There is No Debt Crisis. There Should Be No Debt Ceiling Deal for the GOP.
Having discovered that their shutdown of the federal government has made them less popular than the Ebola virus, House Republicans are backing away from their blackmail that Obamacare be delayed or defunded. But John Boehner's new ransom note is almost as preposterous. In exchange for a short-term increase in the debt ceiling that would only put off for only six weeks what Boehner himself called "a financial disaster, not only for our country but for the worldwide economy," the GOP is demanding additional deficit reduction even as the government remains shuttered. As the Speaker put it Sunday, "I'm not going to raise the debt limit without a serious conversation about dealing with problems that are driving the debt up."
To put it in language the Speaker understands, President Obama and his Democratic allies should tell John Boehner to "go f**k yourself." The GOP's supposed offer doesn't merely keep Damocles' sword hanging over the U.S. economy. As it turns out--and as both John Boehner and Paul Ryan have admitted, there is no debt crisis. These five charts show why.
In a rare moment of candor, House Speaker John Boehner in March acknowledged that "we have no immediate debt crisis." As this graph from the Center on Budget and Policy Priorities (CBPP) reveals, Boehner is right:
After slashing $2.5 trillion from the next decade's red ink in just the past two years, the U.S. national debt as a percentage of the American economy has stabilized. It is worth noting that only about a quarter of the deficit reduction comes from new revenues. (If all of the Bush tax cuts had been allowed to expire as part of January's fiscal cliff deal, U.S. debt would plummet from around 70 to about 50 percent of GDP.) May's 2013 deficit projection was now $642 billion, half the level Barack Obama faced on the day he first took the oath of office in 2009. As the nonpartisan Congressional Budget Office (CBO) explained just last month, for the next decade U.S. national debt will remain at sustainable, stable levels:
The economy's gradual recovery from the 2007-2009 recession, the waning budgetary effects of policies enacted in response to the weak economy, and other changes to tax and spending policies have caused the deficit to shrink this year to its smallest size since 2008: roughly 4 percent of GDP, compared with a peak of almost 10 percent in 2009. If current laws governing taxes and spending were generally unchanged--an assumption that underlies CBO's 10-year baseline budget projections--the deficit would continue to drop over the next few years, falling to 2 percent of GDP by 2015. As a result, by 2018, federal debt held by the public would decline to 68 percent of GDP.
In the six months since Speaker Boehner made his omission, the picture for America's near-and mid-term debt has only improved. As Paul Krugman aptly put it, "It's not even a picture of a crisis."
One fact which hasn't changed over the last six months is this: the Affordable Care Act will shrink, not expand, the U.S. national debt. Nevertheless, House Budget Committee Chairman Paul Ryan responded to the CBO's latest report by warning, "We must provide relief to the families we serve. We should start by delaying Obamacare and paying down the debt to help grow the economy." But despite the mythmaking of John Boehner, Paul Ryan and their GOP allies, CBO has consistently concluded that the Affordable Care Act will reduce, not increase, the debt over the next decade:
On net, CBO and JCT estimate, repealing the ACA would increase federal budget deficits by $109 billion over the 2013-2022 period. Repealing the coverage provisions discussed in this report would save $1,171 billion over that period, but repealing the rest of the act would increase direct spending and reduce revenues by a total of $1,280 billion.
That's one reason why Paul Ryan omitted any mention of Obamacare's debt impact in his recent Wall Street Journal op-ed Republicans touted as a compromise offer on the budget. But on Sunday, Speaker Boehner explained what he means by a compromise:
The president got $850 billion -- $650 billion of new revenues on January the 1st. He got his revenues. Now, it's time to talk about the spending problem...We're not raising taxes.
But as this CBO chart from May shows, Uncle Sam has been suffering from a revenue shortfall, not a spending binge.
As a percentage of the American economy, over the next decade federal spending will remain below the peaks of the early Reagan years. Meanwhile, tax revenues, which collapsed due to the steep recession and the ongoing impact of the Bush tax cuts, will remain below 20 percent of GDP over the next 10 years. (As Ezra Klein pointed out, over the past 50 years, the federal government has balanced its budget exactly five times, milestones which were achieved only when the percentage of total federal tax revenue as a percentage of the U.S. economy approached or surpassed 20 percent.)
Nevertheless, Congressman Ryan ("We have an opportunity here to pay down the national debt and jump-start the economy") and Speaker Boehner ("Our massive deficits and debt...are hurting our economy [and] costing jobs") are turning the truth on its head. The entire crisis over the so-called "fiscal cliff" and the budget sequester wasn't that the federal government would be reducing the debt too slowly but instead much too fast. In March, Boehner said of the $1 trillion, ten year ax being taken to the U.S. budget:
"I don't know whether it's going to hurt the economy or not. I don't think anyone quite understands how the sequester is really going to work."
John Boehner may not know how many jobs will be lost, but virtually everyone else in Washington does. On February 13, 2013, CBO Director Douglas Elmendorf testified to the House Budget Committee about the economic blow from the first year of $1.2 trillion, decade-long sequester:
"The sequester alone will reduce GDP growth this year by 0.6 percentage points, lowering GDP at the end of the year by that 0.6 percent. We think that would reduce the level of employment at the end of the year by about 750,000 jobs."
Which brings us to the fifth and final chart. The recovery from the Bush recession of 2007 has been the first in recent memory in which combined public sector employment at the federal, state and local levels declined.
The drastic reductions in state and local government spending fueled not just the direct loss of 737,000 public sector jobs by this summer, but constituted a major drag on the private sector economy as well. All told, the Economic Policy Institute estimates, austerity policies cost the American people 3 million jobs.
All of which is why the GOP must end the its hostage-taking of the federal government and the American economy right now. The numbers are clear. The U.S. does not have a debt crisis, but a jobs crisis. We've cut enough spending for now. That's why Republicans should end their government shutdown and send President Obama a debt ceiling bill right now. After all, John Boehner, Mitch McConnell, Paul Ryan and Eric Cantor voted to raise the limit seven times for President Bush, including a "clean" $800 billion hike in 2004. There's no reason that do the same for President Obama now.
As for the "conversation" about a supposed Republican "compromise," President Obama's response should be a simple one.