Tuesday, January 8, 2013

Obama, the Budget, and the Debt Ceiling

The recent agreement to raise tax rates on the upper end of the earning population postponed the fiscal cliff while avoiding any agreement on spending cuts.  Obama won on the key plank in his reelection platform, which was to raise taxes on higher income earners, and the House Republicans lost on their main plank, which is to cut spending.  Since President Obama won the election, it is fitting that he wins the tax rate debate.  But the House Republicans won reelection as well, and they have yet to win the spending debate.

Now we come to the debt ceiling decision.  In approximately one to two months, the government will out be of the ability to borrow funds above their current level since it has hit its ceiling in late December.  Obama wants the Congress to raise the ceiling without cutting spending.  The House Republicans want to cut one dollar in spending for every one-dollar increase in the debt ceiling.  Obama objects saying that the debt ceiling should be raised automatically to accommodate the spending that the House Republicans have already approved.  Not a bad argument, or is it?

To analyze the Obama argument requires some background on budgeting.  A budget is a document that sets forth the ‘sources and uses of funds’ for a specific period of time for an organization.   ‘Uses’ refer to the typical image that most people think of when they refer to a budget, which is a list of planned expenditures.  The billions for defense and health care are listed under uses of funds.   ‘Sources’ refer to the where the planned expenditure dollars will come from, namely taxes, fees, and debt. 

The problem with Obama’s argument is that there is no budget of the United States.  There has not been a budget for the Federal Government for three years, one year prior to the House Republicans taking control to cut spending.  In a previous year, the Obama proposed budget was presented to the Senate and was defeated by Obama’s own Democrats.   For the last three years, our Government has been operating mostly under Continuing Resolutions.

 A Continuing Resolution refers only to ‘uses’ side of the budget.  It does not refer to the ‘sources’ side.  It has nothing to do with debt.  Further, it is a default position for the Congress.  If the Republicans and Democrats cannot agree on budget, they issue Continuing Resolutions that reflect agreements from the first year of the Obama administration, or, in other words, an all-Democratic view of the budget.  Ever since, the Republicans in the House have sent budgets with spending cuts to the Democratic Senate and they get back Continuing Resolutions.  The Republicans have not been able to make progress on their main reason for being elected, which is to cut spending.  

Now we come back to Obama’s argument to pay for a series of Continuing Resolutions that avoided negotiating with Republicans with an argument that the Congress should pay for its debts.  The real meaning is that the Congress should continue avoiding negotiating a budget agreement with the Republicans.  This is not consistent with the spirit of the Constitution, namely that the two houses and the administration actually negotiate a budget. 

In all fairness, the Government has operated under Continuing Resolutions in both Democratic and Republican administrations.  However, in the most recent election the electorate chose a Democratic President and Senate, and a Republican House.  There are many polls that show the electorate wanting both parties to work together despite this split in institutional control. 

The Obama argument, if successful, would require the House to abandon its constitutional responsibility to opine on the sources of dollars needed to fund our Government.  If there were a budget, then the House would have had its say. 

A negotiated budget representing the compromises that the electorate wanted when it elected a Democratic President and a Republican House is what the country needs.  If there were a budget, there would be no objection to a debt ceiling increase consistent with that budget.