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The Debt Ceiling Deal: A Broken System or Democracy in Action?

By Andrew Goldberg, Assoc. AIA

Senior Director, AIA Federal Relations

 Getting Republicans and Democrats to agree on anything these days is almost impossible, but there is broad consensus on at least one item: Nobody is happy with the debt ceiling deal approved this week.

To many Democrats, it represents a capitulation to unreasonable demands by Tea Party-backed Republicans and lets the wealthy and corporations off the hook. To many Republicans, it represents a failed effort to rein in federal spending and will allow bloated government for decades to come. And to the rest of the country, it represents everything that is wrong with Washington.

But what does it really mean, for the country, for the architectural profession, and for the American political system? If you are a liberal Democrat or a conservative Republican, you probably already have made up your mind. For the rest of you, join us on a whirlwind tour of your brand new debt ceiling deal.

The Debt Ceiling: Is it Structurally Sound?

The bill allows the president to raise the debt ceiling, the limit set in law on how much the federal government can borrow, by $900 billion immediately. Congress can vote to block $500 billion of that amount. The president could later raise the debt ceiling by another $1.2 trillion, also subject to congressional disapproval. The ceiling could be raised by an additional $300 billion if Congress passes additional spending cuts recommended by the new Joint Committee (more on that later). The ceiling also could be raised by another $300 billion if both the House and Senate pass a balanced budget amendment to the Constitution.

In other words, President Obama will be able to raise the debt ceiling by an amount large enough to last until 2013 (i.e., after the next election).

What does this mean in practical terms? Mainly that the U.S. government can continue paying bills and paying off its debt for the foreseeable future and avoid default. Opponents of the debt ceiling increase have argued that raising the debt ceiling is akin to having the limit on your credit card increased; if you’re massively in debt, they say, it is time to cut up the credit card.

This is a pithy analogy, but not entirely accurate. The debt ceiling increase allows the government to pay debts it already has incurred, not necessarily future debt. The spending and tax decisions that necessitated this increase were made by past Congresses and Presidents. Not raising the debt ceiling has been more aptly compared to ripping up your credit card bills. Anybody who feels the debt ceiling should not be raised under any circumstances probably needs to take a basic economics class.

And yet, isn’t raising the debt beyond the already staggering $14.3 trillion debt limit a sign that the federal government’s fiscal health is way out of whack? Yes, which is why the deal includes provisions to reduce the deficit.

Spending Cuts: Real or a Mirage?

The second component of the debt ceiling bill involves spending. The bill cuts $913 billion from the federal budget over the next ten years, specifically from so-called non-defense discretionary spending programs, which include most agencies and programs other than defense and entitlement programs like Medicare and Social Security. The cuts are phased in so that the bulk of cuts would take place after 2013. The specific cuts are not specified in the bill; Congress and the President will have to hash that out.

Second, the bill creates a “Joint Committee,” also referred to as a “Super Committee,” comprised of six Democrats and six Republicans, which is charged with drafting a plan by Thanksgiving to reduce the deficit by up to another $1.5 trillion over 10 years. Cuts to entitlement programs and tax increases are potentially on the table for the Committee. If a majority of the Committee approves the plan, it goes to both chambers of Congress for a vote.

If Congress does not pass a deficit reduction plan from the Committee, then automatic cuts take place; this is called the “trigger.” The trigger would automatically reduce spending in non-defense programs by $600 billion and defense programs by $600 billion.

So are these cuts too large, too small, or just right?

First of all, it’s important to note that the cuts are reductions below what is known in D.C. parlance as the “baseline,” which is the estimate of what spending will be year to year based on inflation and other factors. The bill’s cuts reduce the increase in spending, but don’t cut spending below what it is today. In other words, under the bill, government spending in future years will be slowed down, but still higher than what it is today.

Beyond that, the bill would cut spending over ten years by up to $2.4 trillion, if the Joint Committee succeeds in its work. Federal spending this year is at around $3 trillion, so the cuts represent less than 10 percent of overall spending.

That is, if the Joint Committee can agree to trillions in cuts where other commissions have failed. The trigger is designed to provide an incentive to both parties to support a plan from the Joint Committee. But if the choice for Democrats is between $600 billion in program cuts (the trigger) and cuts to Medicare and Social Security -- and for Republicans between $600 billion in defense in the trigger and tax increases -- both parties might decide the trigger is the best of a bunch of bad options.

What is the Impact on the Economy?

It depends on who you ask, of course. Avoiding default and the prospect of the government not paying its bills is a good thing, one would assume, although at the time of this writing the stock market doesn’t seem to agree. While a default would almost certainly lead to a downgrade of the country’s credit rating, it is still possible that at some point one or more of the three major credit agencies could drop the U.S. from its AAA rating if they feel the deficit cutting is not serious. Any decrease in the country’s credit rating will lead to higher interest rates, plus downgrades for state and local governments and various investment funds that have a large share of federal bonds.

Beyond that, the jury is out. Conservatives argue that reducing the deficit will provide certainty and confidence to the private sector to begin hiring. Liberals argue that cutting government spending in a weak economy will exacerbate the lack of financing and demand in the system. The fact that the initial cuts are phased in slowly should reduce the impact on the current economy. But what if the economy remains sluggish when the cuts kick in? Will that impede a recovery? Or, as some have noted, are the cuts so small compared to Gross Domestic Product that they will be hardly a ripple?

On the economic front, all that is known for sure is that Washington, D.C., pizza joints did very well the last few weeks feeding late night negotiating sessions up and down Pennsylvania Avenue.

How Will it Affect Architects and the Built Environment?

There are no provisions in the bill that address specific programs, tax laws or regulations that impact the practice of architecture or the built environment. The tough slogging comes later, when Congress and the President begin deciding what programs get cut and what gets saved.

If the Joint Committee takes a serious stab at increasing tax revenues or changing the tax code, then tax provisions that are designed to promote building (like the historic preservation tax credit, the home mortgage interest deduction and energy tax incentives) could be on the table. But it is exceedingly unlikely that the Joint Committee will be able to come to agreement on broad tax reform in the next four months.

What Does this Bill Say About the Political Process?

One would hope our nation’s leaders would treat important issues with seriousness and dignity. Indeed, at the start of the year, Speaker Boehner and others called for an “adult” conversation on the debt ceiling.

Since then, the Vice President allegedly called Tea Party Republicans “terrorists.” A Republican Congressman called a Democratic Congresswoman “vile” and “despicable.” The Senate Democratic Leader called the House Republican Leader “childish.” And one member of the House called the final bill a “sugar-coated Satan sandwich.”

Perhaps they all need a time out.

Vitriol and discord in politics is nothing new. And when the stakes are high and the hours are long, odds are that tempers will flare, though thankfully dueling on the House floor has long been banned. Besides, as Bismarck once said, laws are like sausages in that you don’t want to watch either one being made.

But most observers would agree that trying to pass massive legislation that nobody has read hours before a calamitous deadline is no way to govern. This is the third deadline that Congress and the President have barely met in the last six months (following the expiration of the Bush tax cuts in December and a possible government shutdown in April), leaving much of the public disillusioned and angry at a political class that seemingly cannot do its job.

So who’s to blame? Partisans on both sides blame their opponents. But in many respects it’s a collective problem exacerbated by both parties focused solely on the next election; a media that covers the fighting but not the substance and gives a bullhorn to the bomb-throwers on each side; a growing professional political class of consultants and lobbyists that feeds the discord machine with press releases and protests; and the public, which is often ill-informed and apathetic.

(That is why the AIA works hard to provide substantive information and tools to its members to engage Congress on policies that reflect the views of AIA members and are not overly partisan; if architects are seen as problem-solvers, they will stand out in a sea of angry partisanship and division. Check out our agenda here.)

The process is even more frustrating when you consider where we were in January. President Obama wanted a “clean” debt ceiling bill without strings and made a vague commitment to work on deficit reduction, including both spending cuts and tax increases, down the road. Republicans wanted a debt ceiling bill only if it included significant and profound spending cuts right away, without any tax increases. The end result -- lifting the debt ceiling with some immediate spending cuts and the promise of more down the road--is roughly in the middle of their two positions. So why couldn’t they figure that out six months ago?

Perhaps the answer is because the democratic system demands messiness. Over the last six months, everyone had a chance to weigh in and vent their frustration. Protesters protested, pundits punditted, lobbyists lobbied and grandstanders grandstanded. Solutions were proposed and rejected; alliances were formed and dissolved. And as the implications of inaction grew more severe, the two sides clawed their way towards a plan that could gain enough support in Congress to pass. Partisans on both sides are disappointed they did not get what they wanted, and everyone else wishes it was more dignified.

But maybe that’s what democracy is all about. As former President George W. Bush once said, “If this were a dictatorship, it would be a heck of a lot easier.”

Comments? Questions? Email the author at agoldberg@aia.org.

   
   
     
 
 

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