Republicans' Debt-Limit Proposal Is Real Reason to Party

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By Paula Dwyer

The inauguration was a splendid affair, but it was more a series of behind-the-scenes developments that made me believe hope and change are in the air.

House Republicans announced today that they will vote, probably this week, to lift the U.S. debt limit for four months, until May 19. Republicans are backing down from their insistence that any increase in the debt limit be offset by dollar-for-dollar spending cuts.

Naturally, the measure comes with conditions: Congress must pass a budget resolution for the next fiscal year by April 15. If either chamber fails to adopt a budget by then, its members' pay will be withheld until they do so, or until the end of 2014, whichever comes first.

For purely political reasons, the Democratic-led Senate has avoided bringing budget resolutions to the floor since 2009. (Republicans like to use the measures to force Democrats into casting votes on sensitive issues that harm their re-election chances.) It would be foolhardy for Democrats to turn their backs on the House Republican salvo.

Senate Democrats seem to get it. Senator Chuck Schumer of New York said Sunday that he and his fellow Democrats will indeed draft a budget blueprint and use it to fast-track an overhaul of the tax code.

Only in Washington would this be considered real progress: both chambers agreeing that they should adopt a budget by April 15, when the nonbinding rules of Congress already call for that to happen. They may part company over whether to dock their own pay if they miss the deadline, but that seems trivial in the context of the $16.4 trillion national debt and the months-long fiscal-cliff negotiations that could have pushed the U.S. back into recession.

The new May 19 deadline avoids the possibility of the U.S. defaulting on its debt and another credit-rating downgrade. Better yet, it could get Congress through March 1, when the so-called sequester -- $110 billion in across-the-board cuts in defense and domestic spending -- kicks in.

All of this seems to be the result of the way President Barack Obama came out swinging after his re-election. He has since taken his cause to the public, much the way President Ronald Reagan did in the 1980s. Obama vowed not to negotiate over the debt ceiling again, for example. Opinion polls show that voters mostly blame the economic consequences of debt-ceiling shootouts on Republicans anyway, causing many party elders, advisers and even sitting House members to warn against confronting Obama.

Schumer also revealed Sunday that Senate Democrats will attempt to use the reconciliation process, in which the tax-writing committees receive orders to move quickly on a reform bill, which the Senate could pass with a simple majority of 51 votes. The tactic would deny Republicans the right to use the threat of a filibuster, which requires 60 votes to overcome.

The House is expected to take a similar path by instructing the Ways and Means Committee to move quickly on a tax-code overhaul. There will, of course, be huge differences between the two: Democrats want to raise revenue, and Republicans want a revenue-neutral bill.

Still, if both chambers can adopt a budget, they just might be able to advance to face-to-face meetings at which they compromise over revenue and spending targets for fiscal 2014.

Under one hopeful scenario, Democrats would call for new taxes on the super-rich and an end to numerous corporate subsidies, yet accept less revenue than they initially demanded. For their part, Republicans would call for cuts in entitlement spending, which even Obama agrees must happen, though at a slower pace and on a smaller scale than Republicans are demanding.

If the parties can do this, they could end the threat of the March 1 sequester as well as a government shutdown come March 27, when the current spending resolution expires. What's more, they would avoid setting off a market panic with each looming deadline and brinkmanship over which side will blink first. The economy, moreover, would be free at last from the Washington albatross.

(Paula Dwyer is a member of the Bloomberg View editorial board. Follow her on Twitter.)

-0- Jan/21/2013 20:25 GMT