Rep. Tom McClintock, FloydReports.com
The “Budget Control Act of 2011” increases the debt limit by between $2.1 and $2.4 trillion, the biggest explosion of debt in American history. It allows the government to avoid spending reductions for the next two years while squandering our last best hope of averting a sovereign debt crisis.
I am opposed to this measure for the following reasons:
- The purported cuts, even if realized, are far below the $4 trillion deficit reduction that credit rating agencies have warned is necessary to preserve the Triple-A credit rating of the United States government;
- It blows the lid off the House budget passed in April by more than a half-trillion dollars over ten years;
- It makes no significant spending reductions for at least the next two years, essentially freezing spending at an unsustainable level. While the debt increase occurs this year, significant spending cuts aren’t to be made for many years and can be ignored or reversed by future acts of Congress;
- The spending caps are easily circumvented by declaring appropriations to be an emergency, a response to a “major disaster,” or necessary for the “Global War on Terror”; and
- The balanced budget amendment provisions are illusory because the amendment is completely undefined.
THE ACT FLIRTS WITH A CREDIT DOWNGRADE
Let’s not forget the gorilla in the room. America faces an unprecedented fiscal crisis because of an unprecedented spending binge by this administration and the last. Credit rating agencies have openly warned that the nation’s Triple-A credit rating cannot be sustained without a credible plan to reduce the projected 10-year budget deficit by roughly $4 trillion.
This bill averts the threat of downgrade for failure to pay our current bills, but it also gives the most spendthrift administration in American history a credit line to continue spending at unsustainable levels through the next election. And it falls far short of the measures demanded by the rating agencies as necessary to maintain the Triple-A credit of the United States government.
If the nation’s Triple-A credit rating is downgraded as a result of this failure, it will mean higher interest rates to maintain government debt. Given the enormity of that debt, even a small increase in interest rates can add crushing additional costs to government. Furthermore, interest rate increases would ripple through the economy, causing higher mortgage interest rates, higher credit card rates and a severe additional drag on the economy.
This would occur on top of the inherent economic damage this bill does. The borrowing authorized in this measure is not theoretical: it amounts to more than $7,000 for every man, woman, and child in the nation or roughly $28,000 for a family of four. This debt must be repaid through that family’s future taxes just as surely as if it appeared on their credit card statement. In a real sense, this act means that every family in America has acquired the obligation to make the same payments as if they had just bought a new car.
Predicting the future decisions of the credit rating agencies is a fool’s errand. Much of their economic analysis is marred by perception, psychology, political pressure, and self-interest. But there is no blinking at the fact that on many occasions in the last month their senior analysts have called for immediate adoption of a credible work-out plan for $4 trillion of genuine deficit reduction in order to maintain a Triple-A rating. We ignore these repeated and explicit warnings at our peril.
SAVINGS ARE GREATLY EXAGGERATED
The Budget Control Act purports to cut federal discretionary spending by $900 billion over the next ten years and set in motion another $1.2 trillion to $1.5 trillion in ten-year spending reductions by year’s end. A recurring theme by proponents is that it guarantees a dollar of cuts for every dollar of new debt.
However, while the debt limit increase occurs this year, the savings occur over the next decade and are heavily back-loaded toward the end of that period. The work of the great economist, J. Wellington Wimpy, can be observed here: “I will gladly give you a dollar of spending cuts ten years from now for a dollar of debt today.”
In reality, this bill will decrease total federal spending by just $4 billion between….