Latest House Debt Plan May Lead to Compromise

Sunday, 17 Jul 2011 09:05 AM

 

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WASHINGTON (Reuters) - The latest Republican plan to avert a looming U.S. default is a fierce statement of conservative principles that pushes the party's negotiating position farther to the right.

That's why it may be the first step on the road to compromise.

By giving Tea Party conservatives in the House of Representatives a chance to take their favored legislation as far as it will go, House Speaker John Boehner may buy himself some needed goodwill from a vocal segment of his party that has sometimes viewed his deal-making efforts with suspicion.

That could make it easier for Boehner to eventually pass legislation that could be acceptable to President Barack Obama and the Democratic-controlled Senate, clearing the way for an increase in the debt ceiling before Aug. 2 when the federal government faces a default on its financial obligations.

Even as Boehner touted his party's latest plan at a news conference on Friday, he left open the possibility that the House may take up a compromise being shaped in the Senate that so far has failed to catch on with junior lawmakers.

"The cut, cap and balance plan that the House will vote on next week is a solid plan for moving forward. Let's get through that vote, and then we'll make decisions about what will come after," he said at a news conference.

The cut, cap and balance bill conditions a debt-limit increase on passage of a constitutional amendment that would require the federal government to balance its books each year.

Constitutional amendments require a two-thirds vote. That's not likely in the Democratic-controlled Senate, and may even be a stretch in the House.

Even if it were to pass Congress, the amendment would not take effect until at least 38 of the 50 state legislatures ratify it.

Economists say a balanced-budget requirement would tie the federal government's hands during a recession, when tax revenues plummet and welfare costs rise, by forcing it to slash spending or raise taxes.

"That would make a recession worse," said Dan Seiver, a professor of finance at San Diego State. "It's exactly the opposite of what intelligent fiscal policy should do."

 

SMART POLITICS

But it's smart politics. Polls show that the public, and especially Republican voters, favor a balanced-budget requirement by wide margins.

"This is a vote where ... the House Republican majority gets to align itself with the American public at large," said Kevin Madden, a Republican strategist and former Boehner spokesman.

Some Democrats have lined up behind a balanced-budget amendment, but few are expected to back the Republican version, which also limits spending to 18 percent of gross domestic product and requires a two-thirds vote for tax increases.

The House is expected to vote on the cut, cap and balance plan on Tuesday, but has not yet set a vote for the balanced-budget amendment.

The Senate could vote on several balanced-budget amendments next week, a Democratic aide said. All are expected to fail.

That would clear the way for a so-called "Plan B" introduced last week by Senate Republican Leader Mitch McConnell, which would essentially pin the onus for a debt-ceiling increase on Obama and his Democrats.

Senate Democratic Leader Harry Reid is currently working with McConnell to make the plan more palatable to his party.

Democrats want to include about $1.5 trillion in spending cuts, including military cuts, along with a payroll tax-cut extension to boost the economy and an agreement on funding levels for the coming two fiscal years to avoid further budget showdowns, aides said.

The plan would also include a special deficit-reduction committee, made up of equal numbers of Republicans and Democrats, that would examine more sensitive budget topics like taxes and benefits. The panel would be guaranteed a vote on its findings, due by the end of the year.

House Republicans and outside conservative groups have been cool or hostile to the plan so far. While McConnell hopes to win control of the Senate in the 2012 elections by embarrassing Democrats, House Republicans are focused on delivering the deep spending cuts they promised voters last fall.

They might warm to McConnell's plan if they are allowed input on the spending cuts, as a Democratic aide suggests.

The failure of cut, cap and balance, coupled with an increasingly frantic lobbying campaign by business allies, could soften their opposition as Aug. 2 approaches.

A sharp drop in the markets could change minds as well.

"What may look like something less than optimal today, if we're unable to get to an agreement might look pretty good a couple of weeks from now," Boehner said at a news conference on Thursday. "I think it's an option that may be worthy at some point."

© 2014 Thomson/Reuters. All rights reserved.

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