them as billionaires is idiotic.

[Starglider]

Question: can someone explain to me how not raising the debt limit leads to a debt default?

In the absence of ability to borrow more, the government would not have enough liquid cash to pay expenses (e.g. federal worker salaries and entitlement programs such as medicare) and make scheduled payments to holders of US sovereign debt instruments (interest and repayment of principal for maturing bonds). The Republicans claim they want the government to cut entitlements and/or payroll and continue to make the debt service payments. In practice that's not possible; even emergency taxes wouldn't plug the gap unless they were a straight smash-and-grab confiscation of assets (i.e. private sector pension fund raids - actually happening in some bits of Europe). So in the short term the only way to deal with not being able to borrow more is to cease to make agreed payments to bond holders. Even if it's just a postponement, or only a small fraction of instruments, this is enough to trigger a credit downgrade, an interest rate spike, major flow out of USTs and quite possibly a general financial panic.

[Magis]

Question: can someone explain to me how not raising the debt limit leads to a debt default?

As I understand it, it is because the US government is running at a deficit, and is thus continuously incurring more debt. When the amount owed hits the debt ceiling they are legally unable to borrow more money, which means things they were expecting to pay for with borrowed money cannot be paid for because the money cannot be borrowed.

This includes things like paying interest and principle on previous loans.

It seems like a simple concept to me; did I miss something?

I believe the cost to service the existing US federal debt is something like $20 billion per month. So long as government revenue is larger than $20 billion per month, then it can afford to service the debt and will not default. The implicit assumption of "no increase in debt ceiling = default" is that the government can't stop spending money on its other obligations, like social security, etc. I believe the republican side of the debate is hoping that by not raising the debt ceiling, the government will choose to cut spending rather than defaulting, i.e., prioritising the expenditures so that servicing the debt comes first, and if there's not enough left over to pay for government programs, then it's too bad for those programs.

EDIT: Starglider made this post pretty much obsolete.

[J]

Y'all speak as if this is some intractable problem which cannot be solved through the proper application of a printing press.

[D.Turtle]

Except that the Fed controls the printing press, and not the government. And the government can't print money for its own use, but has to borrow money printed by the Fed. Which it can't do if the debt limit isn't raised.

The US government requires somewhere between 30 and 250 billion dollars in new loans each month. If the debt limit isn't raised, it can't do that. However, there simply isn't enough wriggle room to lower spending by that much, as even minimum amounts of government spending are by far larger than the incoming revenue is. The US government would still be able to pay interest on its debt, but it would have to defer payment on things like wages, Social Security, Medicare, the military, etc.

The government shutdown in 95-96 would be a cakewalk in comparison to what happens if the debt limit isn't raised and the various emergency countermeasures (of which many are already implemented) start reaching their limits.

[J]

I should first state that I do not advocate any of the following actions because they are really really bad, however, it's all legal as far as I know.

Except that the Fed controls the printing press, and not the government. And the government can't print money for its own use, but has to borrow money printed by the Fed. Which it can't do if the debt limit isn't raised.

But who controls the Fed? That would be Congress, which can revoke the Fed's charter and disolve its operations then reconstitute a new Fed which is wholly under its control. Helicopter Ben shall now monetize the debt and dispense all proceeds to the government instead of his banker friends.

The US government requires somewhere between 30 and 250 billion dollars in new loans each month. If the debt limit isn't raised, it can't do that. However, there simply isn't enough wriggle room to lower spending by that much, as even minimum amounts of government spending are by far larger than the incoming revenue is. The US government would still be able to pay interest on its debt, but it would have to defer payment on things like wages, Social Security, Medicare, the military, etc.

Between printing money and reforming Social Security & other mandatory & discretionary spending programs the gap can be closed. Needless to say a lot of people are going to be completely screwed, but it can be done.

---

On the subject of defaulting, it may have happened already.

[D.Turtle]

But who controls the Fed? That would be Congress, which can revoke the Fed's charter and disolve its operations then reconstitute a new Fed which is wholly under its control. Helicopter Ben shall now monetize the debt and dispense all proceeds to the government instead of his banker friends.

Yes, I am sure that reforming the entire monetary basis of the US Dollar will be easier than raising the debt limit. Especially when it is Congress stopping the debt limit from being raised. And I am sure reforming the Fed in such a way will go over splendidly.

Between printing money and reforming Social Security & other mandatory & discretionary spending programs the gap can be closed. Needless to say a lot of people are going to be completely screwed, but it can be done.

Except they can't print money. And reforming the various programs requires Congress.

On the subject of defaulting, it may have happened already.

You really should choose your sources a bit better. The US has been at the debt limit for several months already. What the Treasury is saying is that those measures they've taken to keep everything running will soon start to fail. Now, is it possible they won't? Sure. But at some point they will stop working - and then you have a problem.

[Darth Fanboy]

They are not in favor of destroying the US Economy. hey are in favor of not raising the debt limit and potentially seeing the US default on its debt because they think that is a good thing.

Pretty much every economist out there disagrees with them and thinks that not raising the debt limit is going to end catastrophically.

Luckily, there is the potential of using the 14th Amendment to simply tell them to piss off and continue paying the debt, merely leading to a full-blown constitutional crisis instead of a full-blown economic crisis.

Again, the claim was made that there are people who want to the government and economy to crash so that it can be co0mpletely restructured, still haven't seen any evidence given to that end.

[D.Turtle]

In the video I linked to Ron Paul for example advocated the idea of letting the government catastrophically shut down so that people can see that they don't need the government.

[Broomstick]

What sort of proof do you want, Darth Fanboy? A signed, notarized statement? Not gonna happen. Evidence has already been provided, you choose to discount or ignore it. The statement is not a provable/falsifiable fact like, say, gravity.

Although I really do like D. Turtle's Ron Paul video.