U.S. Default Wouldn't be Carmageddon II

If Washington fails to raise the $14.3 trillion debt ceiling and default follows, the results won't mirror that of L.A.'s "Carmageddon" weekend (when Angelenos stayed home in response to a major freeway closure and then blamed the media for over-hyping the story). A default on the federal debt means interest rates will rise, the cost of borrowing will balloon -- and the only sure outcome will be that voters will blame Republicans.

Hence, the House Republicans' debt-ceiling package -- the Cut, Cap and Balance Act of 2011 -- is the bonehead play of the year.

It's not the first bonehead play this year. President Obama threw a poison pill into negotiations on raising the $14.3 trillion debt when he insisted on including about $1 trillion in tax increases in the package. That was a mistake because this Republican House is not going to pass a measure that raises taxes and imperils the recovery -- and the administration knew it.

Alas, in Washington, one poison pill begets another. House Republicans had a chance to push for a cuts-only debt-ceiling increase, but they, too, poisoned the well.

The "Cut, Cap and Balance" plan promises stiffer spending cuts than those found in the budget plan written by Rep. Paul Ryan (R-Wis.). In May, the Senate rejected the Ryan plan in a 40-57 vote. Now I think the Senate was wrong to reject the Ryan budget, but it tanked, so there's nothing smart in proposing stiffer cuts.

And if you want a plan to succeed, you do not toss in a Balanced Budget Amendment for "balance." Amending the Constitution, after all, requires a two-thirds vote in the Senate. That's 67 votes -- 27 more than the Ryan plan won.

The Republicans could have put together a solid cuts-only package. Instead, they went for the showy vote, which will deliver no spending cuts, so that GOP members of Congress could pose as tough on spending.

Now Congress will vote. The House will pass the deal, the Senate won't, and President Obama won't even have to veto the package. Then, maybe, Washington will get down to business.

Last week, Senate Minority Leader Mitch McConnell proposed a backup plan that would allow the president to raise the debt ceiling in three stages and require the White House to propose nonbinding spending cuts. Senate Majority Leader Harry Reid is working with McConnell to craft legislation. That legislation probably won't result in meaningful deficit reduction, but with default looming, it looks better every day.

A year after the administration's first "Recovery Summer," Obama will have won the debt-ceiling PR war. But when he has to produce his own big-deal cuts -- all by his lonesome -- the glow may not last.

In pushing for tax increases, Obama overplayed his hand. In pushing for a spending cut, the House Republicans overplayed their hand. Deficit reduction will have to wait.

It turns out that White House economic guru Austan Goolsbee was right when he warned that it would be insane to tie deficit reduction to a vote to raise the debt ceiling. That was back in May, and most of the Beltway agreed.

But then Obama proposed to tie the debt ceiling to tax increases, and in crazy Washington, somehow it all made sense.

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