Category: Politics

Five Key Facts about the House Debt Limit Bill

On Wednesday, the House will vote on a bill to delay the upcoming debt limit showdown. The bill includes no spending cuts, no tax increases, and no platinum coins of unusual size. Instead, it will “suspend” the debt limit through May 18 to give lawmakers time to pass a budget in each chamber. To give them extra incentive, it also includes a new twist: If they fail to pass a budget by April 15, it will withhold their pay.

Here are five things you should know about the bill.

1. The bill doesn’t just suspend the debt limit, it raises it.

Section 1(a) of the bill suspends the debt limit through May 18. You might think that the current limit would go back into effect on May 19. And it would, except for section 1(b) which increases the debt limit to reflect new debt issued between now and then.

The bill thus increases the debt limit by an amount to be determined later. That unusual structure lets lawmakers tie the debt limit increase to a specific date, rather than an amount. It also means they get to increase the debt limit, presumably by several hundred billion dollars, without having to expressly vote for such an amount.  It’s a less transparent, and therefore less painful, way to increase the debt limit.

2. Treasury can’t build up an enormous cash hoard.

In principle, Treasury could use this reprieve to build up a pile of cash before the new limit is determined on May 19. For example, Treasury could issue an extra $500 billion in debt and hold the proceeds as cash to cover deficits once the new limit is in place.

But the bill drafters already thought of that. To prevent such gaming, the bill limits the obligations that could be financed with new debt. An obligation isn’t covered “unless the issuance of such obligation was necessary to fund a commitment incurred by the Federal Government that required payment before May 19, 2013.” In short, no funny stuff.

3. Nevertheless, the bill could allow Treasury running room well beyond May 19.

We first hit the debt limit on New Year’s Eve. Since then, Treasury Secretary Geithner has raised cash by engaging in extraordinary (albeit now-familiar) measures such as stuffing IOUs into federal employee retirement accounts in place of the federal debt they own.

A big question is whether the bill would allow the Treasury Secretary to undo those extraordinary measures and reload for the next time we hit the debt limit. The folks at the Bipartisan Policy Center, who do a great job tracking the debt limit, believe that it would. If so, the bill would put off the day of debt limit reckoning well beyond May 19.

4. Because of a constitutional issue, the bill threatens to delay congressional pay, not eliminate it.

With prompting from the group No Labels, lawmakers had toyed with the idea of not paying the members of Congress if they fail to pass a budget resolution by April 15 (“No Budget, No Pay”). But that idea ran afoul of the 27th Amendment  (the weird one that was ratified in 1992 after passing Congress back in 1789). It says:

No law, varying the compensation for the services of the Senators and Representatives, shall take effect, until an election of Representatives shall have intervened.

To avoid “varying” the amount of compensation, the bill would escrow congressional pay until each chamber passes its budget or the end of the 113th Congress. In short, No Budget, No Pay Until January 2015.

5. Members of Congress don’t need to enact a budget to get paid on time.

The bill doesn’t require that lawmakers actually enact a budget. That would be a hard task, since it would require the Republican House to agree with the Democratic Senate on a budget plan.

Instead, the bill focuses on the first steps of the process, in which the House and Senate pass their own budget resolutions. If the House passes a budget, its members would get paid on schedule, and the same for the Senate (which hasn’t done a budget for several years). But there is no new penalty if the House and Senate can’t agree on a final budget.

Treasury Puts the Kibosh on Platinum Coins

Ezra Klein reports an official statement from Anthony Coley, a Treasury spokesperson, killing the platinum coin strategy:

“Neither the Treasury Department nor the Federal Reserve believes that the law can or should be used to facilitate the production of platinum coins for the purpose of avoiding an increase in the debt limit.”

So R.I.P. platinum coins of  unusual size.

The administration has previously ruled out another oft-discussed debt-limit safety valve, overriding the limit based on the 14th amendment. So “Plan B” discussions will now move to two other alternatives that have been bandied about: prioritizing payments or, as Ed Kleinbard suggested the other day, issuing scrip like California did a couple years ago. Of course, issuing scrip *is* prioritizing payments, but with the added feature (or complication) of a written, transferable IOU.

Is the Trillion-Dollar Platinum Coin Clever or Insane?

Policy wonks are debating whether a trillion-dollar platinum coin would be a clever or insane way for President Obama to play hardball with Republicans in the upcoming debt limit battle. Here’s what you should know about this crazy-sounding idea:

1.     A legal loophole gives the Treasury Secretary apparently unlimited authority to mint platinum coins.

Treasury is forbidden from printing money to cover government deficits. Treasury must issue debt, while the Federal Reserve independently controls our nation’s monetary printing press.

That is exactly as it should be. But there is an arcane exception for platinum coins. To serve coin collectors, Treasury can issue platinum coins of any denomination. That creates an intriguing loophole: Treasury could bypass the collector market and mint a trillion-dollar platinum coin. By depositing it at the Federal Reserve, Treasury could keep paying bills after we’ve fully exhausted our borrowing limit.

2.     Most observers think this is a terrible idea, but the legal arguments against it are weak at best.

A who’s who of commentators has already objected to the coin on legal, economic, political, and image grounds (see, for example, John Carney, Matt Cooper, Tyler Cowen, Kevin Drum, Jim Hamilton, Heidi Moore, and Felix Salmon). I’m no lawyer, but the legal arguments seem wholly unconvincing. The language of the statute is clear, and in any case, the executive branch gets away with expansive actions in extreme times. During the financial crisis, for example, Treasury aggressively interpreted its authorities in order to bail out GM and Chrysler and to backstop money market funds. If default became a real possibility, the same expansiveness could easily justify a platinum coin.

3.     The economic arguments against the coin are stronger but manageable.

There’s a good reason that Treasury is forbidden from printing money to pay our debts: inflation. Many economies have been ruined when profligate governments turned to printing money. But minting the platinum coin needn’t mean monetizing our debt. The Federal Reserve has ample ability to offset any inflationary impact by selling some of the trillions in Treasury securities it already owns. As long as the Fed does its job, inflation would not be a risk.

4.     The best arguments against the platinum coin involve image and politics.

Minting a trillion-dollar coin sounds like the plot of a Simpsons episode or an Austin Powers sequel. It lacks dignity. And despite modern cynicism, that means something.

It would also be premature. President Obama and the Republican and Democratic members of Congress have roughly two months to strike a debt limit deal. There is no reason to short-circuit that process, as painful as it may be, with preemptive currency minting as the now-famous #MintTheCoin petition to the White House suggests.

5.     Nonetheless the platinum coin strategy might be better than the alternatives if we reach the brink of default.

Analysts have considered a range of other options for avoiding default, including prioritizing payments, asserting the debt limit is unconstitutional, and temporarily selling the gold in Fort Knox. All raise severe practical, legal, and image problems.

In this ugly group, the platinum coin looks relatively shiny. In particular, it would be much less provocative than President Obama asserting the debt limit is unconstitutional. That nuclear option would create a political crisis, while a platinum coin could be a constructive bargaining chip. As Josh Barro notes, President Obama could offer to close the platinum coin loophole as part of a deal to raise or eliminate the debt ceiling.

6.     If necessary, Treasury should mint smaller platinum coins, not a trillion-dollar one.

A trillion-dollar coin is eye-catching and ridiculous. That’s why it’s filled the punditry void left by the fiscal cliff. But a single coin makes no policy sense. No federal transactions occur in trillion-dollar increments.

Among the largest transactions are Treasury bond auctions, which today raise about $25 billion at a time. If necessary, Treasury could issue individual $25 billion coins, each in lieu of a needed bond auction. Still ridiculous, to be sure, but less so as it would calibrate coin issuance to immediate financing needs.

Steve Randy Waldman suggests as even more granular approach: issuing coins denominated in millions not billions. Such “small” denominations would be even less ridiculous and could potentially be used in transactions with private firms, not just Fed deposits.

Of course, the best path would be a bipartisan agreement to increase the debt limit, address spending cuts, and strengthen our fiscal future, all settled before the precipice. If we reach the brink, however, minting million- or billion-dollar platinum coins would be better than default.

The Six Best Fiscal Cliff Videos

Are you suffering fiscal cliff fatigue yet?

I am, but that doesn’t mean I don’t enjoy a good fiscal cliff video. Here are six of the best, some wonky, some wacky.

1. David Wessel, Wall Street Journal: Standing on an actual Potomac cliff

2. Salman Khan, Khan Academy: For beginners

3. The Simpsons: The most popular fiscal cliff video by far

4. Felix Salmon, Reuters: Legos and Clifford the dog (get it?)

5. Merle Hazard: Surfing on the fiscal cliff

And if you will forgive a little self-promotion:

6.  Me, Urban Institute and the Tax Policy Center: What happens to taxes?

Understanding President Obama’s Revenue Targets

President Obama and administration officials have offered two different revenue targets for the fiscal cliff debate: $1 trillion and $1.6 trillion (sometimes reported as $1.5 trillion). You might be wondering (I was) where those numbers come from.

The $1 Trillion

President Obama wants to extend the majority of the Bush-era individual income tax cuts—enacted in 2001 and 2003 and extended in 2010—except for those that affect only households with incomes more than $200,000 (single) or $250,000 (joint). In addition, he wants to return the estate tax to its 2009 structure, rather than the one that applies today. Together, those changes would increase revenue by $968 billion over the next decade, according to Treasury estimates, relative to a current policy baseline (i.e., a baseline that has income and estate taxes in their 2012 form).

That $968 billion, which rounds to $1 trillion, has the following components, all applying only to taxpayers with incomes above the president’s thresholds:

All of the provisions in this list are part of the fiscal cliff, which is why the President has emphasized them—and the trillion-dollar figure—in his comments about dealing with the cliff. The larger number—the $1.6 trillion—arises in discussions about the larger fiscal deal that might accompany the cliff negotiations.

The $1.6 Trillion

In his budget last February, President Obama proposed $1.56 trillion in tax increases. In round numbers: $1.6 trillion, sometimes misreported as $1.5 trillion.

That figure includes the $968 billion noted above plus another $593 billion in tax increases.

The largest of those, by far, is the president’s proposal to limit the value of itemized deductions and certain exclusions for upper-income taxpayers. Under that proposal, upper-income taxpayers would benefit only 28 cents on the dollar for their charitable deductions, mortgage interest, employer-provided health insurance, etc., even if they are in the 36% or 39.6% tax brackets.

That provision would raise $584 billion. The rest of his tax provisions, including both cuts and increases, then net out to just $9 billion.

As rough justice, therefore, you can think of the president’s $1.6 trillion target as being almost entirely composed of his proposed tax increases on high-income households: $968 billion + $584 billion = $1.552 trillion. That ignores dozens of his other proposals, of course, but gives a good sense of what’s in his overall revenue aspiration.

P.S. For details on any of these proposals, please see TPC’s comprehensive analysis of the president’s tax proposals.

P.P.S. The President’s budget actually proposed $1.69 trillion in revenue increases. That’s the figure reported in Treasury’s summary of the proposals (known as the Green Book) and in TPC’s analysis of the president budget. The difference between that and the budget’s $1.56 trillion figure reflects some arcane budget presentation decisions. For example, the president proposed a $61 billion fee on banks that the Treasury reports as revenue, but the budget does not include in its tax section.

P.P.P.S. 2010’s health reform included new taxes on upper incomes that go into effect on January 1. Including those taxes, the top capital gains rate under the president’s proposal would rise to 23.8% and the top dividend rate to 43.4% (not including the effects of Pease).

Purple America – The Best Election Maps

For all the talk of red states and blue states, much of America is really purple.

That simple observation has inspired some great alternatives to the standard red and blue maps depicting electoral outcomes.

Princeton’s Robert Vanderbei, for example, has created an animation that makes three improvements on the standard red/blue map: he maps counties not just states; he uses shades of purple to reflect the mix of Democratic and Republican votes; and he uses green for third parties.

Here’s his animation for the 1960 to 2008 elections; keep an eye out for Ross Perot. (Vanderbei also has a static version of the 2012 results.)

Michigan’s Mark Newman also adopts the purple view, with another wrinkle. Traditional maps emphasize geographic area, not the location of electoral votes (or population). Using some fancy math, he resizes and reshapes states to reflect their relative electoral import. The result resembles a smooshed butterfly, with blue areas (mostly cities) amid a red web:

Can a Candidate Win Any Number of Electoral Votes from 0 to 538?

Let’s take a break from the presidential campaign to consider a recreational math question posed by New York Times correspondent Binyamin Appelbaum. On Twitter, he wondered:

Is there any number of electoral votes between 0 and 538 that is impossible to amass, assuming electors are faithful?

Put another way, could a presidential candidate win any number of electoral votes from 0 to 538?

The answer is intuitive if you know a key piece of electoral college trivia. But there’s still a fun question of how best to actually prove that intuition.

My best attempt below. Stop reading now if you want to figure it on your own.

Continue reading “Can a Candidate Win Any Number of Electoral Votes from 0 to 538?”

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