The ending is preordained
Debt Limit Kabuki
GEORGE NOGA – APR 23, 2023
The spending crisis is one of my signature issues; the current hot button is the debt limit. Republicans want to use the debt limit as a wedge to reduce spending, while Democrats want a straight up or down vote on raising the debt ceiling. But don’t be fooled by all the hullabaloo and hyperbole that will play out between now and summer. It is a kabuki, i.e. a stylized ritual mixing drama with tradition.
To be sure, there will be drama. Will the GOP be able to hold its caucus together, given its razor-thin margin, when they are being demonized daily by Democrats and their media sycophants? Will their resolve hold when they are being accused – as they surely will be – of shredding Social Security and Medicare, starving school children and throwing granny over a cliff? What will the Dems offer in the way of greater fiscal responsibility? Will government services be cut – if so, which ones? Will the government default on the debt? Finally, what will the final deal look like?
But, like any good kabuki, all the players already know their parts and the ending is preordained. Following is how the kabuki is scripted.
- House Republicans stay united until things get really dicey. As vital government services are cut and Dems run vicious attack ads in the districts of vulnerable Republicans, GOP moderates pressure Speaker McCarthy to make a deal.
- Biden will cut government services that most directly affect citizens with the aim of making their lives as uncomfortable as possible. He will close national parks during the peak summer vacation season. He will cut the FAA, reducing air travel to a trickle. He maliciously will grind the economy to a halt.
- Biden will go to Defcon-1 to threaten default on the debt and all that augers; but there will be no actual default. Section Four of the Fourteenth Amendment to the Constitution prevents the government from defaulting on principal or interest. Hence, default is a bridge too far – even for the Biden Administration.
- In the end, both sides get what they want; the debt ceiling is raised and phantom spending cuts are made. Americans are beguiled into believing something meaningful happened and that America is on a sounder fiscal trajectory. Everyone involved claims victory and government returns to business as usual.
The final deal will include some putative spending reductions that amount to much less than meets the eye. The phantom savings will consist of:
- Funds already appropriated but not yet spent. These funds would not have been spent anyway, and this so-called reduction is completely illusory.
- Savings in the out years of the 10-year budget window. These back-end loaded cuts are legerdemain and can (will) be reinstated in future years.
- Faux reductions based on inflated future projected increases. For example, if spending was projected to increase 8%, they cut it to 5% and claim a huge cut.
- Various accounting artifices, gimmicks and one-time adjustments.
- Tax increases (mainly symbolic) to assuage Dems so that they can claim victory. However, there is a good chance the tax increases will never materialize.
- Real and immediate spending cuts, if any, are small and insignificant.
What Will Be the Effect on America’s Fiscal Trajectory?
The debt limit kabuki will be nothing but fiscal maskirovka and prestidigitation. There will be much sound and fury; but, in the end, America’s fiscal trajectory will change only imperceptibly. Cuts to entitlements, defense and interest on the debt all are off the table. That leaves only about $900 billion, or 15%, of non-defense discretionary spending. Even if Congress could cut 10%, that would be only $90 billion per year – a tiny ripple in America’s fiscal pond. If spending returns to its pre-pandemic level (GOP position), the deficit trajectory also would be unchanged. You will know Congress is serious only when it tackles entitlements.
Remember, as the high theater of the debt limit kabuki plays out to its preordained conclusion over the next several months, you already know the ending!
© 2023 George Noga
More Liberty – Less Government, Post Office Box 916381
Longwood, FL 32791-6381, Email: mllg@cfl.rr.com