Each day brings seemingly dozens of updates on the budget negotiations surrounding the debt ceiling debate. Over the last few weeks, there have been major addresses to the nation by President Obama and House Speaker John Boehner; the progress and then dissolution of Vice President Joe Biden's negotiation group; various iterations of plans proposed by Senate Majority Leader Harry Reid, Boehner, the Gang of Six, Senate Minority Leader Mitch McConnell, and Reid and McConnell combined; and the passage of House Republicans' "Cut, Cap and Balance" bill. President Obama has pushed for a "big deal" -- at one point calling for deficit reduction of $4 trillion over 10 years.
The debate has been exhausting and at times too confusing. It has put a dent in the approval ratings of all lawmakers. And, as our country staggers toward the August 2 deadline -- the date by which Congress must approve of a debt limit increase or greatly compromise our nation's abilities to function -- now is the time to see the forest through the trees. With that in mind, here are five important points to remember about the debt ceiling.
1. A default would be terrible for our country
The budget negotiations of the past month have sought to secure the votes of those members of Congress who are opposed to passing a clean bill to raise the debt ceiling, and who have stated they will not vote in favor of an increase without also passing significant reductions in the deficit or spending. The debate over deficit reduction aside, failure to sufficiently increase the debt limit by Treasury's deadline would cause our country to default on our obligations.
From an economic standpoint, a failure to increase the debt limit would further hobble our already feeble economic growth. As 235 leading economists stated in a letter to Congressional leaders, failure to raise the debt limit could have "potentially grave long-term consequences." This includes "undermin[ing] the full faith and credit of the United States government," which would lead to higher interest rates for the government as well as businesses and consumers, and would negatively impact job growth.
2. A balanced budget amendment is bad economics
Many of the demands coming from conservatives have included a call for a balanced budget amendment. Though responsible-sounding in rhetoric, a constitutional balanced budget amendment would be disastrous in practice, particularly during times of recession. A balanced budget amendment would debilitate what are called automatic stabilizers -- policy tools that kick in to provide support during recessions by limiting the decline of consumer purchasing power. A balanced budget amendment would thus make recessions deeper and more prolonged.
A balanced budget amendment would require a super-majority vote in each chamber of Congress to adopt an unbalanced budget - something that Congress has done in all but five of the last 50 years. Requiring a super-majority vote for something that has been common practice would almost certainly lead to an increase in the type of legislative gridlock we are seeing today. Once again, there is strong agreement among renowned economists that a balanced budget amendment is a bad idea.
3. Immediate spending cuts would cost, not create, jobs
One myth being perpetuated is that high deficits impede job creation; therefore, cutting spending will create jobs. From a macroeconomic standpoint, this is simply not true. In fact, immediate cuts to spending levels would lead to job losses, with the severity of job losses dependent on the size and scope of proposed cuts. Taking money out of the economy is never a recipe for creating jobs; in fact, the opposite is true. Stimulative spending during a recession fills the hole caused by a contraction of business and consumer spending, keeping jobs in the economy and staving off layoffs. By the end of 2010, for example, the Recovery Act was responsible for creating or saving between three million and four million jobs.
In the past year congressional Republicans have introduced a number of spending cuts packages that would negatively impact jobs. Last fall, Speaker Boehner proposed reducing non-security discretionary spending to 2008 levels, which would have caused the reduction of over one million jobs. This spring, House conservatives proposed cutting spending by $100 billion relative to President Obama's fiscal 2011 budget proposal, which would have produced an estimated loss of 994,000 jobs. The House-passed Republican leadership budget, estimated at the time to cut $61.5 billion this year alone, would have cost roughly 600,000 jobs (when estimated relative to the CBO January baseline).
4. Revenues are essential to a balanced deficit-reduction approach
There are ways to reduce the deficit while maintaining both public investments and a strong and reliable social safety net. Investing in America's Economy, a budget blueprint compiled by the Economic Policy Institute, Demos, and The Century Foundation, achieved long-term debt stabilization while both investing in national priorities and avoiding harmful cuts to important social programs.
The current debate has, for the most part, lacked the balance seen in the blueprint by largely insisting that all deficit reduction be achieved through spending cuts. The reality is that smart deficit reduction must address our lack of revenues as well. Revenues are projected to be 14.8% of GDP this year, the lowest level seen over the last 60 years. Deficit reduction must include increasing revenue levels as well as decreasing spending levels.
Furthermore, revenues are something we can afford to increase, if done wisely. The George W. Bush tax cuts of 2001 and 2003 disproportionately benefited the top one percent of earners (who received more benefit than the lower 80 percent of income earners) while doing little for low-income families. Making all of the Bush tax changes permanent, which would largely and unnecessarily benefit those making over $250,000 annually, would cost an estimated $4.6 trillion over the 2012-2021 period.
Repealing those tax cuts is something high-income individuals can afford, and would impact only those who have reaped the majority of economic gains over the past decade, as well as the past 30 years. From 1979-2007, the top 10 percent of income earners claimed 64 percent of gains to overall incomes, while the bottom 20 percent saw 0.4 percent of all gains to income. In 2007, alone, the top 1 percent of earners took home around 20 percent of pre-tax national income, while the bottom 90 percent of earners took home around 58 percent. Wages for those at the high end have been growing significantly faster than for those at the bottom of the wage scale, yet taxes on both income and assets have fallen at the top.
Additionally, in poll after poll the American public has consistently called for putting revenue increases on the table. A recent poll analysis by Capital Gains and Games blogger Bruce Bartlett found that people support higher taxes to reduce the deficit by a 2-1 margin. This is truly a case of Congress rejecting the will of the people.
5. This debate has distracted from what remains our country's biggest problem -- a lack of jobs
The fact is, the U.S. labor market remains terribly weak. Disappointing monthly jobs numbers are demonstrating that our current pace of overall job growth will mean unemployment and underemployment for millions of Americans for years to come. Policymakers, however, have turned to austerity at a time when they should be prioritizing job creation.
Americans want a fiscally responsible government, but even more than that, we want to be productive members of a strong and growing economy. Our deficits will not shrink without strong growth, and strong growth will not occur without millions of new jobs. Americans have been led to believe that fiscal austerity is a key ingredient to job creation in the short-term; it is not. A focus on spending cuts has instead greatly detracted from what should be a strong effort by policymakers from both parties to work together toward job creation and economic growth.
Economic Policy Institute Research and Policy Director John Irons co-authored this post
Follow Rebecca Thiess on Twitter: www.twitter.com/@EconomicPolicy
1. We are a monetarily sovereign nation in which the government has the right to create our national money in lieu of issuing national debt.
2. Thus, the existence of a national debt results from Congress' abrogation of its money-creation rights, giving private bankers the right to create the nation's money out of thin air, and in so doing, to lend that money to the sovereign government.
3. The debt-ceiling crisis is a result of two unnecessary constraints upon the Congress. The first being the Government Budget Constraint which requires that Expenditures be matched by taxation and/or borrowing (thus abandoning the money-creation mechanism; and 2) the debt-ceiling legislation itself, it being wholly unnecessary as it was only brought to power when we decided to issue Liberty Bonds to support allies in WW 1.
4. Because of the unnatural birth of the debt-ceiling legislation, we are the only monetarily sovereign nation on the planet with a legislated ceiling on the amount of debt that may exist at any one time.
5. ALL of the above 4 miscarriages of monetary injustice TO THE PEOPLE of America are corrected with Congressman Dennis Kucinich's NEED Act of 2010. See:
http://kucinich.house.gov/UploadedFiles/NEED_ACT.pdf
For the Money System Common
Now we are engaged in a great civil war, testing whether that nation, or any nation, so conceived and so dedicated, can long endure. We are met on a great battle-field of that war. We have come to dedicate a portion of that field, as a final resting place for those who here gave their lives that that nation might live. It is altogether fitting and proper that we should do this.
. The brave men, living and dead, who struggled here, have consecrated it, far above our poor power to add or detract. The world will little note, nor long remember what we say here, but it can never forget what they did here. It is for us the living, rather, to be dedicated here to the unfinished work which they who fought here have thus far so nobly advanced. It is rather for us to be here dedicated to the great task remaining before us—that from these honored dead we take increased devotion to that cause for which they gave the last full measure of devotion—that we here highly resolve that these dead shall not have died in vain—that this nation, under God, shall have a new birth of freedom—and that government of the people, by the people, for the people, shall not perish from the earth.
Great powerful nations have risen and fallen over time, America is slowly falling, China will be the next great nation followed by Russia who has the largest quantity of clean unpolluted water on the planet in Siberia.
They were "Rubber Stamping" approval on all of GB'S requests for spending.
They have not been able to find that stamp since President Obama took office.
It was just a little over 10 years ago that we were running a budget surplus. We don't need catastrophic action to get back to that.
I keep thinking they have a master plan, but I am starting to doubt that. If they do have one, you can tell the plan is for the rich to get richer and the rest of us to be big losers.
The runaway costs and devalued dollar is working for the destruction of this country. It is making losers our of many people. It is like holding a person down while letting others punch them in the nose.
Congress uses the excuse that the people want a balanced budget as a way to cut Social Security, Veteran’s benefits, Medicaid and Medicare. What people want is a balanced budget by the rich paying their fair share and stopping the unfunded wars, etc.
They could consider asking the businesses to roll back prices 50% or so.
How can people take less pay or benefits when they have to deal with a devalued dollar and gouging prices?
I wrote a lot better post about this, but it didn't make it past the moderators. I am going to quit posting for awhile, maybe forever.
We just need a budget for next year, if it isn't fillibustered.
I do not know who is pulling the strings on all the public puppets. But whomever it is really deserves an award indicating his or hers or their brilliance at achieving absolutely nothing from our elected officials on this budget matter. We here talk of gridlock, stalemate, uncompromising or worse. At a point it seems to reflect the American voters opinion no longer. So who is all this theater for? Why have the President, The House of Representatives, and The Senate all become monkeys on a string?
Who is to gain? Is there gain by non-action? Is there reward or penalty? Is there any thought to what may lay crumbled and broken when it is over. Will it ever be over? What was.... was
What is.... is yet to be decided
Contents and activity of this brain have yet to be determined.
Why does this matter? Well inflation, the price everything goes up because the price of our dollar goes down. It will come, and there are few who are talking about it, and fewer who will level with the people and tell you the more money they print and the higher the debt, the less purchasing power you will have with your dollar.
No one can tell unless it's implemented and applied to. We may say anything to be done is a "gamble " Lucky if we win, sorry if not. If it didn't prosper , try another next time.
1. If we do not raise the debt ceiling now, apparently we may default because the government cannot pay for its bills. That is bad. But government right now is so far away from balancing its current budget and future entitlements are going to skyrocket. There is no plan even to fund these entitlements in the future much less the budget. So when will the US fund its budgets? It appears to be so far away that perhaps we need to default now, rather than later.
2. I am not a fan of the balance budget amendment. But I disagree with the whole second paragraph under that section. Just because the government has very rarely balanced a budget in the last 50 years does not mean it should not care to do it in the future. Perhaps that is not what you are arguing, but whatever you are arguing about does not sound very responsible.
3. There are many places where the government can cut and not affect jobs. They can cut farm subsidies and ethanol subsidies and hardly anybody would notice. They could cut our foreign military operations and save a huge amount, and we still would not lose jobs. Instead of trying to do these big deals, I wish they would make bills for each agency and agree to cuts for each one.
Surely that reinforces the need for a balanced budget plan so as to control the excessive spending of Congress?