Greenspan Gives GOP Hope on Debt Limit

Posted June 15, 2011 at 7:00pm

House Republicans wary of the Obama administration’s Aug. 2 deadline for raising the debt ceiling think they have support for their skepticism from a surprising source — former Federal Reserve Chairman Alan Greenspan.

Greenspan met with a small group of House Republican Policy Committee members Monday afternoon.

Republican sources familiar with the meeting said their takeaway from Greenspan’s presentation was that the administration has more wiggle room than it is letting on if a final deal on raising the
$14.3 trillion debt ceiling is not reached by the proposed deadline.

Rep. Steve Scalise (R-La.), who met with Greenspan but declined to comment on their discussion, said that while the exact date of the debt ceiling is in doubt, the problem is not.

“They’ve already moved the deadline, so that shows that there’s some flexibility,” Scalise said. “But we know it’s coming.”

Scalise, however, said it is the White House that is not taking the situation seriously. “Rather than use scare tactics … it’s time for them to have a serious conversation on spending cuts,” he said.

Greenspan clarified his comments Wednesday in an email.

“I said that the August 2 deadline is based on forecasts of daily revenues and outlays and that the actuals could change the August 2 deadline by a few days either way,” Greenspan wrote.

Skepticism about the deadline has been a theme within the GOP during the debt limit discussion, given the Obama administration’s history of creating deadlines in order to pass massive pieces of legislation, such as the auto bailout and the stimulus bill over the past two years. Additionally, Treasury Secretary Timothy Geithner’s contradictory statements on when the debt limit must be raised have bolstered critics’ complaints. Geithner first said in January that the borrowing ceiling could be hit as early as March 31. That forecast changed to April 5, then to July 8, and then in May he changed the deadline to Aug. 2.

Rep. Dan Burton discounted the threat that the financial system would go into a free fall if the debt ceiling isn’t raised by early August.

The Indiana Republican said that “if they don’t have the votes to extend it,” passage could be delayed, but that in the end “they’ll find a way, don’t worry.”

Rep. Scott Garrett (R-N.J.) also said he has been told by financial experts that the markets would be affected more adversely by the decision to not make structural changes in the final package.

Still, Republican leaders said a solution must be found soon.

House Majority Whip Kevin McCarthy said there are clear signs that the debt ceiling is approaching and that Congress and the administration need to come to an agreement on cutting spending and raising the limit.

“If it’s not Aug. 2, it’s right around there,” the California Republican said. He also said the GOP has acknowledged the situation is coming to a head, noting the involvement of Majority Leader Eric Cantor (R-Va.) in the bipartisan debt negotiations.

The continuing questions about the urgency of raising the debt ceiling come as administration officials are trying to pressure Congressional lawmakers to forge a compromise. Vice President Joseph Biden signaled Tuesday that he is hoping to bring a framework for a final deal to Congressional leaders by July 1.

Federal Reserve Chairman Ben Bernanke on Tuesday warned again that defaulting on federal debt payments by not raising the limit, even for a short period, would have negative effects on the country’s already weak fiscal condition.

Although negotiators from both parties said Wednesday that they are making progress, it is unclear how far along the talks have moved toward a deal. Rep. James Clyburn (D-S.C.) told reporters that while there has been progress, they still are discussing the “form” of the agreement, rather than specific numbers.

Rep. Chris Van Hollen (D-Md.) said House Democrats put a “menu” of special interest tax breaks on the table that could be used for deficit reduction — from those benefiting oil companies to tax breaks for private jets. He repeated his hope that support among Senate Republicans for an amendment Tuesday that would have ended ethanol tax breaks could represent a breakthrough that makes a broader deal possible.

Sharing that sentiment, Sen. Charles Schumer, the No. 3 Senate Democrat, said “there are lots of places we can look” for wasteful tax breaks that could cut the deficit, including tax breaks that “send jobs overseas.”

The New York lawmaker said Democrats are prepared to negotiate serious spending cuts but have drawn a line in the sand when it comes to Medicare benefits. “We’re not going to cut senior benefits,” he said. “We’re not trading that for anything.”

Senate Republican Conference Chairman Lamar Alexander repeated his personal contention that eliminating wasteful tax breaks is a good way to reduce the debt. “I voted for lower food prices and less federal debt,” the Tennessee lawmaker said, adding “I’ll do it again if I have the chance.”

Alexander, however, made his comments at a joint press appearance with House Republican Conference Chairman Jeb Hensarling (Texas), who likewise opposes ethanol but doesn’t think the savings should be used to cut the deficit.

“I would want to ensure that we use that money to reduce marginal tax rates,” he said, in a position in keeping with anti-tax advocate Grover Norquist’s pledge to never raise taxes.

John Stanton and Steven T. Dennis contributed to this report.