Senate Budget Committee Chairman Kent Conrad expressed confidence that lawmakers will be able to head off a government default, likely at the last minute on Aug. 2.
“I don’t believe there will be a default,” Conrad said yesterday. “Leaders on both sides are sufficiently responsible that they understand if there were a default it would be a disaster for this country.”
Speaking in an interview on Bloomberg Television’s “Political Capital with Al Hunt,” airing this weekend, Conrad said that while his colleagues were at odds with Republicans over a plan, they will meet the deadline for extending the nation’s borrowing limit.
“Work expands to fill the time -- we certainly know that’s true here,” said Conrad, a North Dakota Democrat. “You’ve got to have gridlock before you have breakthrough. One thing we know about this place is both sides have to be convinced they’re not going to get their way, they’re not going to prevail, before they’re willing to really compromise.”
The outlines of a possible compromise are apparent, including a reliance on spending cuts, the creation of a special budget-cutting committee and a vote later this year on a proposal to add a balanced budget amendment to the Constitution, Conrad said. He said he favors extending the debt ceiling through next year.
Lawmakers are debating what sort of safeguard to include that would guarantee $2 trillion in budget cuts if the committee deadlocks, said Conrad. He said any such “default mechanism” ought to hit both sides of the budget ledger with automatic spending cuts and tax increases.
“You’re going to have to have a revenue piece here to have a compromise,” he said.
Lawmakers may be able to surmount Republican objections to tax increases by pairing provisions curbing individual tax preferences with long-term cuts in the alternative minimum tax, said Conrad. The alternative tax is a parallel system originally designed to prevent the wealthy from avoiding taxes that increasingly hits middle-class Americans.
“The revenue piece has to be something that they can argue is not a tax increase -- using the alternative minimum tax is the best way of doing that,” said Conrad.
Alternative Minimum Tax
Cutting the alternative minimum tax would cost the Treasury $1.5 trillion in revenue over a decade, he said, and “if you replace that money with tax-expenditure reform, which virtually everyone is for, you can argue there’s been no tax increase but there is revenue we would not otherwise have.”
He predicted the government’s credit rating would be downgraded “unless we show credibly that we have a path to getting to the grand bargain” on the budget. A downgrade would be a “very serious blow to the country,” said Conrad, estimating that every 1 percent increase in interest rates would add $1.3 trillion to the debt.
Conrad said additional stimulus spending to help boost the economy is “probably” and “unfortunately” impossible, saying he believes another $100 billion in infrastructure projects are in order. He said an extension of a Social Security payroll tax approved last year “might be possible as part of a final compromise to get on the tax side of the ledger.”
Asked if he believed President Barack Obama should have been more involved in the debt-limit negotiations, Conrad said history will record he “has done about as well as anyone could do,” because “any time he’s for something, there are elements of the other side that are automatically against it.”