Warning: the national debt is not a toy

"Everything's on the table, except raising taxes", House Speaker John Boehner said in a press conference prior to meeting with President Obama on July 3 to discuss the debt ceiling and deficit crises.  How then, might Boehner suggest the country close the deficit gap and thus reduce its need for borrowing?  Spending cuts alone will not rein in the deficit in any meaningful way.  The math bears this out - you can Google it yourself to see.  The country needs increased revenue as well as spending cuts, and it needs them quickly.  The GOP has dug its heels in on any tax increase, especially its beloved Bush tax cuts for individuals making over $200,000 or couples making over $250,000.  Because you see, those are the people who will create jobs for the rest of us.  But wait, didn't we just extend these tax cuts in 2010, on the same premise?  And where exactly are those jobs the wealthy were supposed to create with that money?  This shouldn't be a rhetorical question, but I have not heard a single answer...

I should make it clear that there are two separate but related issues in play.  One is the deficit, or the amount by which government spending exceeds revenue.  The other is the debt ceiling, which is the highest amount the government can legally borrow.  The immediate concern is the debt ceiling, which is currently at $14.3 trillion.  If that ceiling is not raised before August 2, the approximate day our debt will hit that limit, the U.S. could, for the first time ever, default on its loans.  So what?  Well, the government might not be able to make timely payments for bond obligations, some government salaries and Social Security.  Also, the global financial system may fall into chaos if the US economy is deemed precarious.  Oh, and the US will be considered a bad credit risk for a very long time (read: China will be ticked off.)

Many Republicans have signed a pledge that any increased tax revenues will be offset by other tax cuts so that the federal government will not see any increase in its coffers, in order to "keep government small".  What part of "deficit crisis" do they not understand? These tax revenues are about keeping government solvent, not making it big.  No matter how much spending is cut, the government needs increased revenue to cut the deficit (and consequently reduce its debt) and a bake sale sure isn't going to make that happen. Some lawmakers, and even the President, have talked about rewriting the tax code to cut out loopholes and increase revenue, but even if that is effective, it will take years to accomplish, and we have only weeks until the clock runs out.

Yet Republican lawmakers remain steadfast in their refusal to let the Bush tax cuts for the wealthy expire.  In fact, I'd hazard a guess that they are more stubborn about this than many of their wealthy constituents.  Have they even asked their constituents?  Or perhaps this not about constituents at all, but about the special interest groups that line GOP campaign coffers.

Anyway, with the clock ticking on the global reputation of the US economy, I say this to the Republicans in the House. You won in 2010. Now's your chance  to prove that you can do better than the Democrats when it comes to the economy, although you sure haven't impressed me yet.  BUT, if you hold your breath til you turn blue and get your Bush tax cut extensions, the Democrats get a few things in exchange.  The debt ceiling must be raised. Second, tax revenue has to be found elsewhere.  There have been talks about reducing tax breaks for ethanol use, the oil and gas industries, corporate jet owners, and hedge fund managers.  Ending these tax breaks would result in $13 billion of increased revenues in a fiscal year.   It's not the best solution, but with the GOP holding the reins in the House, it may be the best we can push through by the August 2 deadline.

Back to those tax cuts that were supposed to spur economic growth. The GOP argues that any increase in taxes will slow the economy further, although there has been no evidence that keeping the tax cuts has created more jobs.  But you know what will really slow the economy? The United States coming close to defaulting on its loans, and then failing to decrease the deficit.  The debt and the deficit are not toys. Children under 5, and lawmakers, should not be allowed to play with them.

Comments

[Julie Hartgerink]

Great article. I've posted this to my Facebook pages with the hope that it'll help people understand this issue.

[Samuel Cohen]

You know it's really, really bad when you agree with Bill O'Reilly. He has called for increased revenues, coming out against the Republican leadership.

Ugh. Time for a shower.

[Not quite]

It's a manufactured crisis, things that apply to your household budget don't apply to the nation since you don't own your own currency.

The compromise is probably going to involve continuing to grab money from FICA (by lowering SS and Medicare/caid payouts) and drop some small amount from social programs. Try not to get too apoplectic when that happens :)

[Dave]

Well thought out and nicely written. I'll be adding your blog to my daily reading rotation. Thanks Ed, for referring me!

[Robert Ahrens]

Nice to see someone point out the difference between the deficit and the debt. Too many people get those confused.

While the amount of the debt is a problem for the long term, running a deficit on an annual basis is actually the best strategy for getting out of a recession like we've got now.