1) Obama gets his full lifeline, long-term debt limit increase that will take him beyond the election ($2.1-2.4 trillion), without making any transformational concession. There is no realistic roadmap to entitlement reform; not a single agency or program, domestic or mandatory, will be eliminated; Obamacare is off limits; there will be no balanced budgets, ever. We will still add trillions more to the debt over the next ten years. Yes, there is a second tranche that will trigger the latter $1.2-1.5 trillion increase, but unlike previous versions of Boehner’s plan, Republicans have no control over that trigger to use it as a precondition.
2) The only real cuts will be in 2012, when we cut $21 billion in outlays (just $7 billion in budget authority). The rest of the $917 billion will be baseline cuts that permanently lock in the fundamentals of the Obama era. This will overwrite and override the House-passed budget that remanded spending to pre-Obama levels. In addition, the extra faux cuts create self-fulfilling fake interest savings, thereby double counting total savings. Furthermore, how much of the discretionary cuts agreed upon for the first tranche of the debt increase will be from defense? The White House put out a memo saying that “the discretionary savings are spread between both domestic and defense spending.”
3) What about the $1.2-$1.5 trillion in savings and entitlement reform from the super duper debt commission 19.0? Does anyone really believe that this commission will be more successful than Simpson-Bowles? That blue-ribbon panel identified policy changes that both parties liked and hated; it called for some cuts and entitlement reform – and more taxes; nevertheless, Obama threw his own commission under the bus. We are really to believe that Obama would approve a commission report that calls for the good entitlement reforms without tax hikes? Oh, but then there would be an automatic sequestration that would cut a commensurate amount of spending. Really? See #4
4) So Obama’s punishment for raising the debt ceiling without adopting real cuts is that he must suffer a sequestration. This sequestration cuts 50% from defense spending, while exempting all welfare programs from the process. Keep in mind that much of the discretionary cuts triggered from the first tranche will include defense cuts. Some of the remaining cuts will come from the government’s obligations to healthcare providers. This will force many providers to dump Medicare patients, thereby forcing them into Medicaid and other Obamacare programs, which are conveniently firewalled from the sequestration process. That’s some concession from Obama. More precisely, it appears that he will be able to have his cake and eat it too.
5) At the very least, we should never lose ground from a deal that was forced by our superior leverage. However, this plan paves the way for the committee to impose massive tax increases, including the expiration of Bush tax cuts [see Dan Mitchell’s article and Erick’s post]. The White House is explicitly saying that the commission will pursue a balanced approach. There are times when no deal is better than a bad deal.
What if GOP leaders appoint those who will only propose cuts and no tax hikes? Let’s just say they appoint Jim DeMint, Mike Lee, Rand Paul, Jim Jordan, Michele Bachmann, and Jeff Flake. There certainly won’t be any tax hikes, but Democrats will never agree to any entitlement reform. See #1,3, and 4
6) This bill dramatically increases mandatory spending for Pell Grants – a pet stimulus handout to Big Education that Obama has fought for.
7) As we pointed out last week, Boehner’s budget authority for 2012 is higher than the authority granted in the House-passed budget. Most of the 12 appropriations bills have already been drafted, while half of them already passed the House. This means that extra spending will actually be inserted into the remaining bills. The two largest non-defense appropriations bills; the Labor/HHS/Education and Transportation/HUD bills, are being saved until after August. The Ryan budget blueprint achieved the most savings from these bills; $26 billion of the estimated $47 trillion in discretionary savings for 2012. Boehner’s plan would allow liberal Republican appropriators to reinstate some of the spending to the most undesirable activities of some of the worst government agencies. Congressman Steve LaTourette, a shill for Big Labor, is already agog over the opportunity to spend more on Labor.
8) The one ancillary benefit of coming up with an agreement and avoiding the default Armageddon was that we would supposedly avoid a credit downgrade. Yet, S@P has announced that this plan might not be sufficient to prevent a downgrade of our AAA credit rating. Moody’s announced that they will take and wait and see approach; however, once the future cuts fail to materialize, and the debt continues to rise, they will inevitably issue a downgrade. The bottom line is that we only addressed the debt ceiling crisis in this bill; not the debt crisis. Remember that this debt deal is being portrayed as a victory for John Boehner and even the Tea Party. As such, we would totally own any responsibility for a downgrade.
9) This bill will do nothing to help the economy because it doesn’t actually limit government. Cutting spending is not just about saving money; it is about eliminating job-killing programs and government agencies. How ironic that, despite the breakthrough debt deal, the market enthusiasm has been tamped down by a terrible report on manufacturing. The languishing state of our manufacturing sector, as well as other major sectors of our economy, are endemic of the onerous regulatory state that costs our economy $1.75 trillion a year. Consequently, even those who advocate for Wall Street at the expense of the rest of the economy, will be disappointed in the coming days.