Politics: Playing Debt Chicken or Is it a Poker Game?

That about sums it up.

Both sides want to avoid problems with the debt limit.

But each side wants something in exchange for raising the nations credit limit.

The Republicans want the growth of government to be slowed down and are using the debt limit as leverage.

The Democrats want the growth of government to continue and are using the debt limit as leverage.

Each side thinks the other will be blamed for any resultant economic chaos if the debt limit is not raised.

From a hard headed political perspective, the key is probably the Senate Democrats. They have the edge 53-47.

If those four votes can't be peeled off, the Democrats will blame the House Republicans for the failure.

But if four of them were to be swayed by an offer from the House, a deal would then pass the House and Senate leaving the White House with the burden of issuing a veto.


UPDATE: I made a terrible mistake in forgetting the culture of the Senate that manifests itself in the "cloture rule." Simply stated, debate can be closed (cloture) with a vote of 60. Thus, the deal making must bring over 7 Republican Senators.

In order for the House to reverse course, 26 Republicans have to switch which could happen but that is unlikely given that both sides of the House have pretty solid party discipline. Senators traditionally have been more willing to break the party line.

UPDATE: The current scenario is that the Speaker of the House will have to bring over Democrat house members to counter the no votes from the Tea Party Wing of the GOP House members.


It is a high stakes poker game and both sides have lousy cards but one side will take the pot when the blame falls on the other.

2 comments:

Anonymous said...

The GOP plan boils down to drastically cutting down on Medicare before the baby boomers start claiming the benefit to avoid raising taxes (many are tax cuts from Bush). If you look at the graphs you posted previously, Medicare related expense will grow to 20% of GDP from 10%. The combined social security and other expenses remain at 10%. The Cut, Cap and Balance Act requires the total spending to be capped at about 20%.

The question is "Is abandoning our senior citizens in the future what we want?".

Rene said...

Indeed, you are correct, the CBO projections indicate the size of government growth is driven by the health care obligations.

All the other components don't actually grow very much relative to the size of the economy.

Social Security could be fixed with some politically difficult but relatively minor adjustments.

Discretionary spending is also relatively stable as well and probably could use a few trims but the real big $$$ is in the health programs.

If the CBO projections are correct, taxes will need to rise to 30% of GDP to cover those obligations. However, historically, taxes have hovered around 18% GDP which is in the other graph.

Thus, the questions before Democrats and Republicans and Independents are these:

(1) If we want these health benefits from the Federal Government, will we accept higher taxes to truly pay for them?

These taxes will eventually reach 67% higher (18 --> 30% GDP). These are levels of taxation the public has not experienced before (taxes peaked about 21% GDP in the 90s boom) and maybe politically unsustainable.

(2) If we are not willing to accept those levels of taxation then in what manner are we willing to redesign those health programs?

The saying is true, there is no free lunch. Promising these health benefits without a means of paying for them is a recipe for fiscal problems. Thus, the public must accept adjustments to these promised benefits to be in line with the public's willingness to pay for them. These adjustments done properly need not lead to abandoning the poor and the senior citizens.

Unfortunately, neither party addresses these issues.

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