The Debt Limit and the White House

Hank Adler

12/28/2013 12:01:00 AM - Hank Adler

"Understand – raising the debt ceiling does not allow Congress to spend more money. It simply gives our country the ability to pay the bills that Congress has already racked up" President Obama, July, 2011

We, of course, face another debt limit battle early in 2014.

Perhaps a good place to start for the President is to propose reductions in Federal spending equal to the bills that he has "racked up". His contribution to the deficit has been through executive orders, incompetent management by leaders of the executive branch (Obamacare & Energy) and other decisions that strain any reasonable interpretation of allowable executive powers under the Constitution of the United States.

On the Obamacare front, the deferral of the employer mandate and now the deferral of at least a significant portion of the individual mandate will cost Treasury billions of dollars in 2014 and 2015. These actions were not authorized, approved or even discussed by Congress and the Internal Revenue Code, which is the law, remains unchanged. In reality, the elimination of these taxes (determined to be taxes by the Supreme Court) would be ruled unconstitutional before any Federal judge if 'standing' within a Federal Court was available for any citizen to challenge these actions of the President.

Continuing on the Obamacare front, the inability of the Treasury to document and monitor the legal appropriateness of insurance subsidies will cost the Treasury many more billions. The politically incented exemptions granted by HHS will drive up the deficit; the subsidies necessary to keep the insurance companies in business after the demographic reality of the Obamacare signups becomes reality could cost in the tens of billions. And of course, this website fiasco appears to be costing billions as well. These costs come from the White House, not Congress.

Another cost of Obamacare that has escaped discussion to date is the deductibility of medical expenses on individual tax returns. As the result of the regulations written by HHS, insurance costs for 2014 have exploded along with deductibles required before insurance company reimbursements kick in. This will increase medical costs for most insured individuals by thousands. The good and the bad here is that individuals receive tax deductions for medical expenses (including medical insurance) exceeding ten percent of adjusted gross income. This deduction, previously not often available because medical expenses were almost always less than ten percent, will impact perhaps millions more tax returns in 2014 and forward a significant cost to Treasury.

Last week, the Obama administration announced that they had sold its remaining shares in General Motors at a loss of about $10.5 billion. The bailout of General Motors was a White House operation. The Treasury Department reported that it had recovered $39 billion in stock gains and interest from its $49.5 billion rescue. Transparency not being the Treasury's strongest asset at the moment, this is only a portion of the story.

The easy part of recognizing the real cost of the General Motors transaction is that the Treasury bailed out General Motors with borrowed money. Using an interest rate of 2.5% over four years means the bailout cost the government about $5 billion. That would take the loss to $15.5 billion. The hard part to follow is that the White House awarded General Motors tax benefits contrary to any reasonable reading of the Internal Revenue Code that will convey a subsidy of about $16 to $20 billion to General Motors over the next two decades. (Of interest, any future Secretary of the Treasury can challenge these tax benefits, but no citizen has 'standing' to do so.)

How important are these tax benefits to General Motors? The most recent balance sheet of General Motors has a book value (assets less liabilities) of $37 billion. The book value of the tax benefits on that balance sheet is now $36 billion. General Motors' net worth is effectively equal to its tax benefits, most of which were conveyed to General Motors by the White House.

The list of White House created costs includes many other White House programs such as the vaunted investments in solar energy. The list of other non-Congress approved expenditures is not endless, but very, very long.

What the President cannot seem to understand or accept is that there is nexus with respect to the costs of operating the government that are coming out of the White House and not out of Congress. The White House is expending funds and reducing taxes without Congressional involvement and, in my opinion, without legal authority to do so. Maybe in conjunction with lifting the debt ceiling, the President should be required to find offsetting budgetary cuts equal to his executive orders and other actions increasing the deficit that have occurred without Congressional approval.