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Web Chat: The Battle Over the Debt Ceiling

As the stalemate continues and the debt limit clock ticks, expert Ron Haskins took questions on the nation’s budget woes in a live web chat with POLITICO. The transcript of this chat follows.

12:31 David Mark: Hi folks, welcome to the chat.

12:32 [Comment From Guest: ] Why has there been so much trouble getting a debt bill passed?

12:32 Ron Haskins: Most of the initial questions address the debt ceiling. The major concern seems to be why Congress and the president cannot get together and take reasonable action. The broad answer is that Republicans don't want tax increases and Democrats do not want serious cuts in entitlements. Republicans have said, and there is no reason to doubt them, that they won't vote for a debt ceiling increase unless the bill contains serious spending cuts -- perhaps equal to the size of the debt ceiling increase. There are at least some on both sides who are willing to compromise -- Republicans willing to increase taxes and Democrats willing to entertain large cuts in entitlements. But there are not yet enough for a majority. We won't get congressional action until a majority of one party and at least a substantial number from the other party support a compromise -- which means Republicans agreeing to tax increases and Democrats agreeing to entitlement cuts. We appear to be a long ways away from an agreement that is based on these two essential ingredients.

12:32 [Comment From Paul: ] Can you comment on the President's remarks this morning?

12:36 Ron Haskins: I heard his statement but only one answer to a press question. The main takeaway I reached is that the president is still focused on requiring tax increases in order to reach an agreement. This is not an unreasonable position, but his emphasis on tax breaks on corporate jets seems aimed at scoring political points. In addition, we can't get enough money from tax breaks that would required additional payments only from the rich. We need also to focus on tax breaks for the middle class. You would never have guessed this from the president's remarks.

12:36 [Comment From Eric: ] Do you think it's at all possible that we will actually fail to raise the debt ceiling? What happens if we don't raise it?

12:38 Ron Haskins: Yes, I think it is possible. But despite the current rhetoric -- including the rather partisan comments by the president at his press conference today -- I think we will avoid the disaster. I wouldn't be surprised if another bill or two is defeated in the House and I think several short-term increases are possible, even likely. But eventually there will an agreement that will get us through several months and perhaps even through the 2012 elections.

12:38 [Comment From Maria: ] Will Obama accept a debt ceiling deal with Republicans that omits a tax increase on the wealthy?

12:40 Ron Haskins: I seriously doubt that the president will accept a deal without some revenues in it. He will be hounded by his base if he agrees to major spending cuts, but he will be slaughtered by his base and even by relatively moderate Democrats if he agrees to cuts without at least some revenues.

12:40 [Comment From Sally: ] If not tax hikes, do you think Republicans will be open to some kind of revenue increase - maybe closing tax loopholes?

12:43 Ron Haskins: The beauty of repealing some tax expenditures is that you can reasonably say that this action produces revenue that is very similar to spending cuts. In fact, I have tried to argue with Republicans that closing tax loopholes is a compromise between rate increases and no revenues at all. Grover Norquist has said that even closing loopholes would constitute and tax increases unless there is an equal cut in other tax revenues. But Senator Coburn and several other important Republicans do not agree. Hope for revenues still lies in reducing tax expenditures (closing loopholes).

12:44 [Comment From Jennifer Sundlin: ] What are the consequences of default, and when would be begin to feel them?

12:47 Ron Haskins: The biggest problem with arguing that default would be devastating is that no one can predict when the repercussions would begin and what they would be. Predicting markets is like predicting teenagers. But here's something that should be a more persuasive argument than it is: we already owe the money. To get the money to pay our bills, we promised -- involving the full faith and credit of the American government -- to pay it back. That should be enough to convince any reasonable person that we must pay off our debts. The correct way to reduce the nation's debt is to reduce spending and to increase revenues -- not to break promises that we have already made.

12:47 [Comment From Mark, Greenbelt, MD: ] Why do we have a debt ceiling in the first place? What's the function?

12:51 Ron Haskins: There is a fair amount of controversy about why we have a debt ceiling. As far as I can tell, we're the only major nation that has big fights over its debt ceiling. The idea of voting on a debt ceiling has real appeal because it ensures that Congress and the president must periodically attend to a very important piece of data about the nation's finances. In this respect, the debt ceiling vote and debate is the opposite of our entitlement programs which are on automatic pilot and can just continue driving the debt up without any attention from Congress. In addition, the debt ceiling votes produce a good debate about whether our level of debt is reasonable and what we should do to curtail it if enough people think it is too high or is growing too quickly. We've had lots of adventures in Congress around the time of debt ceiling debates. Now we're repeating history -- but I think the stakes are much higher this time because our fiscal situation is so dire.

12:52 [Comment From Tom: ] Do you think Republicans will be open to cutting the defense budget?

12:55 Ron Haskins: Yes, some already are. The defense budget is high compared with recent years and even hawkish defense experts like Mike O'Hanlon think it would be reasonable to cut up to 10 percent of the defense budget. One major area of cutting should be the Tricare program (health care for the military). The copayments are low and will not increase much under current law. Secretary Gates recommended a modest increase in copayments and his proposal was shot down. I'll bet that will be revisited. But it seems likely that defense cuts will go beyond Tricare, though perhaps not the 10 percent of the budget.

12:55 [Comment From Jon: ] How important is it to get Senator Coburn more engaged?

12:59 Ron Haskins: I am highly biased on this one because I am amazed by how much he has done already. If someone had told me a year ago that he would sign on to tax increases as part of the president's deficit commission plan, I would not have believed them. I have heard him talk about the deficit several times and grew to admire him more each time because he makes so much sense and is fearless about tax increases. He is also one of the very few Republicans who ha criticized Grover Norquist publicly. Moreover, just yesterday he proposed bipartisan legislation with Senator Lieberman to reduce Medicare spending. What more could he do?

12:59 David Mark: That's about all the time we have for today. Thanks everyone for the great questions, and thank you to Ron for the insight.

1:00 Ron Haskins: Bye, Bye.