As uncertain and unruly and disheveled as the debt-ceiling debate may be, there are still good grounds to reach a deal. It could help the economy. It could keep the policy ball moving in the direction of smaller government. It could add a key business tax incentive for economic growth. And it could even stabilize the dollar.
There really are two problems here: First is raising the debt ceiling to avoid default. (That’s a real good idea.) Second is stuffing enough spending and deficit reduction into the deal to accommodate the newly militant demands of S&P and Moody’s, who want roughly $4 trillion in cuts over ten years in order to keep our AAA rating.
But here’s the tricky part for me: What kind of numbers are we talking about in the event of a last-minute deal? So many of these numbers are phony, and they often reflect baseline fiddling and out-year budget cuts that never materialize.
But the credit raters are on the war path. The small deal offered by Senator McConnell would raise the debt ceiling in three parts. But with only $1 trillion in so-called cuts, this “Plan B” won’t pass the S&P/Moody’s test. The number is too small.
Then there’s the grand design for President Obama’s big-picture deal. It is over $4 trillion, but it includes taxes that look to be off the table from the Republican standpoint.
But this has me thinking. Assuming there are real spending cuts in the Obama package, I wonder if it’s possible to insert a business tax cut in the deal that would repatriate foreign earnings of U.S. companies. Let’s say with a 5 percent tax holiday. And let’s say it’s a two-to-three-year plan, or lasts until full-fledged business tax reform can come about. That would be a big plus for growth and jobs. We’re talking a base here of nearly $2 trillion in corporate cash that one way or another can come into our economy.
Next up is cut, cap, and balance. Did Obama budget director Jack Lew open the door to this Republican House plan during the Sunday shows? This is my preferred option right now. The burden of government on the economy would be reduced from roughly 24 percent to 20 percent. That narrows the wedge between work and reward. It strengthens private market resources by curbing government redistribution. This is probably the biggest philosophical sticking point in the whole political debate. Of course, I’m for free-market capitalism.
But here too I’m not sure about the numbers. Various news accounts talk about a $2.4 trillion debt-ceiling increase with an equal spending cut. I presume that’s a ten-year number on the spending side. But that wouldn’t pass the S&P/Moody’s test of $4 trillion.