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Debt Ceiling 101: The 5 Things You Should Know

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While Los Angeles braces for the upcoming Carmageddon, the sense of horror felt over not being able to use 10 miles of freeway for a weekend is amplified by the fact that those who manage to survive will face yet another crisis a fortnight later when the U.S. government reaches the $14.294 trillion debt ceiling.

I admit it is unfair to equate the two crises since at least one involves short term pain for long term gain and then there is the debt ceiling. To make sense of the latter, there are five things you should remember that are the exact opposite of what is being said by those driving the crisis.

1. What Would Reagan Do?

It may shock many of today's Tea Party Republicans that before becoming president, Ronald Reagan was (gasp) a union leader having served six terms as head of the Screen Actors Guild. Reagan was a pragmatist who understood that after all the posturing, a deal had to be made to ensure that "the show goes on." So when faced with a similar deficit dilemma as president, he cut a deal that included the largest peacetime tax increase in history. Reagan understood that it was his responsibility to govern; a point that seems lost on his political heirs who refuse to entertain even the notion of a tax increase. Mitch McConnell asserts that any tax increase with 9.2 percent unemployment is a "terrible idea" and a "job killer", even though Reagan signed a record tax increase when unemployment stood at 10.1 percent.

2. Fuzzy Math

For Republicans, the answer to any question, whether it is about fiscal policy or the weather, is cut taxes. They claim our economy is sluggish because taxes are too high, that is of course after we had a near depression following the adoption of the Bush tax cuts and laissez-faire policies that were supposed to supercharge the economy. The reality is that across the board, from top individual, corporate to capital gains, tax rates are at or near historical lows and the top income bracket is lower than it was during Reagan's first term. That is why merely returning to the relatively low Clinton era tax rates would erase a substantial chunk of the deficit.

3. Don't Worry, Be Happy

Some Republicans are arguing that a U.S. default on its obligations is really no big deal and that the market would prefer a default that eventually resulted in a major budget deal. Guess again. A default would have a lasting impact on our standing in the world and the major bond rating agencies have indicated they would significantly downgrade U.S. government offerings in such an event which would mean higher interest rates for future government borrowing.

A default also would send shock waves throughout the world markets and would, according to IMF Chairman Christine Lagarde, have "real nasty consequences" for the U.S. and global economy. It is bad enough that GOP policies led to most Americans losing a quarter of their wealth in 2008, but do they really need to push us to the brink again?

4. Cut, Cut, Cut

Republicans also are calling for draconian cuts in federal, state and local spending. Yes, spending needs to be addressed if we are going to reduce the deficit but the reality is that all spending is not equal. Fifty-five years ago, a Republican president faced with a very large debt launched the largest public works project in American history with the Interstate Highway Act. While it certainly was expensive, it was not costly since every dollar invested yielded more than six in economic activity. If today's Republicans were in Congress then, we would still be idling on two lane roads as part of our three-hour daily commute.

State and local governments are being called the "anti-stimulus" since during this time of high unemployment they are exacerbating the situation by cutting the social safety net and cutting jobs (with nearly 25,000 jobs cut in June alone). When compared to national trends, however, states that increased government spending over the past three years experienced decreased unemployment, an increase in private employment and real economic growth, while states that cut spending on average had a 1 percent increase in unemployment, 2.1 percent decrease in private employment and a nearly 3 percent decline in economic growth.

5. Remember Apollo

In setting a goal to reach the moon by the end of the decade, President Kennedy explained that we seek such challenges "not because they are easy, but because they are hard." What the GOP refuses to admit in its ideological rigidity is that from the transcontinental railroad to the internet, the government has played a major role in making the hard possible. Cutting through all the talk about spending cuts and revenue "enhancements," ultimately this is a debate about who we are as a nation and whether we still have the courage to do what is hard and the compassion to do what is right.