Posts Tagged ‘ military ’

The optimist’s view on the debt ceiling deal

Yesterday I presented a very pessimistic view of the debt ceiling deal and the “trigger” that would attempt to force the parties to come to an agreement to solve our debt problems. My reasoning was twofold: First, the trigger, which is supposed to be so terrible for both parties’ interests that it forces both parties to come to a compromise on fixing the debt, will only cut spending in the event a compromise isn’t reached. Since Republicans like spending cuts and Democrats don’t really, I reasoned that this trigger was unbalanced toward Republican interests. Secondly, this trigger couples its automatic spending cuts with the expiration of the Bush tax cuts. I believe this will give away Democrats leverage over Republicans when the Bush tax cuts come up for review and lead to the extension of all or most of the Bush tax cuts. (Again, more information can be found in the two posts before this one.)

The Super Congress will succeed where all other Congresses have failed?

Now, I would like to present the optimist’s view on the debt “trigger.” First, lets review the ground rules. The debt limit deal (passed today, Aug 2) creates a bipartisan “super committee” (or “Super Congress”–see right) which will take the next step of finding at least $1.2 trillion in additional measures to reduce the debt. If the committee reaches an agreement, its recommendations will be fast-tracked for an up-or-down vote in Congress. If it doesn’t reach agreement or Congress rejects its agreement, a debt “trigger” will kick in in Dec 2012/January 2013 which will make $1.2 trillion in automatic, savage cuts to the military, domestic spending and Medicare. Now, lets get into the political dynamics.

The Republicans on the super committee and the Republicans in the House who vote on the final package will be under enormous pressure not to accept ANY revenue increases as part of the deal. Their interest groups will tell them that they cannot close a single tax loophole, shutter a single corporate tax haven or raise rates one inch to raise revenue. That means that the only deal that is likely to be acceptable to Republicans is one that relies solely on spending cuts, and they are  unlikely to agree to anything else.

At  that point the Democrats on the super committee and in Congress might look at each other and say “so if we don’t reach an agreement with Republicans, there’s going to be $1.2 trillion in cuts, and if we do reach an agreement, there’s going to be $1.2 trillion in cuts, what do we  get out of this?” Then, Democrats will begin looking for the lesser of two evils:

  • The spending cuts in the debt trigger will be $600 billion from defense and $600 billion from domestic spending, including $200 billion from Medicare.
  • The spending cuts in a deal worked out with Republicans will not include nearly as much in cuts to defense (Republicans would never negotiate that much) and so will have to cut more deeply to Medicare and will likely cut Social Security and Medicaid as well. Certainly, Republicans will want something like $1 trillion of the cuts to come from domestic spending and entitlements.

Looking at those two options, its obvious which one the Democrats would prefer. If the choice for Dems is between two packages that are all-cuts and one cuts their priorities less than the other, that’s the one they’ll choose. Why should the Democrats negotiate for and sign off on huge cuts to their most cherished domestic programs when the trigger will only take $600 billion from domestic spending? Democrats would be better off refusing to play ball in the Republicans’ all-spending cuts game and insist on a balanced approach to debt reduction that includes higher taxes on the rich as well as decreased spending on the poor and middle class. Polls show that this is the approach favored by the American people.

When Republicans insist on cuts to very popular programs like Social Security and Medicare, while protecting rich people’s tax loopholes at all costs, Democrats will rightly refuse to go along with them. Democrats can then use Republican intransigence on taxes and their plans to gut popular programs against them in the 2012 campaign. This will help paint the Republicans as extreme and ideological while the Democrats come off as the party of moderation and balance.

This will also pit the Republican Party’s anti-tax base against its pro-military base in a veritable Republican civil war. The military contractors that donate hundreds of millions to the GOP will demand that the government increase taxes so that the military doesn’t go under the ax, while the anti-tax Tea Party will stick with their no-tax pledge and infuriate Republican hawks by standing by as the military is decimated.

All this may lead to the inevitable: the Republican Party (or at least parts of it) admitting that revenues have to rise in order to solve our debt problem.

Republican voters stand to lose the most in a US government default

As the US government fast approaches its legal debt limit, many Republicans have tried to argue that a government default would not be as bad as Democrats, the Secretary of the Treasury, Chairman of the Federal Reserve, independent economists, right-leaning magazines and Wall Street firms all say it will be. These very, very conservative (and very naïve) people say that the government has enough money to pay off all the interest on its debt and still meet some of its legal obligations, and anything beyond that will just be waste that needs to get trimmed. So, for this post I propose that we look beyond the irreparable harm that a default will cause to the “full faith and credit” of the US government, look beyond the fact that default will probably throw us back into recession and look beyond the fact that no one even has a plan for the avoiding raising the debt ceiling and just examine the direct harm that will ensue if the government defaults on much of its debt in August.

If Republicans refuse to increase the debt ceiling and the US government defaults on some of its debt on August 2, it is groups that tend to vote Republican will be the most harmed. How’s that, you ask? I though only hippy liberals and welfare queens needed the government? Let me explain.

The Tax Foundation has compiled a list of states that are net donors to the federal government and states that are net recipients of government aid. To do this, it took everything a state’s residents pay to the federal government in taxes and revenues in a given year and then subtracted everything that the federal government spent in that state in a given year. Expenditures include money spent on roads, education, military bases, social security, Medicare/Medicaid (everything that would be in jeopardy in a government shutdown). Then it gave a ratio of spending:revenue for each state. Here are the top ten states who received more from the Federal government than they put in:

For instance, Kentucky received $1.51 for ever $1 it sent to the Federal government. As you can see, eight of the ten states that rely most on federal aid voted for McCain in 2008. In 2004, all ten of these states voted for George W. Bush. If the debt limit is not raised, Federal spending will fall precipitously and these ten states likely stand to lose the most economically. They are also overwhelmingly Republican. Which states stand to lose the least by this metric?

You’ll note that all of these states voted for Barack Obama in 2008 and all of  them except Colorado and Nevada voted for John Kerry in 2004. They are by and large solidly Democratic states. They get much less from the federal government and give much more than their red neighbors. Looking at the debt ceiling showdown this way, it seems that Republicans are threatening to shoot their own voters in the foot by refusing to allow the government to make the payments owed primarily to people in red states. Voters in Republican states stand to lose the most if the government isn’t allowed to pay its bills once it hits the debt limit.

But of course there are some problems with looking at issues like this on a state-by-state, dollars-in vs. dollars-out measure, so let’s try another way of estimating who will be impacted by a government default.

Using this graph, we can roughly divide expenditures into 5 roughly equal groups: (for a more detailed breakdown, go here)

  1. Defense
  2. Social Security
  3. Medicare and Medicaid
  4. Interest on debt and other mandatory spending (including transportation, veterans’ pensions, unemployment, food stamps…)
  5. Discretionary programs (including foreign aid, education, disaster relief, NASA, border security…)

If the debt limit is not raised, about 40 percent of the government’s expenditures will immediately have to be cut (more will have to be cut after the initial cuts because hitting the debt ceiling wwill cause the economy to tank). So, initially about two of the five things in the list above will have to disappear overnight or some combination of 40% of all five. Who will that hurt? (Taking into account that we do not know what parts of the government Obama and Tim Geithner would choose to fund if this doomsday scenario were to come about, lets speculate about who is exposed to risk here.)

If parts #4 and #5, as well as Medicaid are cut, then that hurts a very mixed bag of people. Everyone from the TSA to scientists at the National Institutes of Health, to poor children, to border security guards, veterans and the recently unemployed will be affected by cuts in those areas that make up about 40% of expenditures. Many of the people in this group tend to vote Democratic, such as the poor, but this is such a varied constituency that it is difficult to speculate, although I assume that this group would tend to lean Democratic. However, it is easier to single out the people who would be affected by cuts in the rest of the government.

If it is Social Security and Medicare that get the ax (Medicare makes up the vast majority of MedicareandMedicaid expenditures) then that would dramatically hurt senior citizens. About 40% of the government goes directly to senior citizens through these 2 programs. Seniors were also the only age group to vote for McCain over Obama in 2008 and also voted strongly for Republicans in 2010. This Republican group stands to lose a lot if the government defaults.

If the military gets cut, that obviously hurts soldiers, their families, towns near bases and military contractors. Thats another 20% of the government. Soldiers and veterans are very Republican. Polls specifically of veterans seem to be rare, but Gallup found that veterans were solidly backing McCain by 22 points a couple months before the 2008 election, even though Obama was leading by 3 points nationally at that time. Veterans also went for Bush over Kerry by 16 points. The military and veterans currently eat up about a quarter of our budget, so they are very likely to be harmed by a default.

About two thirds of government spending goes towards groups that tend to support Republicans. If we move veterans benefits from the “other mandatory” part of the pie to the “defense” part of the pie, then we have about 65 percent of the government going towards seniors, the military and veterans, all of which tend to vote Republican.

Judging by both a state-based metric and an interest group-based metric, it would seem that Republican voters will be the ones most hurt in a government default. So why are many Republicans so hell-bent on not raising the debt limit? I have no idea. Its the triumph of ideology over socio-economic interests, I suppose.