Monday, October 17, 2011

Chris Van Hollen on the Debt Ceiling in 2004 and 2011

Here are Van Hollen's remarks on a bill for INCREASING THE PUBLIC DEBT LIMIT, as the Congressional Record says, on November 18, 2004:

Mr. VAN HOLLEN. Mr. Speaker, as we prepare to convene the 109th Congress,
one of our top priorities should be getting our fiscal house in order.
Unfortunately the Republican leadership is sending us in the wrong
direction. The House voted recently to raise the debt limit by a total of
$800 billion. The vote to raise the debt limit for a third time in 3 years
is a direct consequence of the reckless fiscal policy pursued by the
Republican leadership over the last few years.

   A key step to putting America back on the path to financial security
would be re-implementing pay-as-you-go policies. The House Republican
leadership blocked efforts to restore these rules. Using pay-as-you-go
rules, the Clinton administration helped turn a $290 billion budget deficit
in 1992 into budget surpluses in 1998, 1999, and 2000. As a result, the
Clinton administration was successful in paying down $362 billion in
publicly held debt . However, in 2002, the Republican leadership let the
pay-as-you-go rules expire and once again we are facing endless budget
deficits and soaring national debt .

   Debt increases have serious consequences for American families. At a time
when the House leadership is promoting more and more tax cuts that
disproportionately benefit the wealthiest Americans, increased budget
deficits create an enormous debt that will mortgage our future. While a few
are benefiting disproportionately from certain Bush tax cuts, all Americans
will pay the consequences through the rising ``debt tax.''

   Throughout our history, every generation of Americans has worked to leave
our children a world that is stronger and more secure than the one that was
left to us. That is our legacy and it should also be our commitment. It is
simply wrong to run up a debt on our national credit card and leave our
children to pay the bill. We must take personal responsibility to return our
Nation to fiscal responsibility.

And here are his comments on May 31, 2011, on a Republican debt ceiling proposal:

 Mr. VAN HOLLEN.  Ladies and gentlemen, this is a political stunt. I just heard my friend
from Texas on the Republican side say Republicans wanted to tear up the
credit card. It was just a few weeks ago when the Republican budget passed
this House. All but four Republicans voted for it. Let me show you what that
did to our credit card.

   Here it is. We are at about $14 trillion in debt . The budget all but
four Republicans voted for takes us up toward $23 trillion, $24 trillion in
debt . An $8 trillion increase in the national debt by passing the
Republican budget, so that clearly this isn't about tearing up the credit

   What is this about? This is about threatening to default on the full
faith and credit of the United States unless we put into place the
Republican budget, including their plan to end the Medicare guarantee and to
slash Medicare benefits. That's what this is all about. They've said, Whoa,
we're going to hold this whole thing up until we get our way.

   Let me tell you what their way would do to seniors. And we've seen it
before on the floor of the House. What it means is that seniors will be
paying thousands and thousands of dollars more for Medicare or getting their
benefits slashed beginning in 2012. And it gets worse and worse and worse,
so that by the year 2030 you're talking about seniors having to pay $12,000
more for their Medicare because the support they're getting is going down,
while the costs in the private market, which the Republican plan forces them
to go into, go up and up and up. So while the costs they face go up and up
and up, the help they get under Medicare goes down, down, down, and they're
left holding the bill.

   What's been interesting in the last couple weeks in connection with this
debt ceiling debate is to hear these Republican proposals that say, Hey,
don't worry about it. You know what? We'll pay China. We'll pay our overseas
foreign creditors on our bonds. We'll take care of them. But guess what? We
don't have to pay our full faith and credit on our obligations to America's
seniors. We don't have to pay Medicare. We don't have to pay Social
Security. Pay off the bond holders. Take care of them. But let's follow
through on this plan to decimate Medicare. And at the end of the day, that's
what this is all about.

   Because we all understand that we've got to get the deficit under
control. We're having negotiations with the Vice President to come up with a
responsible,  balanced plan. But you're trying to force the Republican plan, which Newt
Gingrich just the other day acknowledges was a radical right-wing piece of
social engineering, until of course he was bludgeoned by the right wing to
withdraw his statement. He was calling the shots as they were. He was
saying, You know what? This isn't such a good idea.

   And what's really outrageous about this charade is you are now threatening
the entire U.S. economy in order to get your way on a radical right-wing Medicare
plan that's bad for America's seniors.

Saturday, October 15, 2011

Jeb Hensarling on the Debt Ceiling

Here are two speeches from Rep. Jeb Hensarling, Republican-Texas, one of the 12 members of the budget supercommittee, on past bills to raise the debt ceiling and pass a budget. This one, from  February 04, 2010:

Mr. HENSARLING. I thank the gentleman for yielding. Madam Speaker, I
heard one of my Democratic colleagues say that today is a historic day, that
there is a historic opportunity. And yes, history is being made today
because never in the history of America has the debt limit been increased to
$14.294 trillion. Here we are again, just a few months later, enacting yet
another increase in the debt limit . The new debt limit , again, $14.3
trillion, costing every American household over $120,000.

   What do I hear from my Democratic colleagues? Well, we hear the old blame
game. That's the first thing that we hear. We hear a lot of names from the
past. Well, facts are pesky things, Madam Speaker. Listen, there is blame to
go around. My party spent too much money. I have a chart right here. It's
Congress that controls the purse strings, as we all know. And when the
Republicans controlled Congress--this is the blue--these were our deficits.
They averaged about $104 billion a year. I'm embarrassed about that. It's
much too high. Now in their 3 years of control by the Democrats, we have
deficits that are averaging over $1 trillion, $1.1 trillion. That's the
difference. What was once our annual deficits have become their monthly
deficits, Madam Speaker. That's totally unacceptable.

   More history was made earlier this week when the President submitted his
proposed budget that so many of my friends on the other side of the aisle
decided to embrace. It made history. It is breathtaking in its red ink. It
spends $3.8 trillion. The largest budget in American history is being
proposed. It proposes a $1.6 trillion deficit, the highest deficit in the
history of our Nation, over 10 percent of our economy. We haven't seen
debt -to-economy ratios like this since World War II. It triples the
national debt in just 10 years. Yes, this is a historic day because, once
again, we are here to accommodate the spending agenda of the Democrats with
a historic new increase in the debt limit .

   Madam Speaker, I will just ask this question: Where are the jobs? We were
told that if we went off and if we passed this government stimulus plan,
that somehow unemployment would never go above 8 percent. What do we have?
We have an extra $1 trillion in debt from that act, and we are still mired
in double-digit unemployment. You cannot spend, borrow and bail out your way
to prosperity.

Again, we have seen it. It's almost a year later, and yet the Democrats continue to try more of the same.
Borrow, spend, bail out your way into prosperity. And what do we have?
Again, an additional $1.2 trillion in debt , and over 3 million more of our
fellow countrymen have lost their jobs.

   Small businesses are wondering who's going to pay for all this? They're
concerned about the $2 trillion takeover of health care. Who's going to pay
for that? They're concerned about the threatened $800 billion carbon tax,
the energy tax. Who is going to pay for that? The omnibuses. Is it any
wonder that jobs are not being created in America?

   I speak, Madam Speaker, to small businessmen and investors every week,
and they tell me, We're too scared to create jobs in this environment. Are
we going to have rapid inflation? Are there going to be huge tax increases?
Are Congress and the President going to vilify us once again? And my
colleagues wonder where, where are the jobs.

   You cannot borrow and spend and bail out your way to prosperity.

And this one, from May 17, 2006, on the fiscal 2007 budget:
   Mr. HENSARLING. Mr. Speaker, I thank the gentleman for yielding, and
indeed, it does beg the question, how much Federal spending is enough?

   I am reminded yet again that people are entitled to their own opinions,
but they are not entitled to their own facts, and, Mr. Speaker, maybe we
ought to get a few of the facts on the table. Let us just take a look in our
rearview mirror over the last 10 years and see how much money the Federal
Government has been spending.

   International affairs is up 89.1 percent; natural resources and
environment, 43.8 percent; commerce and housing credit, 28.4. Since we have
been discussing education training and employment, in 10 years that budget
has gone from $53 billion to $114 billion. That is an increase of 113
percent. I mean, Mr. Speaker, how much do we need here in Federal spending?
Should it be a 130 percent increase in 10 years, 150, 200?

   We have to remember, also, Mr. Speaker, where is this money coming from?
Although maybe there is literally a printing press down the road,
figuratively there is not one. All of this money is coming from some
American family, and every time we are increasing some Federal program, we
are taking it away from some family program. Right now, again, budgets are
about values, and they are about dollars and cents, and ultimately, this
debate does come down again to taxes and spending.

   The Democrats have said that we are offering all these great tax cuts. I
looked very closely in the budget. I am having a little trouble finding
that. What I do find is that we are going to prevent a huge automatic tax
increase engineered by the other side. It is very fascinating to me in the
Federal city how spending is forever; yet tax relief seems to be temporary.

   Our colleagues on the other side of the aisle decry any of the tax relief
that has occurred under President Bush's watch. So that means they want to
take it away. Well, what does that mean? It means, well, the lowest-income
taxpayers will see that their taxes are increased 50 percent. It means we
lose the 10 percent bracket. We go to the 15 percent bracket, a 50 percent
increase on our lowest-income taxpayers.

   Married taxpayers will see the marriage penalty return if they have their
way and have their huge automatic tax increases. Taxpayers with children
will lose 50 percent of their child tax credits. Taxes on dividends and
capital gains could jump as much as 100 percent.

   Again, you start to think, well, wait a second, where is all this money
coming from? Well, it is coming from families. It is coming from small

   So how do families all across America afford to send their children to
college? How about their education programs? Already, Mr. Speaker, we are
now spending over $22,000 per American household. Last year was the first
time since World War II that we have reached that level of spending. All
that spending has got to be paid for. It has got be paid for. It has got to
be paid for by American families.

   Now, again, our friends on the other side of the aisle want to decry all
of the tax relief and say that somehow it is the root cause of the deficit,
the increase in the national debt . Well, again, they are entitled to their
own opinions. They are not entitled to their own facts.

   I happen to have in my hand the latest report from the Treasury statement
on revenues, which I would be happy to share with any of my colleagues on
the other side of the aisle, that says, guess what, we have more tax
revenue. We have more tax receipts. Last year tax receipts increased roughly
15 percent. This year we are on track to have tax revenues increase about 11

   Guess what? Since we have allowed American families and small business to
keep more of what they earn, they have gone out and they have created jobs,
and people pay taxes, and all of the sudden we have more tax revenues. It is
kind of hard to make the argument that somehow tax relief that created 5
million new jobs has somehow added to the national debt . Clearly we have a
large challenge with our national debt .

   Mr. Speaker, I would say it is not because the American people are
undertaxed. In fact, I am surprised that our friends on the other side of
the aisle are not applauding the President for really presiding over one of
the largest tax increases in American history. Here it is right here. We are
awash in new revenue, but we did it the right way, Mr. Speaker. We grew the
economy. We created jobs.

   Now, what happens if you start to take the tax relief away? Well, again,
since we have had tax relief, 5 million new jobs have been created. We have
the highest rate of homeownership in the entire history of the United States
of America, and yet, if you start to take away the tax relief, if you have
these automatic tax increases, you lose the jobs. That is just wrong, Mr.

Monday, October 10, 2011

Senator Max Baucus on Increasing the Debt Ceiling in 2004

This is taken from the Congressional Record of November 17, 2004. Baucus is, of course, on the 12-member Congressional committee to address the deficit problem, and so reprinting his lengthy remarks in full seems worthwhile:

   Mr. BAUCUS. Mr. President, the Senate is here today to respond to the administration's request once again to increase the statutory limit on the Federal debt . More fundamentally, we are here in response to a warning. Like a proximity alert on an aircraft, the debt limit warns the Government is headed for a crash. We need to change course.

   Unless we change course, the administration's fiscal policy will consign American families to a lower standard of living. Unless we change course, American workers will have lower incomes than they would otherwise have, and the dollars they earn will be worth less than they otherwise would have been worth.

   Unless we change course, millions of Americans will live poorer lives. That is what we are really debating today when we debate the debt limit, and that is why I shall vote against the bill, to signal that we must change course.

   Narrowly speaking today, we are considering the ceiling on Federal debt , the cap that the law places on borrowing by the Federal Government. The legislation before us would raise the debt ceiling to $8.184 trillion. It would increase the debt ceiling by $800 billion.

   As this chart to my left shows, it will be the third largest increase in the history of the country. This chart indicates debt limit increases since 1982, and in roughly 1990, it was $915 billion, and then the highest was $984 billion, and this $800 billion is the third highest increase in the debt ceiling . Unfortunately, this large debt ceiling increase, and particularly the recent increases, are becoming all too common.

   Just last year we were forced to raise the debt ceiling by a record $984 billion. Almost $1 trillion in additional Federal borrowing, that limit was raised in 1 year. In just the year before that, the debt ceiling had to be increased by $450 billion. That is more than $2.2 trillion in debt in just 3 years. In contrast, prior to those 3 years, there had been no increase in the debt ceiling for 5 years.

   An increase of $800 billion of debt that is requested in this legislation before us means $2,700 more debt for every man, woman, and child in America, and a total of $8 trillion in total debt means about $25,000 of debt for every man, woman, and child. That is a $25,000 burden on each of us, our children, and our grandchildren.

   I believe that each of us who runs for public office and serves has a moral obligation, and that obligation is to leave this place in as good a shape or better shape than we found it. It is that simple. As this President and this Congress keeps piling up more and more debt , clearly we are leaving this place in worse shape than we found it. We are putting a huge additional obligation and burden on our successors and upon, more importantly, the people we represent and, even more importantly, those who follow the people we represent. That is not the moral, correct thing to do. My judgment is that it is not only not responsible, it is irresponsible.

   This chart shows per capita total Federal debt outstanding. This is per capita, on a per person basis in America. It has steadily been rising from 1997 from close to $20,000 to more than double, to $25,000 being asked for today.

   Today's increase also will not be the end of large increases in the debt ceiling . It will not be the end because before the next year runs out, we will need to raise the debt ceiling once again.

   The reason for these record increases in the debt ceiling is the record Federal budget deficits that our Government is running.

   To clarify for those who may be unsure about the terminology here, the term ``deficits'' obviously means annual deficits that this Government runs, and the term ``debt'' means the accumulation of all the deficits. That is why the deficits sound a little less. It is some $400 billion, whereas the total publicly held debt is over $8 trillion.

   I must add to this, I don't want to lay the blame totally in the hands of the President, but the President submits budgets to the Congress. Congress tends to work with the budgets that the President submits. Every year the President submits a budget and Congress does work around the edges, maybe add a little, subtract a little, but it is Presidents, not Congress, in the main, who actually determine the amount of either surplus or the amount of deficits that are actually enacted. It is primarily the Presidents.

   Since the current administration took office, there have been record annual surpluses that have turned into record annual deficits. In the fiscal year 2001--that is the transition year between the two administrations--the Federal Government ran a surplus of $127 billion, a surplus. We actually ran a surplus of $127 billion in fiscal year 2001. For the next year, 2002, the first full fiscal year in the current administration, the Government ran a deficit--not a surplus but a deficit--of $158 billion. In the next fiscal year, the Federal Government ran a record deficit of $377 billion. Last year, in fiscal year 2004, there was yet another record deficit of $413 billion.

   This chart basically outlines what I just said; namely, we start with a reduction in Federal debt . That is the total. Beginning about 2001 it starts skyrocketing back up again.

   These record deficits are even more painful when they are compared with the record annual budget surpluses that preceded them. In fiscal year 1998, the Government ran a surplus of $69 billion. This was a record budget surplus at the time and the first budget surplus since fiscal year 1969.

   In fiscal year 1999, this was another record surplus, $126 billion. That was followed by yet a third record surplus of $236 billion in fiscal year 2000. So we had 3 years of growing surpluses. So in just 4 years, the Government has moved from a record surplus of $236 billion to a record deficit of $413 billion, which is quite a dramatic swing of about $650 billion in our annual Federal budget outcome just over a 4-year period of time.

   That is why we are here today. That is why we have to, in a technical level, raise the debt ceiling . It is because we are running record budget deficits. It is that simple.

   In contrast, when we were running budget surpluses, the Government was doing what it should do. It was beginning to pay off the debt held by the public. That is what took place the second half of the previous administration. So between 1998 and 2001, our Government paid off about $450 billion worth of debt . Indeed, when the current administration took office, there was serious talk that all debt held by the public would be paid off within about 10 years or so. I think we all remember that. Gosh, if we totally pay off our national debt --is that possible? People were saying it would be bad if we paid off our total national debt . But we were on the glidepath at that time, a few years ago, to pay off the national debt , and there was very serious talk about what would we do when we got down to zero national debt . How soon we forget.

   What a sad turnaround we experienced. The turnaround can clearly be seen in this chart here which outlines the dramatic change. Our national debt was steadily coming down as we had annual deficits and we were using the deficits to pay off the national debt . That is what happened in 2001. Then in 2002 and 2003 and beyond it is just the opposite.

   Is this going to continue, this trend? Unfortunately, if we are objective about this, I think the answer is yes. The President claims he will cut the deficit in half in 5 years. Indeed, Senator Kerry campaigned for the Presidency and said he would cut the deficit in half in 5 years. But I must say, to be totally candid, those estimates are a little rosy. That is not going to happen.

   For example, the independent nonpartisan Concord Coalition projects a deficit of about $450 billion 5 years from now. That will be higher than last year's record. Don't forget the Concord Coalition is known by most Members of Congress as being a fair, objective, nonpartisan organization looking at these matters very closely and very fairly and accurately.

   Ten years from now the Concord Coalition projects the deficit will be an astronomical $734 billion. The Concord Coalition says it is going to get worse, much worse, with each passing year and the total deficit, they say, for the next 10 years will be almost $5 trillion. That means the Federal borrowing for the public will be $5 trillion in 10 years, and the debt ceiling will have to be raised by $5 trillion as well just to accommodate that increase.

   Some may ask, Does it matter if Federal Government borrowing increases by $5 trillion? Does it really matter? Mr. President, it does. It really matters.

   When the Federal Government borrows money from the public, it threatens two bad results. First, the Federal borrowing could compete with borrowing by businesses and consumers. What does that mean? That means that interest rates would go up. They have to go up. They are competing for the supply of money. Borrowing by businesses for new investments would have to go down. Borrowing would have to go down, all things being equal, and with fewer business investments, economic growth would, therefore, decline relative to what it could be.

   High interest rates are killers. High interest rates, more than almost anything else, are a drag on the economy. It really slows the economy down and could deepen any recession that might occur.

   Conversely, very low interest rates help businesses borrow, help homeowners buy homes, et cetera. It is very good for economic growth. In addition, because of this crowding out effect, our future standard of living could be lower than otherwise it would be.

   Moreover, the rise in interest rates caused by increased Federal borrowing would make household purchases by credit more expensive. The increased costs would cause households to have less purchasing power and, therefore, would have to buy less. You may have to postpone or maybe not be at all able to buy that new refrigerator, to buy that new stove, that TV set, whether it is a plasma TV or regular TV, whatever it might be. The increased cost would cause households to have much less purchasing power.

   For example, an increase in mortgage rates of just 2 percentage points would increase home buyers' annual payments on a $200,000 home by about $1,700. Potential home buyers would decide whether to buy these homes or, in the alternative, reduce other purchases. In either case, the home buyer's standard of living would be lower.

   The second bad outcome that the additional Federal borrowing could cause is that Americans would owe more to foreigners. Foreigners would increase their holdings of U.S. assets. What does this mean? This would lower our future standard of living, as the earnings from American assets would have to go to foreigners, not to Americans. Thus, when the Federal Government borrows more, the standard of living of the American families suffers. It is zero sum, axiomatic; it by definition has to happen.

   There is another danger from added Federal borrowing as well. If foreigners, especially foreign central banks--that is the governments, foreign governments--buy a significant portion of our debt , our U.S. economy will be subject to serious jolts, particularly if these lenders decided to sell off that debt precipitously. At the very least, they will have a little hold on us as they increase their holdings of American Treasurys, American securities--which is what they buy mostly these days, partly because it is more liquid, which means they could get rid of them much more easily, more quickly. But they have a little hold on us, a little leverage on us in any trade negotiation, any political negotiation, any foreign policy negotiation with these countries. Whether it is China or Japan or wherever, there would be a little edge because this country might hint that, gee, maybe we might start pulling out our purchases, sell the U.S. Treasurys we have unless you Americans go along with something we want.

   I am not saying it will be a huge factor. It may be a huge factor. I am saying it will be a factor we would not want to have to deal with.

   Suppose the U.S. dollar declines further. It has come down about 30 percent in the last couple of years against the Euro. When the Euro was first announced, the dollar was fairly strong compared to the Euro. Now it has fallen about 30 percent. As Federal debt and interest payments from our national debt are denominated in U.S. dollars, what happens? The value of those assets starts to drop. That is what is happening. The U.S. dollar, compared with other currencies, is starting to fall significantly.

   What happens then? Foreigners, including foreign central banks, might be afraid the dollar will go further. That is the trend. It is going down. Why is it going down? Because of the huge deficits and debts. A little less confidence in America. The more it goes down, then central banks in other countries will ask, do they want their dollar-denominated assets, as U.S. Treasury, to decline further? Probably not. So what are they going to do about that? Sell. Sell before they fall. Once they start to sell, what happens? The fall is greater.

   That is the danger we are facing. I am not saying this is actually going to happen. Nobody knows if this is going to happen. There is a school of thought that there is so much savings in the world this will not happen. But we all know it is getting more and more risky and more likely this will happen.

   If we exercise a little common sense as we run our household, we know there comes a point we cannot continue to borrow. There comes a point when the bank says no. There comes a point when we have to be more responsible as a household. The same is true here. There comes a point when the bank says--in this case it is foreign banks, or in this case the taxpayers--Enough is enough.

   We do not know there will be a huge, precipitous decline. We do not want there to be a precipitous, huge decline. If there is, we do not want to know when it is because we do not want it to happen, but we do know if we are irresponsible and turn a blind eye to all of this, it is much more likely to happen and we will pay the consequences and rue the day when we, at an earlier date, did not take the necessary steps to correct this.

   There is a real danger that foreign banks, as they look at their hole card, may sell off some of the Federal debt they now hold. Half of the foreign holdings are held by central banks. That would cause a spike in interest rates. Why? Because as they begin to sell, what does the U.S. Government have to do? It has to raise interest rates to keep the companies in America securities. Raise interest rates, and we will have all the other consequences I mentioned earlier--higher mortgage interest rates, consumer interest rates go up, companies cannot borrow as much because the banks are charging them much more. This is not some fringe possibility; this is real.

   Why do I say it is real? Why am I very concerned about this? Let me quote the former Chairman of the Federal Reserve, Paul Volcker. He said quite recently he thought there is a 75-percent chance of a currency crisis in the United States within 5 years. Those are odds we do not want to have to deal with.

   One of the hardest things to do is managing economic affairs early before you get in real trouble. It is so easy to postpone and put off. It is a bit of an abstraction right now. We do not know what will happen. It does not hit Americans right in the gut. It is not like raising taxes or lowering taxes which people feel immediately in their household budgets. I can guarantee if these problems do occur, and all the evidence indicates it is very likely to occur unless we take some very serious steps today, it is going to hit Americans so hard in the gut, it will have such an impact on Americans that this country is going to have a very serious problem.

   Something else we should consider is the international competitiveness we Americans face with other countries worldwide, irrespective of our current deficits and trade deficit--which is humongous, which we will have to pay for sooner rather than later--with other countries. Take China, for example. We graduate in the United States of America about 65,000 engineers a year. Engineers can build new products and help make America strong. Guess how many engineers China graduates each year. Over 300,000 yearly. Are they brighter or dumber than our engineers? No, they are smart, progressive young men and women. And they are hungry. For those who have been to China recently, it is stunning to see the degree to which the Chinese people are hungry. They are going to compete very aggressively on the world market.

   We are in a sense almost fiddling while Rome is burning. That is, not only not paying attention to our fiscal problems but also not paying attention to the competitiveness we have around the world; that is, not making sure we have more trained engineers who can do better worldwide. We will find ourselves not too many years from now in a real pickle. I am saying, right now, start taking measures so we do not have huge problems we otherwise would have.

   I mentioned earlier central banks, if this trend continues, might decide to change their holdings and Federal debt for political reasons. Not only economic, but also for political reasons. For example, a foreign government might be involved in a trade dispute with the United States. This foreign government would know it could roil markets for the U.S. Federal debt and U.S. economy if a central bank sold a large portion of its holdings of U.S. Federal debt . It knows that. So what does it do? That government or country might hint around or might threaten to sell off, roil international markets, with an adverse effect on U.S. currencies, undercutting the United States' position in that trade dispute.

   At the end of September this year, foreigners held about $1.9 trillion of our debt , close to $2 trillion of the total. Japan alone held $720 billion. China was next with $174 billion. Moreover, of $1.9 trillion of total debt held by foreigners, foreign central banks held $1.1 trillion. That is significantly more than half owned and controlled by central government banks. That is the government banks in those countries which, therefore, are in a great position of control. Those total amounts are nearly double the totals of 3 years ago. This has accelerated dramatically, almost double, over the last 3 years. Total debt held by foreigners is now 43 percent of all debt held by the public. Pretty close to half of all our national debt is held by  foreigners--not by Americans, but by foreigners--and foreign central banks hold a full 30 percent of all such debt , one-third.

   That is significant. Before I got in the Government, I worked for the Securities and Exchange Commission and I can remember back then the controlling interest was 10 percent. We are talking about 30 percent here. That is much more than a controlling interest in an entity's financial position.

   The forecast for future Federal deficits and borrowing does not look good. I must add, this is not the worst of it. It gets worse. President Bush, for example, has made it clear he wants to pursue a plan for partial privatization of Social Security. Under that plan, part of a worker's and employer's Social Security payroll taxes we divert into new private savings accounts for the workers. That sounds good, but what does that mean? That means there would be less revenue left in the Federal budget for other spending. The Federal Government would have to borrow more money to cover the difference. That adds even greater pressure on the Federal debt and greater upward pressure on interest rates.

   For many of the various partial privatization plans being proposed, these revenue losses would not be small. They would be more than significant, between $150 and $200 billion a year in each of the next 10 years. The losses would be even larger in subsequent years. These revenue losses, these additional revenue losses, and the associated increases in interest costs on top of that, would raise annual deficits to previously unimaginable heights. For example, the annual deficit projected by the Concord Coalition for 10 years from now would rise to over $1 trillion.

   That is in addition. Federal debt would rise by an additional $2 to $3 trillion in the next 10 years to a total of about $7 to $8 trillion of new borrowing during that period. That is on top--that is in addition--$8 trillion today, double in 10 years.

   So we should take two lessons from this dismal picture. The first is we need to exercise true fiscal discipline. That is just common sense. Americans sit around that kitchen table very often--maybe it is weekly, maybe it is monthly--trying to make ends meet. Some cannot keep spending more than they take in each year. Most cannot. No one can continue that indefinitely because at some point the banks just won't lend people any more money. They will insist that existing loans be paid off.

   We have bankruptcies. We have chapter 11. We have chapter 7. The point of all that is to stop the hemorrhaging, to pay off creditors to try to get the economic houses of Americans and companies back in order. I am not saying we have to declare bankruptcy. That would be something else, wouldn't it, if the United States of America declared chapter 11 and tried to reorder all the creditors. It is unimaginable, but if that were to happen, just think what would happen to the value of the dollar, what the value of the U.S. dollar would be then.

   In the world of borrowing China and Japan now play the role of the banks. They are our bankers. They hold 30 percent of our debt and foreign individuals own another, what, roughly 23 percent of our debt . All of this will force the United States at some point to begin to live within its means--at some point. And it could happen suddenly.

   Remember not too many years ago when the financial markets just collapsed. The first was in 1987, I remember, and the stock market just went whoosh. Back in the Asian currency crisis not too many years ago things went haywire immediately. The deck of cards totally collapsed. It doesn't take much, and it is usually unforeseeable. It is usually some little event which is not predictable but which happens which triggers this selloff and collapse.

   We do not want that to happen, and it will not happen, it is less likely to happen if we today begin constructing a path where we do live within our means. This increase in the national debt today obviously signals just the opposite. There is no plan at this point.

   So I say we would be far better if we were to eliminate our annual deficits on our own rather than having foreigners force us to that point. We can take concrete steps to reduce our Federal budget deficits. We can enact tough but reasonable caps in spending, renewed each year, and we can institute a requirement that all new tax cuts and new permanent spending be fully paid for. We can do that if we have the common sense and if we have the moral courage to do so as we are expected to do by the people who elect us. We could do all this without resorting to gimmicks.

   This town, this country, this Government has been full of too many gimmicks--the lockbox for Social Security. There are a lot of gimmicks this President has proposed. We have almost reached the end of our string of gimmicks. We have reached the point of reality. We have to do what is right. We can enact a tough requirement that new tax cuts and new permanent spending be fully paid for. That was in

   place actually, as you recall, from 1990 until the spring of 2003. This requirement helped the budget turn from deficit into surplus. We should restore that. We should restore that quickly.

   The second lesson we need to learn is that we should not enact the partial privatization of Social Security. There are a number of important reasons to stay clear of this. For example, these plans would likely cut total retirement income for many beneficiaries, have the effect of cutting income, not increasing it. Even this lowered income would be subject to great risk in the private market. Social Security, it may not pay hugely but it is stable. It is there. You can count on it.

   I know a lot of young people say it won't be there. I disagree with that. I say it is going to be there. Why do I say that? I say that because with each passing year there are more and more voters who are seniors. There are more and more people who are age 55 up to 60 who really care about Social Security. I have forgotten the exact date. I saw one estimate that by about the year 2030 half of all voters will be age 60 or over. I do not know if that estimate is true. It was made by a reputable person--I won't mention his name today but it is someone we all know who is quite reputable.

   But in addition to that, partial privatization would dramatically increase Federal borrowing. It would increase annual Federal budget deficits and it would increase the Federal debt . This would further lower both our current and our future standard of living. It would also make the U.S. economy even more vulnerable to recession and it could put the U.S. Government in a vulnerable position, even more so in its relationships with foreign governments. These fiscal dangers alone are sufficient reason to reject the partial privatization of Social Security.

   Clearly, we should look for new vehicles to increase savings. We should look for more ways to assure that our seniors are more secure in their retirement. We could bolster Social Security. We could find more private savings vehicles. We could help our pension system. But the partial privatization of Social Security will have the effect of lowering the benefits to those currently 50, 60, 62, or 63, unless there is a massive enough additional borrowing by the Federal Government. And that is the low estimate, $1 trillion over 10 years, and the higher estimate is $2 trillion. That is in addition.

   I ask from where is that money going to come? Can we really borrow that much more compared to what we have already borrowed? We cannot.

   So we need to respond to the debt limit. I started out saying really technically this is an increase in the debt limit, which is required by statute, but more fundamentally the issue being raised today is how much more can this Government go into hock? That is really the question. And how quickly can we get ourselves out of it?

   We need to respond to the warning of the debt limit increase. We need to change course. We need to prevent that crash. We still have time. We should heed Paul Volcker's warning of a 75-percent chance of a currency crisis in the United States in 5 years. I think I know what he is talking about. He may not be right, but if Paul Volcker says that, we should listen. We should take his warning very seriously. We should, obviously, act with a

   sense of urgency and do what we can to avoid that dangerous result. We should change course now. We should wait no longer. With next year's budget, we have an opportunity.

   The President, in his submission to Congress this January, February, whenever it is, in working with the Congress, can begin to chart a proper course, begin to chart a course or begin to actually honestly get our Federal budget deficit under control. We have that opportunity. We have that obligation. The time is now. The time is January when the President submits his budget and the next months when the Congress works with the President as we begin to get our Federal fiscal house in order.

   We have to change course so American families can hope for a better standard of living in the future, so American workers can have good jobs with good incomes and we have a strong dollar with real value in the international trade. We need to change course to make all that happen so future generations of Americans lead richer lives.

   I will end with the statement I mentioned in the beginning. We have a moral obligation to leave this place in as good shape or better than we found it. It is an obligation we have--I assert whether environmental matters, whether Federal budget--to inspire confidence and togetherness in our people. I urge us very much to take the course of action that we well know is correct.

Tuesday, October 4, 2011

Senator John Kerry on Increasing the Debt Ceiling in 2004

This is taken from the Congressional Record of November 17, 2004, Kerry speaking about his post-election vow that "I will not vote for a borrow-and-spend economic policy when there are better alternatives."
   Mr. KERRY. Mr. President, elections obviously are an extraordinary opportunity to listen to the American people, to learn, to debate, and to test ourselves and our ideas. This election was no different. It was an honor to live out a great debate in our country in which we talked about the kind of nation we want to live in and what our responsibilities are to each other and, of course, to future generations.

   Whatever lessons you learn about a campaign--and there were many--at the core, obviously, are issues. Those issues did not go away on November 3 no matter the results.

   We are here in the Congress with fundamental responsibilities to continue the fight for those things Americans care about and that matter to the long-term health and welfare of our Nation. I intend to continue to fight on those issues as hard as I did in crisscrossing this great country of ours.

   At the heart of every issue I heard about from Oregon to Florida, Iowa to Ohio, and every State in between, whether it was affordable health care or good jobs or taxes or energy independence or America's role in the world and her respect, above all, Americans continually expressed their understanding that our ability to meet all of those needs rises and falls with our economy, with the strength of our economy, the quality of the jobs that we create in America, the kind of investments we make in the lives of our children, and the quality of the jobs of the future. All of those choices ride on the fiscal choices we make as a government.

   Those are lessons we have learned the hard way over the course of the last century or more. That is why I believe, as do others who have spoken in this Chamber during the course of the day, we need to deal candidly and immediately with some sense of urgency with the debt and the debt limit of the United States. We have a fundamental responsibility to restore fiscal responsibility rather than merely voting again to raise the debt limit as if there is an endless credit card at the expense of the American people.

   Americans struggle to balance their budget. I heard about those struggles all across this country, people who can barely afford to pay their bills, people who have seen their health care go up 64 percent, their tuition go up 35 percent, gasoline prices go up, cost of purchasing drugs go up, and their wages are down. The American people are struggling to be able to pay their bills. Congress is not exhibiting the similar kind of struggle or even effort. The American people sit down at their kitchen tables and they try to play by the rules every single day. Congress seems ready to write new rules whenever it wants. We used to understand the responsibility to future generations. In the 1980s, Washington dug an enormous hole, a deficit hole, and it became apparent to all on Wall Street and all of the corridors of fiscal responsibility and power in America that we needed to make a better set of choices. So we made tough choices in the 1990s to dig ourselves out of that hole. And now here we are again, in 2004, back again with a new hole, deeper, with more grave consequences than at any time in American history. Neither Congress nor the administration has been willing to face up to that reality, even as the consequences grow and stare us in the face.

   Let me put that in perspective. In less than 4 years, a 10-year $5.6 billion budget surplus was turned into a $2.4 trillion debt . That is the worst fiscal turnaround in our Nation's entire history. Since raising the debt limit last year, the Government has run up more debt than all of the Presidents from George Washington through Ronald Reagan. In fact, almost three-quarters of the entire debt of the United States of America in our 228-year history has been run up during the course of the last three Republican administrations. Taxpayers have been left with a record deficit in both of the past 2 years, up to a record $413 billion for 2004. According to the Congressional Budget Office, we are going to run $300 billion deficits every single year for the next decade, and that is without including one of the President's new proposals made in the course of the last year of the campaign. So the United States is operating a borrow-and-spend Government, continuously stretched by demands for more tax cuts and by more spending. When there is not enough money to pay for those choices, which are voluntary choices, they simply go into debt and put the tab on the national credit card and they send the bill to our kids. It is an economic policy of borrow and spend, and it simply cannot be sustained. After the new debt limit passes this week, and it will, the administration will have added $2.1 trillion to the debt limit in less than 4 years. That amounts to more than $7,200 for every man, woman, and child in the United States, and all of that money must eventually be paid back, or at least partially paid back in significant amounts with interest.

   The interest payments alone are staggering and depriving us of choices that we ought to be making for long-term investment in our country itself. The Government may spend it today, but Americans ultimately will pay the bill. That means a child born today is going to enter the world owing more than $17,000 when our last and expected debt is totaled up. As everybody knows, our children grow up with a set of expectations about their future that are now impacted extraordinarily by the choices we are making on their behalf, and whether it is a choice to buy a car or home or save for their own families or save for college, all of those are going to be impacted negatively by the unwillingness of Congress to be responsible at that moment. Their ability to save will be eaten away by their share of what this Government is going to have already spent in debt . This could be called a birth tax, a birth tax that is dumped on the back of every American child unwillingly.

   I think, and I think most persons believe, to saddle our children with this debt is wrong. As Republican Pete Peterson said, the ultimate test of a moral society is the kind of world it leaves to its children. And I think about that concept as we are about to slip our own kids and grandkids a check for our free lunch. I say we are failing the moral test. That is Republican Pete Peterson speaking.

   And it is not just the mountain of debt that is the problem. It is also where the money comes from. To pay our bills, America now goes cup in hand to nations such as China, Korea, Taiwan, and the Caribbean banking centers. China now holds $172 billion of our Nation's debt . Korea holds $63 billion, Taiwan holds $56 billion, and the Caribbean banking centers hold more than $191 billion. Since 2001 alone, the share of U.S. Treasury debt held by foreigners has risen to 42 percent from 30 percent. It is increasingly dangerous for so much of our Government and our standard of living to be dependent on foreign capital. If foreign investors were to suddenly decide to stop financing our borrowing habits or to see weakness in the American economy, it could have a spiraling impact on our own economy, international currency markets would be shaken, and our economy would quickly follow. If those investors began to withdraw their capital, our financial markets would plummet and interest rates would climb. That will make everything American families need, from a home, to a car, to appliances, to education, all of it, more expensive. It will make it harder for businesses, and especially small businesses, to raise capital and invest in jobs and economic growth.

   What is more, with so much of our debt owned by other nations, U.S. diplomatic and trade negotiators face increased difficulty in making demands of major creditor nations. How do you go to a country that holds so much of your debt while your economy is closely linked to theirs and start to make the powerful argument about nuclear proliferation or human rights, democratization, and other issues that are of importance and great consequence to our country?

   It is only a matter of time before America learns the hard way that debt is more than a financial liability, it weakens America's security, and it weakens our diplomacy and our trade. Our budget mismanagement, the negligence of borrow-and-spend policies, leaves us vulnerable to the priorities of foreign creditors. And that is unhealthy and irresponsible.

   So what do we do about that? Well, we can argue over the cause of the problem, of what made this borrow-and-spend institutionalized approach the reality it is today. But I think it is more important for us now to try to find a solution; that is, to work to find economic policies that are going to create opportunity and demand responsibility.

   When I first came to the Senate in 1985, the Federal deficit was soaring, out of control, just like it is today. And in the 1980s, the National Debt Clock in New York City became a symbol for a Federal deficit and a debt that were out of control. Back then, many Democrats thought we could continue to spend and to spend without having to pay the bill. And back then most Republicans claimed that if you gave huge tax cuts to the wealthy, they were somehow going to pay for themselves.

   At the same time, we were lucky to have leadership from a group of reformers on both sides of the aisle, people such as Republican Senators Warren Rudman and Phil Gramm, and Senator FRITZ HOLLINGS on the Democratic side. They pushed for a deficit reduction plan that had real teeth in it. They continued that fight until it was finally won.

   The choice was tough. Fiscal sanity was won by exactly one vote in both Houses of Congress. But finally, in 1997, we finished the job by passing a historic bipartisan balanced budget agreement. It not only balanced the budget for the first time since 1969, but it extended the life of Medicare, it expanded health care for children, and it cut taxes for middle class Americans.

   Four years ago, the numbers on the National Debt Clock were spinning backwards. Today, in New York, the National Debt Clock has now been turned back on, and the numbers are rising faster than you and I can follow. As Senator Hollings retires from the Senate, I think we need more of that kind of effort that was offered in the 1980s and 1990s in order to find the common ground that he and Senator Rudman brought to this debate almost 20 years ago. It is time again to follow that example.

   There are a lot of ideas out there. We can end tax cuts that do not create jobs but do create enormous debt . We can find incremental savings by streamlining Government itself. We can reduce or eliminate programs that we simply cannot afford. We could establish a commission to independently evaluate and eliminate corporate subsidies. But more important than any individual proposal is that the White House and Congress make a fundamental commitment to end this policy of borrow-and-spend economics.

   We need to make economic opportunity and fiscal responsibility a common goal. And we have to live by some rules, rules such as a budget that requires us to pay for what we spend, rules that give the debt limit meaning. Today the debt limit is fanciful. It is just a number on a piece of paper, and Congress raises it any time it wishes. It is no limit at all. I believe we can do these other things. We could make these other choices if we set clear national priorities, if we make the tough decisions, not just about the programs of others but about our own proposals.

   We have to do this because it is critical to any credible economic plan and to the creation of new, good-paying jobs. An America that ignores our national debt and the deficit will be an America that invites inflation and recession. An America that pays for new initiatives and follows real budget rules will be an America that creates a new era of prosperity and opportunity for all Americans. We know how to do this. We did it in the 1990s. Now it is time to return our Government to that fiscal responsibility and to invest in the future and to create new jobs in America that pay more than the jobs we are losing overseas, and to raise the standard of living for American workers.

   I will not vote for a borrow-and-spend economic policy when there are better alternatives.

   Over the last year, in the cities and towns that I was privileged to travel in all across our Nation, I have been reminded again and again of the hopes of the American people and of families that play by the rules and do what is right for their kids and try to do what is right for aging parents and for a Social Security system and a Medicare system that are under increasing pressure and strain.

   Those Americans are faced with tough choices every day. They expect us, similarly, to make tough choices. I think Washington ought to live by the same rules they do. None of these choices are about numbers and about dollars and statistics alone. They are really about the responsibility we have as one generation to another and, most importantly, the responsibility we have vested in us as Members of the Congress and the need to try to work together and find the unity, as we did in the 1990s, to come up with a solution that acts in the interests of Americans and that does not avoid that fundamental responsibility.

Wednesday, September 28, 2011

Raising the Debt Ceiling in 2002

This is from a New York Times story on June 28, 2002, headlined "House Raises Debt Ceiling And Avoids A Default":
<blockquote>Under intense pressure to avert a government default that loomed for as early as this weekend, the House tonight narrowly approved an increase in the legal limit on the national debt , with Republicans swallowing their own reservations about the bill to pass it over the objections of Democrats.

The legislation would raise the debt ceiling by $450 billion, to $6.4 trillion, and was identical to a measure adopted this month by the Democrat-controlled Senate.

President Bush had urged the House to approve the measure before the government bumped against the current debt limit on Friday, leaving the Treasury department to choose between financial gimmickry to keep the government operating and failing to meet obligations, including the payment of Social Security benefits.

The vote was 215 to 214. It came when financial markets, already skittish about the wave of corporate financial scandals, were starting to become nervous about the possibility of a partisan standoff calling into doubt the credit worthiness of the United States government.

The increase approved today is expected to carry the government through this year.

After running surpluses for four years, the government is again running a deficit -- probably in the range of $150 billion this year -- requiring it to borrow to pay for all its operations.

The debate allowed Democrats to reprise their argument that the tax cut pushed through Congress last year by President Bush was irresponsibly large, had killed hopes of paying down the national debt and left the government in perilous financial condition.

"Our fiscal house is in total disarray," said Representative Jim Turner, Democrat of Texas.

Democrats said they would support a smaller increase in the debt of $150 billion, enough to buy the government a few months before running into the limit. But they linked their willingness to vote even for the $150 billion increase to agreement by Republicans to negotiate a bipartisan deal to bring the federal budget back into balance by 2007.

"Only a few months ago, Republicans were telling us we wouldn't need to touch the debt ceiling until 2008 and we might pay down so much debt that it would hurt the economy," said Representative Lloyd Doggett, Democrat of Texas.

Suspicious that such a deal would require delaying or rescinding parts of last year's tax cut that are scheduled to phase in over the rest of the decade, Republicans rejected the Democratic approach.

Republicans said they had little choice but to pass the $450 billion increase, given the risk of a financial and political crisis if the government breached the debt limit.

But they angrily rebutted the Democratic assertions about the cause of the problem, saying the government's financial difficulties were the result of a decline in tax revenues caused by last year's recession and an increase in government spending, especially after the Sept. 11 attacks.

Representative Jeff Flake, Republican of Arizona, said spending increases supported by Democrats had more to do with the rising debt than did tax cuts.

"How can someone spend like a drunken sailor and then all of a sudden find religion when it comes to raising the debt limit?" Mr. Flake said. "This is like eating a big meal and then walking out on the bill." . . .

The debate was odd from the perspective of both parties. Republicans, many of them fiscal conservatives loath to vote for an increase in the debt , found themselves advocating just such a step, and doing so in support of a bill written by the Democratic leadership of the Senate.

"I did not come here to increase the government's debt ," said Representative Mike Pence, Republican of Indiana. But he said he would vote to do so to spare elderly constituents the fear that their Social Security checks would not come if the government ran into a financial crisis.

Democrats, many of whom routinely voted for debt -limit increases in the 1980's and 90's and criticized Republicans for opposing them, stood almost unanimously against the measure, saying it was asking future generations to pay for today's tax cuts and other obligations.

"This is a generational mugging," said Representative John Tanner, Democrat of Tennessee.</blockquote>

Saturday, September 24, 2011

The Debt Ceiling in 1982

This is from the Washington Post of Thursday, April 22, 1982, looking forward to another increase in the debt ceiling:
<blockquote>Someday soon, probably in May, Congress must vote to let the national debt exceed $1,079,800,000,000, the first trillion-dollar-plus debt ceiling and one that was supposed to be adequate at least until Sept. 30.

Alas, the Treasury will have to borrow more than that temporary ceiling permits to keep the government running.

Nobody knows exactly when that date will come, but when the Treasury has borrowed as much as it legally can, it will have to stop both borrowing and spending. Because revenue would keep rolling in, the Treasury would have a few days to maneuver before reaching a crisis. Three times in the past the Treasury has had to run in place for a few days while it waited for Congress to raise the temporary ceiling .

Thus, the problem coming up is not as serious as what could happen in a classic debt -limit crisis, which would occur when the temporary ceiling expires and the much-lower permanent ceiling kicks in. Under current law, if Congress did nothing, the permanent ceiling of $400 billion would take effect Sept. 30, and with the debt ceiling set that low the Treasury would have no room to play. It would literally be in default.

The debt ceiling , then, is certain to be a factor in the continuing battle of the budget because, as the debt gets closer and closer to the ceiling , Democrats can put more and more pressure on Republicans to work a compromise.

Despite all the smoke, heat and oratory that undoubtedly will precede the debt ceiling vote this time, it will be the 43rd time since 1955 that Congress has had to raise the roofbeam higher. Statutory debt limits have been in effect since 1917 and the current system has been in place since 1941.

Of course, if Congress had not already approved such things as guaranteed cost-of-living increases in Social Security payments, Trident submarines and food stamps without providing more money to pay for them, the debt would be lower. But it would not go away.

The Office of Management and Budget, in Special Analysis E to the fiscal 1983 Reagan budget, noted that "The government would have to borrow from the public even if the budget were exactly balanced, because it would have to finance the deficit of off-budget federal entities." (Those include agencies such as the Federal Reserve Board and the U.S. Postal Service that, by law, are not included in the budget but nonetheless have financial needs.)

Debt would continue to rise, OMB said, even if "the total government deficit were exactly zero and, as a result, the debt held by the public remained constant."

It's all very complicated, which is one of the reasons politicians seeking to oust incumbent congressmen can attack them for "voting to raise the national debt "--something the members had to do. "As a means of controlling spending," a long-time Congress-watcher noted, "the debt ceiling is a 100 percent failure."

Despite all this backing and forthing, however, the deficit is the key reason the current debt ceiling is too low to meet the need. The $1.079 trillion was adopted last September when the government was anticipating a $45 billion deficit in fiscal 1982. Now that figure is expected to be about $55 billion higher.

Attempts will be made to raise the new debt ceiling to cover fiscal 1983 as well, when another $100 billion deficit is projected. Thus, the best early working estimate in the executive branch of what will be necessary is an increase of $150 billion to $160 billion, which would bring the ceiling to $1.28 trillion.

Economists agree that the future of the republic does not rest on the height of the ceiling , because the American economy has more than adequate resources to meet its obligations.

As a percentage of gross national product, the total of goods and service produced in the United States , the national debt has been decreasing steadily since World War II, when it peaked at 70 percent at the end of calendar 1945. At the end of fiscal 1981, it was 27.8 percent.</blockquote>

Wednesday, September 21, 2011

A 1987 Debt Ceiling Increase

This is from the Washington Post of Friday, May 15, 1987, covering the Senate's approval of a debt ceiling increase:
The Senate yesterday approved a temporary extension of the U.S. debt ceiling after President Reagan promised conservative Republican senators he will support their efforts to enact budget reforms when Congress takes up a long-term debt measure in mid-July.

The legislation adopted yesterday on a 58-to-36 vote has already passed the House. It gives the United States an additional $20 billion in borrowing authority through July 17, and averts a government financial crisis that would have begun at midnight tonight.

Under the agreement reached with the White House, Sen. Phil Gramm (R-Tex.) postponed for two months his drive to tighten the 1985 Gramm-Rudman-Hollings law requiring systematic reductions in the federal deficit. In exchange he said he received White House backing to use the long-term debt extension legislation as a vehicle to press for this change and for other budget reforms.

The postponement is also viewed by senior administration officials as an opportunity to forge simultaneously a compromise with the Democratic-controlled Congress on the $1 trillion fiscal 1988 budget nearing approval on Capitol Hill.

The White House and Congress remain deeply divided over the shape of that spending plan, particularly its call for an $18 billion tax increase, which Reagan has promised to veto, and a level of defense spending considerably below that sought by the administration.

Though administration officials publicly are insisting that no talks can take place on the fiscal 1988 budget until Congress enacts reforms in the budget process, privately they believe the two objectives might be achieved concurrently.

Reagan's incentive to negotiate a budget and tax compromise with Congress grew considerably yesterday as the White House suffered an embarrassment over the $1 trillion budget he submitted in January.

Presidential spokesman Marlin Fitzwater confirmed a report in The Wall Street Journal that a new internal White House analysis of the presidential budget shows it will miss by $27 billion the $108 billion deficit target set by the Gramm-Rudman-Hollings law. The administration for four months has maintained that its fiscal 1988 budget meets the $108 billion target, and Reagan has recently criticized Congress for missing the goal in the Democratic budget being negotiated by a House-Senate conference.

Democrats pounced with considerable glee on the White House admission. House Budget Committee Chairman William H. Gray III (D-Pa.) said that "it is now time for the president to put up or shut up," and urged Reagan to join Congress in redefining the Gramm-Rudman-Hollings targets and to abandon his opposition to a tax increase.

For weeks, Gramm had been threatening to use the looming fiscal deadline to force Congress to replace the budget-cutting teeth that were removed from the balanced-budget law by the Supreme Court last year. Gramm's proposal would have inserted in the Gramm-Rudman-Hollings law a new mechanism imposing automatic across-the-board spending reductions if Congress exceeds its deficit targets. A previous mechanism to achieve this was declared unconstitutional.

But Gramm relented after an afternoon meeting with White House chief of staff Howard H. Baker Jr. in which Baker pledged Reagan's support for Gramm's budget efforts later this summer.