The Truth Behind The Debt Ceiling Debate
The Truth Behind the Debt Ceiling Debate
The debate going on now regarding the conditions for raising the United States Debt Ceiling have been predictably political and murky. It is true that progressive Democrats have emphasized protecting social programs and raising revenues. At the same time conservative Republicans have argued for massive spending cuts especially for social programs with no revenue increases. This is a good and proper debate for our country to have. Is it the proper debate to have right now and under these conditions? Should raising the debt ceiling be tied to these negotiations? There is much misunderstanding and many false statements being conveyed regarding the consequences of not raising the debt ceiling. There are many leaders who are positioning themselves politically and rhetorically in ways only meant to advance their own agendas and ambitions. The American people should not be used as pawns in their political game. This is a time for statesmen and stateswomen. The decisions being made now will affect many millions of people adversely in some manner.
I will attempt to describe to you in this article what the debt ceiling is and what it means to all citizens of the United States. Then I will analyze the positions of the two parties. Also I will show which leaders in my estimation are attempting to be productive in these proceedings and which are not. Finally I will offer my own solution to both this immediate problem as well as the longer term budget issues. I hope I will succeed in answering the questions I have posed to the satisfaction of my readers as well as any others you may have regarding these issues. The American people need to understand what is going on regarding these debates and how it will affect all of us.
What is the debt ceiling? It was first created in late 1917 in the amount of 11.5 billion dollars. The reason for its creation was for the issuance of bonds and other debts to pay for the United States involvement in World War I. It did not significantly rise again until the early 1940s to fund World War II. This debt ceiling has been raised 102 times in its 94 year history. The debt ceiling represents the loan obligations which our country may incur past and present which remain outstanding. This ceiling needs to be raised when it is estimated that we will have a higher level of these obligations due to budgetary choices in the near future.
All of the past debt ceiling increases have been passed very easily. Some Congressional members voted against it at times to protest one issue or another. Senator Barack Obama did this before he was elected President. None of these votes were cast when the vote was seriously in question. This is because everyone involved knew that the consequences to the U.S. would be dire if the debt ceiling was not raised. Our credit rating would drop precipitously if we failed to pay our debt obligations. The estimated U.S. loan interest payments for 2011 are approximately 420 billion dollars. These payments could easily double if our credit rating was dropped substantially. Interest rates would also rise for ordinary citizens as well as state and local governments because these rates are pegged to the Treasury rates.
It is unclear what budget expenses would be paid first and in what order they would be paid. Loan interest payments would probably be paid first both because we are legally bound to do so and because the economic consequences would be too expensive and damaging. Our troops may not get paid as well as other federal employees. Social Security, Medicare, Medicaid, and all other social program payments might also be held back. The reason that we might need to withhold these payments is that our expenses outstrip our revenues. Only 56% of our current expenses are covered by our current revenues. So choices will have to be made if the debt ceiling is not raised. What will the U.S. Treasury and the Administration do? This is virgin territory. No one really knows what might happen. I will address this further later in this article.
Both the Democrats and the Republicans have their political stances over this issue. They also both have their own party divides. The Democrats are led by President Obama and Senate Majority Leader Harry Reid. They are seeking significant spending cuts along with revenue increases. These increases involve mostly the closing of tax loopholes and corporate tax breaks. They are currently advocating for a deal that has a 4-1 advantage of spending cuts over revenue increases. House Minority Leader Nancy Pelosi and her progressive wing want much lower social program spending cuts than the President has agreed to.
The Republicans have a more defined split within their party regarding these negotiations. The newly elected Tea Party faction of the House of Representatives number at least 87 and their clout is very large. They are insisting on massive social program spending cuts with absolutely no revenue increases of any sort. Grover Norquist, the leader of the organization "Americans For Tax Reform", has the signatures of almost every Republican on his no new tax increase pledge. He has threatened to campaign against any of them if they break that pledge. They have effectively abdicated their power to compromise to this non-elected individual. Some even refuse to vote for a debt ceiling increase no matter what deal is agreed upon. Many have stated that they do not even think it is necessary.
Most of the Republican leaders in the House and Senate have been much more forthcoming in their efforts to compromise and reach a deal. They seem to realize what the terrible consequences will be if they fail in their efforts to reach a deal and raise the debt ceiling. They had been negotiating with Vice President Joseph Biden for weeks and progress appeared to be moving steadily forward. Even Senate Minority Leader Mitch McConnell seemed to be on board. He famously stated in 2009 that his main goal was to defeat President Obama in 2012. Unfortunately House Majority Leader Eric Cantor threw a monkey wrench into the talks when he stormed out of a session when the elimination of corporate tax breaks were insisted upon by the Democrats. It appears that he has picked up the leadership mantle of the Tea Party wing of the Republicans in the House. His no revenue increase stance has stopped Speaker Boehner in his negotiating tracks because he knows he will not have the votes for any compromise with President Obama. Cantor's new maneuvers have the look of a naked power grab. His eyes are clearly on the Speaker's job. This has left the chance for any significant budget deficit reducing bill in tatters. Senator McConnell and Senator Reid now appear to be developing a bill with Speaker Boehner's approval that will allow the President to raise the debt ceiling incrementally. Much smaller spending cuts will be attached to the bill.
Let me state that I do not believe that this debt ceiling increase question should be tied in any way to the budget negotiations. I feel that the United States Treasury department should be able to pay our bills and debt obligations automatically without any artificial limit derived from the World War I era. It can be eliminated if our political leaders had the will and inclination to do so. Just imagine if you spent money on your credit card and then called the company to state that you cannot pay your balance because you refuse to raise your personal credit limit. You would quickly find yourself in court. Actually, Amendment 14 of the United States Constitution states that the validity of the public debt shall not be questioned. I feel that President Obama should use this as a basis to pay its debts in the event Congress fails to pass the debt ceiling increase. That being said, these budget negotiations which are tied to the debt ceiling increase are going nowhere.
Why are both sides not acting more like adults and statesmen? This is especially true of the Republicans. Obstinately sticking to their no new tax revenue stance is similar to a child throwing a tamper tantrum until he gets what he wants. Both sides must compromise to reach a deal. President Obama seems to be bending over backwards to do so. The Tea Party Republicans refuse to compromise. Senator McConnell began drafting his emergency legislation to give President Obama the power to raise the debt ceiling after he received a letter from 400 corporate and Wall Street leaders urging him to pass legislation to increase the debt limit. They argued that the consequences to the American economy would be catastrophic to even flirt with not doing it. Congress had to be scolded into doing this which is proof that we have a totally dysfunctional government. President Obama originally wanted a 4.5 trillion dollar deficit reduction bill over ten years. This would have had some revenue raisers in it by way of eliminating corporate tax breaks and other tax loopholes. The Republicans refused this and then offered a 2.5 trillion dollar plan of only spending cuts mostly through entitlements. Now the only likely plan to go through is Senator McConnell's minimal spending cut plan of around 1.5 trillion dollars over ten years which allows the President to raise the debt ceiling himself. This piece of legislative trickery will cause the President to submit to Congress his intent to raise the debt ceiling two more times before his term is up. The idea being that the Republicans will vote "Nay" each time and he will then veto and raise the ceiling. This way the Republicans are on record saying no but have actually acquiesced to the President. Is this a proper way to handle this problem?
I say no but it is better to do this and avoid the upheaval of not raising the debt ceiling. My proposal, though the Republicans in the House would reject it out of hand, comes out of my Hub, "My Budget Alternative To Rep. Paul Ryan's Path To Survival Of The Fittest". I would use the 1.3 trillion dollars of savings in waste and fraud over ten years in defense and entitlements from that article as my spending cuts. Then I would raise 1.2 trillion dollars in revenue increases. These would be obtained by eliminating all oil, farm, and ethanol subsidies along with eliminating the state and local income tax deduction and the home mortgage deduction for homes worth more than 1 million dollars. My deficit reduction package would total 2.5 trillion dollars over ten years. Of course this does not come close to balancing the budget.
Unfortunately I do not see any way of reaching a budget balancing deal until after the 2012 election. This is why I believe that election will be so crucial to our future. The American people need to tune into this debate which is being conducted now and will carry on through the election. We cannot afford the gridlock and bickering going on in Washington D.C. right now. Our candidates must hear our educated voices on these budget issues. The leaders we elect must then honestly debate these issues and come to a common sense compromise to balance the budget. I hope this article made clearer what is going with the debt ceiling question and the budget deficit reducing debates. Please get involved and educate yourself further. Let your national leaders know your views on these subjects. Also please vote wisely in 2012. Once again our future and our children's futures hang in the balance.