the daily doyle

The Debt Ceiling for Dummies
July 30, 2011, 2:13 pm
Filed under: Political stuff

Warning, political content. If you continue reading past this point, your high blood pressure, confusion, any action you decide to take, and your possible slide into deep apathy is all YOUR responsibility. You have been warned.

At the time of this writing, the biggest news in the USA is that our federal government has spent itself out of money. We now need to raise the arbitrary “debt ceiling” before August 2nd or risk some form of catastrophe.

There are many opinions floating around about this situation and what will happen if we don’t allow the government to borrow more money. Our president (that I did NOT vote for by the way) was telling seniors a couple of weeks ago that he couldn’t promise that their Social Security checks would go out. The latest fear-mongering is mainly that if we don’t get more money, the country will not pay our bills and we’ll lose our good credit rating, interest rates will go up, bad things will happen, etc.

So what IS the real story? Considering that I’m no expert in the field of government, politics or economics, you’re probably in the wrong place to find out the truth. But you’re here, and you’ve invested the time in reading the first four paragraphs, you might as well stay and at least find out my thoughts on it.

The first thing to know is that the United States government has a debt ceiling, a limit for how much the federal government can owe. It’s like a credit limit on your MasterCard, except it’s an arbitrary number, set by Congress. As I understand, it’s a federal law. So, actually, we could borrow more money, exceeding that limit, but everyone involved would be guilty of violating that federal law. Well, basically, the government already spent the money that we are not allowed to borrow. They didn’t have any money to spend but the expenditures are already approved in other bills. We will have to pay this money, sooner or later. The way I see it, we have a debt limit (federal law) and our legislature and president unlawfully committed the country to spend more than the limit. It seems to me they have already violated the law and should be rounded up and jailed.

At the time of this writing, we’re at a bit of an impasse. The Republican-led House of Representatives (my boys!) has passed a bill with a solution involving raising the debt ceiling but only if we have some specific spending cuts and if Congress passes a balanced-budget amendment. Basically the amendment would say that a government cannot spend more than it takes in. This bill died immediately in the Senate and most likely the Senate (Democrat-controlled, not my boys) will craft their own bill and pass it. Then let’s see if the house will accept it and pass it.

Isn’t it just astounding that our legislators have to be forced to limit their spending to the amount of money we actually have. It just really seems like that would be common sense.

In our current position, everybody claims to agree that we need to reduce spending. I say “claims” very carefully because I really don’t believe it when coming from many of the Democrats who have demonstrated that spending is their answer to any problem. I suspect they are simply saying what they perceive will be popular and will enable them to be reelected.

There is sort of a hard-right position on this, which is: NO debt limit increase. Cut spending drastically, now.

And a hard-left position, which is: Raise the debt limit, keep spending. Party on!

The vast majority of people, the public and politicians alike, are somewhere in between these two positions. Personally I’m pretty close to the hard-right, except I do think we have to borrow a bit of money right now.

The Republicans demand spending cuts, no new taxes and a balanced budget amendment.

The Democrat position seems to be that we definitely have to raise the debt ceiling, that’s key. And President Obama has specifically stated that he will not accept a short-term solution; he wants this problem to go away until after the 2012 election. That’s kind of an interesting admission that he cares an awful lot about getting reelected and that his Democrat colleagues in Congress get reelected. I’m ok with that admission though, at least it’s honest and transparent.

The two sides fervently disagree on one point. They can’t even agree on what to CALL it, that’s how differing the opinion is. I have been listening to political radio, left and right, all week and I’ve heard 100+ mentions, from Democrats about “raising revenue” in such phrases as “solving our debt problem will require both spending cuts and raising revenue”. From the right I’ve heard many mentions about “raising taxes”, such as “this is no time to raise taxes on the American people”. They are talking about the same thing, I suppose, though it’s a confused subject.

Raising taxes is pretty easy to understand. There is a 10% tax on whatever and the government raises it to 11%, that is a raised tax. Or if the government comes up with a new tax on something never before taxed, that’s an example. There is also a modification of the tax code to remove special tax breaks, derisively called “loopholes”. For example, one of the items in the news lately is that Obama wants to remove an incentive in the tax code that was designed to encourage people to purchase corporate jets. Basically it allows the jet purchaser to take the tax deductions of the purchase over five years rather than the usual seven years. The smaller deductions would mean that the corporation would be paying more in taxes, in theory. I saw an estimate of $3 billion increase in revenue over a 10-year period from this change alone.

However, as I said, this is a confused subject. Our educated and sophisticated political elite can be pretty stupid. Increasing a tax 1% does not necessarily mean that revenue increases by 1%. In fact, it’s quite often the opposite. Making the aforementioned changed to jet depreciation schedule could mean fewer jets sold, which means less profit/less tax from Gulfstream, Boeing and rest, plus all their hundreds of suppliers. It means fewer employees, which leads to less income tax revenue. It means some employees get laid off and end up with a government check. So our tax increase could be a net revenue decrease.

Ronald Reagan and George W. Bush proved that decreasing taxes INCREASES government revenue. In fact, reducing taxes has stimulated economic activity and increased the tax revenue every time it’s been tried.

If the Democrats want a “revenue increase”, ok, let’s do it. Let’s decrease the tax rates, make it easier to do business here, and we’ll all make money. But alas, that’s not what they mean.

So what happens if we do not raise the debt ceiling and the country defaults on some of the money we’ve promised to pay. Good question. And basically, I don’t know. As I mentioned earlier, the main thing we’re being told now is that interest rates will be going up. I suppose that means that, in the future, it will be more difficult for the government to borrow money. According to Ron Paul, that’s a good thing.

Also according to Ron, we are already in default, to the American people, “First of all, politicians need to understand that without real change default is inevitable. In fact, default happens every day through monetary policy tricks. Every time the Federal Reserve engages in more quantitative easing and devalues the dollar, it is defaulting on the American people by eroding their purchasing power and inflating their savings away. The dollar has lost nearly 50% of its value against gold since 2008.”

However this current situation is resolved, it’s a very good thing that “debt ceiling” has now become a household word. I hope that the public’s awareness is increasing, that we will be paying attention, will be electing more capable representatives and that a new day of freedom and prosperity is dawning for these United States of America.

1 Comment so far
Leave a comment

You are right.
WHat we can do is get some legistators who really care about our country; who are not just interested in getting voted for, who want to do the best thing for our country.

Ron Paul has made a lot of sense for a long time. And he cares about his country.

But we need more people like that.

It is possible! Really it is.

Mary Collins

Comment by Mary Collins

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