July 1 (Bloomberg) -- Former U.S. Senator Pete Domenici, who helped forge four major federal budget agreements, has formed a “truth squad” to caution fellow Republicans about the hazards of breaching the U.S. debt ceiling.
Domenici, 79, is working with former federal budget officials including Jay Powell, a Treasury undersecretary for President George H.W. Bush, to detail the negative economic and social consequences if Congress fails to approve an increase in the $14.3 trillion borrowing limit before an Aug. 2 deadline.
A report by the group, the Washington-based Bipartisan Policy Center, predicts that by mid-August the government wouldn’t be able to meet 44 percent of its obligations, leading to about 800,000 federal employee furloughs and spending cuts equal to 10 percent of the gross domestic product. Such moves could choke the economy, still struggling to recover from the worst recession since the Great Depression, and shake the confidence of U.S. creditors, the report’s authors said.
Domenici, of New Mexico, said his mission is made more urgent by signs that Republicans who discount the risks of not lifting the debt cap may be winning the message war within the party. These Republicans include Representative Michele Bachmann of Minnesota, who is running for president, and Senator Pat Toomey of Pennsylvania, who says the government can simply prioritize its obligations to stave off a default.
“The debt’s coming due, and they say it isn’t coming due,” Domenici said in a recent interview. “They’re wrong.”
He expressed frustration that his party may be willing to let the debt limit be ruptured. “Who do we get?” he asked. “Bring God down, Christ” to make the case against doing so?
Domenici, who during his six Senate terms set the record for most years as Budget Committee chairman, and his group have briefed at least 30 lawmakers and their staffs on the study.
He said Republicans, particularly in the U.S. House, “have got to listen to another radio because it’s not the way they’re telling them.”
On June 28, House Speaker John Boehner called the Treasury Department’s Aug. 2 estimate for when the U.S. risks default “artificial,” adopting the argument of Republicans such as Toomey who say investors would have no reason to panic if Congress deadlocks on the debt limit. The government will have the tax revenue to meet its debt obligations, Toomey says, while treating its other bills -- including employee salaries -- as a secondary concern.
Boehner and other Republican leaders have made reducing the deficit a prerequisite to raising the debt limit. The talks have bogged down over the Republican insistence that tax increases be precluded from any such deal, while Democrats -- including President Barack Obama -- say higher tax revenue must be part of a “balanced” plan.
Domenici says his party needs to compromise and accept ending some tax breaks. “If Republicans can’t put any revenue on the table, even expenditures, that makes it very difficult to get it done,” he said.
Conversely, he said, “if the Democrats cannot reform health care, I don’t know how you can get a real budget fix done.”
Domenici’s impact on the debate became evident this week. Senate Majority Leader Harry Reid mentioned the report by his former colleague yesterday in canceling the chamber’s week-long recess for the July 4 holiday to address the debt-limit issue.
“Reading that was very, very frightening,” said Reid, a Nevada Democrat. “This would create a worldwide depression.”
Obama cited Domenici’s view on the tax dispute at his June 29 White House news conference.
The report by Domenici’s group, issued June 28, says a failure to increase the debt limit would leave the Treasury Department unable to fund a $134 billion deficit for August. The agency then would be forced to choose between cutting Social Security and Medicare checks and shuttering the vast majority of its agencies, including cutting off food stamps, money for veterans, and salaries.
Further, there likely wouldn’t be enough money to cover a $23 billion payment to Social Security recipients due Aug. 3, the report found.
The alarms sounded by Domenici were buttressed by a June 29 annual report card from the International Monetary Fund that warned of a “severe shock” to the global economy if Congress fails to act on the debt limit. Also, Standard & Poor’s would downgrade U.S. debt to junk status in the event of a default, John Chambers, chairman of the company’s sovereign rating committee, said yesterday in an interview with Bloomberg Television.
Meeting With Geithner
The report by Domenici’s group grew out of a meeting he and Democrat Alice Rivlin, a former White House budget director, had with Treasury Secretary Timothy Geithner about two months ago on the default issue.
Domenici joined the Bipartisan Policy Center as a senior fellow after his final Senate term ended in January 2009. He did not run for re-election in 2008, having decided the previous year to retire from the Senate at the end of his term because of a brain disorder, frontotemporal lobar degeneration. The condition hasn’t stopped him from drawing on his experience in government fiscal issues to engage in the current battle.
During his 36-year Senate career, he was a central figure in prolonged negotiations that produced budget accords in 1981, 1985, 1990 and 1997. The latter agreement, reached between Democratic President Bill Clinton and a Republican-controlled Congress, led to budget surpluses for a few years.
Reflecting on those past talks, Domenici said, “We didn’t go in with the idea of fighting to the end, that this was a major opportunity to put swords up and to have mayhem.”
The current standoff, he added, “is absolutely beyond my comprehension.”
-- Editors: Don Frederick, Leslie Hoffecker
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