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Democrats Want More Borrowing, No Cuts

Democrats accuse Republicans of holding the financial credibility of the United States hostage.

American president Barack Obama asked Republican leader John Boehner for a “clean” increase in the nation’s legal debt limit on Wednesday, one that is not conditioned on a plan for deficit reduction.

The conservative House speaker said “no” but has also ruled out tax increases, which the president believes must be part of a “balanced approach” to fiscal consolidation.

White House spokesman Jay Carney blamed Boehner and his Republican Party for jeopardizing the country’s financial credibility.

The president does not believe that the full faith and credit of the United States, its commitment to pay its bills and its obligations, should be held hostage to a political ideology.

Republicans argue that they are looking for pragmatic solutions to solving the nation’s debt crisis when Democrats have rejected any and all proposed spending reductions and reforms.

No budget

To demonstrate Democratic intransigence, Republicans brought the president’s own budget proposal for 2013 up for a vote. As expected, it was overwhelmingly defeated in both the House and Senate.

The Democratic majority in the upper chamber hasn’t produced a proper budget throughout Obama’s presidency. The conservative majority in the House of Representatives, this year and last, introduced budgets that were voted down in the Senate.

For three years, the United States has had to borrow more than $1 trillion to balance its budget. The national debt is approaching $16 trillion, several hundreds of billions of dollars short of the legal debt ceiling of $16.4 trillion.

The cap was most recently raised by $900 billion in July 2011 after weeks of strenuous negotiations between Democrats and Republicans. As part of that agreement, federal spending projections for the next ten years were cut by $917 billion with $21 billion worth of reductions implemented in 2012.

A congressional committee was tasked with finding $1.2 trillion in additional savings over the 2013-21 time period. Because the parties failed to reach a compromise, $1.2 trillion in cuts, split between defense and domestic spending, were automatically enacted. Republicans are now scrambling to avert those reductions in national security.

Battle lines

The battle lines for the upcoming debt debacle have already been drawn. Republicans don’t want to cut military spending nor raise taxes. Democrats don’t want to reform entitlement programs like Medicaid, which subsidizes health care for the poor, and Medicare, which pays medical care for seniors.

Together with Social Security pension, these mandatory spending outlays are primarily responsible for America’s ballooning deficit projections.

The Congressional Budget Office estimates that by 2021, more than half of federal spending will have to be allocated to Medicaid, Medicare and Social Security. Along with defense, interest payments on the debt and unemployment insurance, it would be almost impossible for the federal government to continue to fund education and other domestic programs unless taxes are raised.

Republicans have proposed to privatize Medicare and reduce Medicaid payments. Democrats have ruled out such reforms. As Nancy Pelosi, the Democratic leader in the House of Representatives, put it, they will not “reduce the deficit or subsidize tax cuts for the rich on the backs of America’s seniors and working families.”

Crisis? What crisis?

Pelosi has accused Republicans of “manufacturing” a crisis by demanding spending cuts for more borrowing.

“Cuts” aren’t really cuts, though. They are reductions in projected spending increases. In real terms, public spending will grow every year — under the Republican plan, by 4 percent on average; under the president’s plan, by 5 percent. Republicans would spend roughly $40 trillion over the next ten years. Obama would spend $45 trillion.

If neither plan is enacted, the CBO estimates outlays worth $47 trillion over the same period.

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