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Sen V20#26- Party Politics, Fiscal Responsibility & Scare Tactics

Washington Doesn't See A Spending Problem, Just A Revenue (Tax) Problem

Source: Steve Dittmer | AFF Sentinel

Originally sent to subscribers 05/22/23
Colorado Springs, CO

Edi. Note: We're interrupting our examination of the Supreme Court's Prop 12 decision to take a look at the debt ceiling situation. We'll resume the Prop 12 series shortly.

We think Sen. Rick Scott got it right when he said in an interview that President Biden and the Democrats have been conditioned to Republicans caving at the last minute on jousting contests like the debt ceiling bill.

Trying to make it sound like momentum or leverage is with Biden, The Hill said in a story published Monday that House Speaker Kevin McCarthy is in a tough spot. They reason that’s because he only won the speakership after 15 ballots and he’s under “heavy pressure” not to cave to Biden’s insistence on a “clean” debt ceiling increase.

We don’t agree. McCarthy has a lot more certainty about what he’s about in this contest just because the Republican caucus thrashed all this out four months ago. In addition, Treasury Secretary Janet Yellen is a bluffing but willing accomplice in the sky-is-falling narrative the administration is spinning.

Plus, the Democrats have the added burden of Biden. Everyone knows Biden is conditioned to do whatever the radicals in his party want. But they have no idea when Biden could blurt something that gives their hand away in this poker game or suddenly becomes irascible and frustrates both sides.

We’d rather have McCarthy playing the Republican hand. We haven’t seen him in one of these conflicts before but he wanted this job, knowing what was coming. That tends to make us think he’s tough enough and tougher than McConnell.

On top of that, the media that is making this sound so dire and cataclysmic has lost more than a little of its credibility in recent times and the release of the Durham report has certainly burnished their credentials of tools of the political left -- not news organizations.

Former White House economist and commentator Larry Kudlow explained weeks ago that Treasury can delay re-investing bonds in retirement accounts and putting IOUs in the accounts for weeks if necessary.

Former Assistant Secretary of the Treasury for Economic Policy Mike Faulkender, who used to be responsible for just these things, pointed out that if Treasury was really worried about running out of money, they would be slow-paying government contractors and furloughing government employees. Instead, they are paying contractors early and not furloughing employees, which leads one to think they are “trying to create hysteria” to get the Republicans to cave.

The government only has to get to June 15, when a new flood of cash from quarterly payments arrives. That could likely provide cash flow to take payments well into July.

Recent stories showed just how much margin the government has each recent month to pay interest on the debt, which is really what default is all about. The Treasury receives two to three times more revenue each month necessary to pay interest on the debt and avoid default.

The administration has really not shown much interest in giving any ground. Kudlow said the administration’s negotiators started out by taking student loan forgiveness off the table and then declaring green new deal subsidies ($1 trillion or so) off the table. They don’t want any caps on spending and want permitting streamlining only for renewables, not fossil fuels. Manchin wanted some U.S. sourcing requirements on permitting for renewables -- which has been ignored.

The bottom line is that the left in control of the administration continues to want big government, big labor and big corporations unified under a central plan for the country, Kudlow said.

Sen. Roger Marshall (R-KS) pointed out that the work requirements in the House bill for welfare, food stamps and Medicaid only require working or going to school for 20 hours/wk. and apply only to recipients without kids. There are now 85 million people on Medicaid, with half of all kids in the country now on Medicaid.

Marshall questioned why Democrats want to keep as many people in poverty as they can. Working not only provides money for families, it engenders self-respect. This, with the economy needing workers and millions of jobs going unfilled every month.

Marshall emphasized that Washington needs to get its priorities in order. The biggest threat to the U.S. is the $31.5 trillion national debt.

As for Biden using the 14th amendment to spend beyond the debt limit, whether that’s Constitutional or not seems to depend on your political party affiliation. So does the Constitutionality of forgiving student loan debt. But the Democrats have not been shy about doing things they want to do before and saying, “So, sue us.”

Biden has painted Republicans as extremists and “wacko” for wanting to cut spending. He continues to consider our economy as going great. Perhaps that lack of proper perception or inability to face reality is why he is actually calling for more taxes in this debt ceiling debate instead of cutting spending. Putting more money into the economy when inflation is already at 40-year highs is not logical.

The young folks don’t remember that part of the inflation problem in the early ‘80s was that the federal government was soaking up all the available money supply in the economy with its borrowing needs.

Phil Gramm and Mike Solon pointed out in a recent Wall Street Journal piece that every dollar of federal government spending the House bill prevents is a dollar the Fed doesn’t need to crowd out of private spending to tamp down inflation. The more the federal government spends, the more it adds to inflation and the more the Fed has to raise interest rates to bring down inflation.

Monday night update: After Biden and McCarthy met Monday without any agreement, there was some new info. Politico reported House Minority Leader Hakeem Jeffries as dismissing GOP demands like funding the border wall, work requirements or a 10-year spending freeze as “unreasonable.” He did acknowledge for the first time that Democrats were “willing to discuss freezing spending at current levels.”

He didn’t mention, of course, that “current levels” were pandemic spending levels rammed through for FY 2022 at the last minute before the Democrats lost their House majority.

According to The Hill, McCarthy said that he and the president found some agreement on streamlining the permitting process for energy projects, one area of potential compromise in negotiations.

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