Democrats erupt over latest plan on debt ceiling

Analysis: Latest House debt plan may lead to compromise

WASHINGTON | Mon Jul 18, 2011 8:25am EDT

(Reuters) - The latest Republican plan to avert a looming default is a fierce statement of conservative principles that pushes the party's negotiating position farther to the right.
That's why it may be the first step on the road to compromise.
By giving Tea Party conservatives in the House of Representatives a chance to take their favored legislation as far as it will go, House Speaker John Boehner may buy himself some needed goodwill from a vocal segment of his party that has sometimes viewed his deal-making efforts with suspicion.
That could make it easier for Boehner to eventually pass legislation that could be acceptable to President Barack Obama and the Democratic-controlled Senate, clearing the way for an increase in the debt ceiling before August 2 when the federal government faces a default on its financial obligations.
Even as Boehner touted his party's latest plan at a news conference on Friday, he left open the possibility that the House may take up a compromise being shaped in the Senate that so far has failed to catch on with junior lawmakers.
"The cut, cap and balance plan that the House will vote on next week is a solid plan for moving forward. Let's get through that vote, and then we'll make decisions about what will come after," he said at a news conference.
The cut, cap and balance bill conditions a debt-limit increase on passage of a constitutional amendment that would require the federal government to balance its books each year.
Constitutional amendments require a two-thirds vote. That's not likely in the Democratic-controlled Senate, and may even be a stretch in the House.
Even if it were to pass Congress, the amendment would not take effect until at least 38 of the 50 state legislatures ratify it.
Economists say a balanced-budget requirement would tie the federal government's hands during a recession, when tax revenues plummet and welfare costs rise, by forcing it to slash spending or raise taxes.
"That would make a recession worse," said Dan Seiver, a professor of finance at San Diego State. "It's exactly the opposite of what intelligent fiscal policy should do."
SMART POLITICS
But it's smart politics. Polls show that the public, and especially Republican voters, favor a balanced-budget requirement by wide margins.
"This is a vote where ... the House Republican majority gets to align itself with the American public at large," said Kevin Madden, a Republican strategist and former Boehner spokesman.
Some Democrats have lined up behind a balanced-budget amendment, but few are expected to back the Republican version, which also limits spending to 18 percent of gross domestic product and requires a two-thirds vote for tax increases.
The House is expected to vote on the cut, cap and balance plan on Tuesday, but has not yet set a vote for the balanced-budget amendment.
The Senate could vote on several balanced-budget amendments next week, a Democratic aide said. All are expected to fail.
That would clear the way for a so-called "Plan B" introduced last week by Senate Republican Leader Mitch McConnell, which would essentially pin the onus for a debt-ceiling increase on Obama and his Democrats.Read more...