President Barack Obama dispelled any doubt as to whether the fiscal fight over government spending is going to be bare-knuckled when he laid responsibility for failure to lift America’s $16.4 trillion debt ceiling squarely at the feet of Republicans in Congress.
Speaking at his final press conference of his first term on Monday, the president said: “Republicans in Congress have two choices here: They can act responsibly and pay America's bills or they can act irresponsibly and put America through another economic crisis. But they will not collect a ransom in exchange for not crashing the American economy.”
An analysis by the Bipartisan Policy Center forecasts the Treasury will run out of the money it needs to pay all its bills some time in the latter half of February.
Following the president’s press conference, House Speaker John Boehner issued a statement implying a clean lifting of the debt ceiling was not likely to be forthcoming:
“The American people do not support raising the debt ceiling without reducing government spending at the same time...The House will do its job and pass responsible legislation that controls spending, meets our nation's obligations and keeps the government running.”
Monday’s rhetorical skirmish came 11 days after the president signed legislation averting the fiscal cliff fight that gripped the nation at the end of 2012.
A recent Pew Research poll determined that the president was the clear political winner in wrangling over that deal, with Republicans getting most of the blame for their negotiation stance.
But a new analysis of the final legislation, published Monday by Tax Notes, suggests the American people were the biggest losers because deficits are set to actually increase rather than decrease.
The analysis, by David Cay Johnston, a law professor who previously received the Pulitzer Prize for his coverage of tax policy for The New York Times, finds that “federal deficits will continue at much larger levels than if Congress had done nothing and simply let the temporary George W. Bush income tax cuts end.”
Using Congressional Budget Office data, Johnston warns that U.S. debt, which is currently close to 80% of GDP, is set to reach twice—that is, 200%—“the amount of the economy’s total annual output” 25 years from now.
But those projections depend on “all else being equal,” which Johnston implies will not be the case given Washington’s current reluctance “to raise taxes more or cut the programs that actually add to the debt and weaken the economy.”
To put the scale of these numbers in sharper focus, and demonstrate the failure of the fiscal cliff legislation to deliver on its promise of deficit reduction, Johnston offers this example:
“The Obama administration says that the fiscal cliff deal it made will mean $737 billion less in federal debt over the next 10 years. CBO data show that interest on the growing national debt will cost more than $770 billion just in the 10th year, assuming interest rates remain at current low levels.”
As Washington wrangles over its next fiscal fight, at least one observer is taking an unusual stance. The lead article in the new issue of Grant’s Interest Rate Observer is titled “Lower the Debt Ceiling.” The New York Sun quotes the article, available only to subscribers, as saying:
“Since 1917, the ceiling has been raised 107 times. Expressed as a compound annual rate of growth, the debt ceiling has risen by 8.4%, the nominal GDP by 6%. Twenty-nine more years on this track and the debt ceiling would be the size of the GDP.”
In contrast to this debt-allergic stance, New York Times columnist Paul Krugman offers a radically different perspective on the debt ceiling debate. Having already proposed the government mint a trillion-dollar coin—a proposal the Obama administration has rejected—Krugman describes Republican threats to not raise the debt ceiling without an agreement to reduce spending thusly:
“This is exactly like someone walking into a crowded room, announcing that he has a bomb strapped to his chest, and threatening to set that bomb off unless his demands are met.”