Not Enough Yet, but House Bound to Cut More Spending

August 4th, 2011

By Dan Miller

If the House behaves in the best interests of its majority, Uncle Sugar will have to diet lest they precipitate a new credit limit “crisis”.

Cut BorrowingBoth houses of the Congress have now approved the new debt limit bill, the text of which is available here. President Obama has signed it. It is seventy-four pages of complex legislative language with multiple cross references to, and in some cases amendments of, other laws. It cannot be fully understood without analyzing those. It seems unlikely that most CongressCritters who voted on it understood or even read it in the very short time provided.

Regardless of its complexity, it is apparent that by approving the bill the House of Representatives did not bind itself to refrain from cutting spending substantially more than the bill requires.

The House passed a budget for fiscal 2012 on April 15:

The U.S. House of Representatives on Friday passed a budget plan for the next fiscal year that would cut federal spending by around $6 trillion (3.67 trillion pounds) over a decade and includes controversial long-term cuts to healthcare programs for the elderly and poor.

By a vote of 235-193, the Republican-controlled House passed the budget for fiscal 2012, which starts on October 1. It has been attacked by President Barack Obama and Democrats in Congress for cutting social programs while also reducing the tax burden for high-income earners.

The Senate has not approved that budget and is not likely to do so. Nor has the Senate passed any budget for more than two years.

The Senate, but not the House, is bound by Section 106 of the debt limit legislation, titled “Senate budget enforcement”; there is no House budget enforcement provision, presumably because none was thought necessary. Under Section 106, the Senate is bound as follows:

[T]he allocations, aggregates, and levels set in subsection (b)(1) shall apply in the Senate in the same manner as for a concurrent resolution on the budget for fiscal year 2012 with appropriate budgetary levels for fiscal years 2011 and 2013 through 2021. (emphasis added).

The Senate (but not the House) is similarly bound for fiscal 2013. The referenced subsection (b)(1) provides in relevant part:

(1) As soon as practicable after the date of enactment of this section, the Chairman of the Committee on the Budget shall file –

(A) for the Committee on Appropriations, committee allocations for fiscal years 2011 and 2012 consistent with the discretionary spending limits set forth in this Act for the purpose of  enforcing section 302 of the Congressional Budget Act of 1974;

The section goes on to deal with baseline and other adjustments for subsequent years; however, with new Congresses and new presidents, no attempt to do that will be effective. The Senate cannot, consistently with the debt limit legislation, exceed the prescribed spending limits in the short term. However, there seems to be nothing in it to prevent the House even from voting to nullify its earlier budget for 2012 and from voting on a new one, with spending cuts it failed to make in the April 15 budget. Hence, the House retains the authority to grant, cut, or deny whatever appropriations for fiscal 2012 (and, of course, for 2013) it chooses, provided only that its largess does not infringe upon the prescribed caps: it can’t appropriate more, but can and should appropriate less, than the caps authorize.

Contrary to the thesis of this PJMedia article, the debt ceiling can be a ceiling on spending, not a floor; it will not be a floor if a majority of the members of the House act in accordance with their own best interests by appealing to fiscally conservative voters in 2012. This means that in the absence of generous appropriations, passed by the House, the Obama administration will have to borrow money to finance its excesses for which appropriations are not made. That may be difficult.

Under Article I, Section 9, of the Constitution: “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law (emphasis added).”  It does not contemplate the expenditure of borrowed funds to meet government expenses not authorized by the Congress. It does not say:

No Money, with the exception of funds borrowed pursuant to Congressional approval, shall be withdrawn from the Treasury, but in Consequence of Appropriations made by Law.

However, even if Article I, Section 9, is (erroneously) interpreted to mean what my fictitious Article I, Section 9, says, under the debt limit legislation the newly authorized additional borrowing authority will result in substantially more money being borrowed than apparently contemplated if appropriations are as slim as they should be; to the extent that lenders remain willing to lend more money it will be borrowed, probably at higher interest rates than at present, and spent.

I argued on July 29 that the donkey had pinned the tail on itself. The donkey is already squirming and President Obama, following Senate passage of the bill, continued to call for more taxes on “the rich”:

“We can’t balance the budget on the backs of the very people who have borne the biggest brunt of this recession,” Obama said in appealing for measure to raise more revenue from the wealthy and corporations. “Everybody is going to have to chip in. It’s only fair. “That’s the principle that I will be fighting for in the next phase of this process.”

Recent events suggest that the donkey should not feel comfortable. On the day after the House approved the debt limit deal, the anticipated euphoria on Wall Street was dampened by fears of rising interest rates, presumably triggered by increases in interest the government will have to pay for new borrowing due to a credit risk downgrade or even a warning. On that day, the Dow closed down 265.87 points (-2.19%) and the NASDAQ closed down 75.37 points (-2.75 percent) — hardly auspicious signs. On August 1:

Obama administration officials were not sure if the initial cuts of $917 billion over the next decade, with an additional $1.2 trillion to $1.5 trillion coming in a second step, would be enough to avoid a downgrade.

“We certainly hope that that sends the signal that Washington is getting its act together and dealing with these tough issues,” Carney told reporters.

Continue reading this article at Pajamas Media »

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