Americans Don't Understand the Debt Limit Debate

The GOP have already bought into the idea that any default would have little consequence other than to force the US government to slash spending. As they have repeatedly said before, they will not agree to raise the debt limit unless there are drastic cuts that match those cited in the Paul Ryan plan. Well guess what, the difference in outlays to income would result in a 30~35% cut, and matches the level that Tea Party folks like Rand Paul have been advocating for (Sen. Paul just voted against the Paul Ryan plan on Thursday because he thought it didn't cut deep enough.)

The premise of the GOP dogma (and a cornerstone in the Paul Ryan plan), is that private spending is being crowded out by public; therefore once public spending is cut, private spending can increase and we will have tremendous GDP growth, we will throw parties, people will be happy, and so forth. If you read the Heritage Foundation's plan, the idea centers around well-educated federal workers, in the near-future shall be laid off in large numbers, providing competition for wages in the private sector. That downward wage pressure would then allow more people to be hired...or so their logic goes. In fact, the Heritage plan assumes these spending cuts will be so wildly successful, that the national unemployment rate will reach 2.8% by 2021 (no mention by Paul Ryan, why his budget doesn't project a budget surplus, even with that projected 2.8% unemployment rate).

Only problem with their version of logic, is that it fails to see that a. wage deflation can threaten to turn the US into a Japan with near-zero growth for over a decade to come; b. there already exists an ample supply of over-educated people that are unemployed (and under-employed), and if they weren't able to lower wages to push hiring, then it's not entirely certain adding more unemployed workers changes anything; c. the GOP plan relies on (low) wages to dictate hiring, not an increased demand for goods and services, which seems contrary to basic economics; d. in the final tally, it is presumed that there must be a psychological support for long-term debt reduction, that will show up in higher spending, which is a lot like playing with horoscopes...debt issue under control, you should spend now!...nevermind that consumer debt is part of the problem of what drove us over the 2008 credit bubble (call it a housing bubble, but it was a credit bubble at the banks that stopped all lending in 2008.)

So you see, it is quite clear that their strategy is to extract their spending cuts one way or the other. Republicans want to pin Democrats on their votes in the House, on a clean bill to increase the debt ceiling. I, on the other hand, think it gives Democrats a sterling opportunity to pin Republicans on their dogma.

gork of OR 5:28AM May 26, 2011

GWB and the Republican Congress were handed two years of balanced budgets by their predecessors. They promptly decided that that was enough responsibility from government and cut taxes, not only taking the budget out of balance, but contributing greatly to the current debt and budget deficits.

And would somebody please explain to me how cutting tax rates increases government revenue? I mean, if it's as simple as lowering taxes to increase government revenue, wouldn't eliminating taxes completely provide unlimited revenue to government?

Nothing but boilerplate talking points, totally devoid of actual thought.

Holgar of SC 1:06AM May 26, 2011

Dee say “when was the last time we balanced the budget - 1999: Bill Clinton”.

Newt and tax cuts for rich. Newt holding down government spending. The two go hand in hand.

"MYTH: Raising taxes in the 1990s caused the boom years of that decade. This proves that raising taxes leads to economic growth."

"FACT: Tax cuts, not tax hikes, caused the boom years of the 1990s. The economy grew modestly after Clinton raised taxes in 1993, but the economy grew even more after Clinton signed the tax cuts that were passed by the Republican-controlled Congress under Newt Gingrich’s leadership in 1997."

"Dr. J. D. Foster":

"Following the [Clinton] tax hike, the economy performed reasonably well, but not as well as one would expect given the conditions at the time. The real economic boom came later in the decade, just when the economy should have slowed as it made the transition from a period of recovery to normal expansion. Further, this acceleration coincided to a remarkable degree with the 1997 tax cut. . . ."

"In 1997, the Republican-led Congress passed a tax-relief and deficit-reduction bill that was resisted but ultimately signed by President Clinton. The 1997 bill":

*" Lowered the top capital gains tax rate from 28 percent to 20 percent";

* "Created a new $500 child tax credit";

* "Established the new Hope and Lifetime Learning tax credits to reduce the after-tax costs of higher education";

* "Extended the air transportation excise taxes";

* "Phased in an increase in the estate tax exemption from $600,000 to $1 million";

* "Established Roth IRAs and increased the income limits for deductible IRAs";

* "Established education IRAs";

* "Conformed AMT depreciation lives to regular tax lives; and"

* "Phased in a 15 cent-per-pack increase in the cigarette tax". . . .

"In 1995, the first year for which these data are available, just over $8 billion in venture capital was invested. Venture capital is especially critical to a vibrant economy because high-risk/high-return investment permits promising new businesses to blossom, rapidly spreading new technologies and new ideas into the marketplace and across the economy. Such investments, when successful, generate returns to investors that are subject primarily to the tax on capital gains. By 1998, the first full year in which the lower capital gains rates were in effect, venture capital activity reached almost $28 billion, more than a three-fold increase over 1995 levels, and by 1999, it had doubled yet again."

(http://www.heritage.org/Research/Taxes/wm1835.cfm)

http://www.mtgriffith.com/web_documents/taxcutmyths.htm

Bill Hedges of MO 9:06PM May 25, 2011

Angie -

the debt limit is what? Congress paying for PAST BILLS. Not approving the debt limit does nothing to change our debt.

defaulting on our debt - that would cause huge inflation, destablize world markets, remove the dollar from the reserve currency status in many cases, and cause a huge financial downturn. So that helps what?

If you want to balance the budget and reduce spending - let's think -

1. when was the last time we balanced the budget - 1999: Bill Clinton

2. what has changed since then?

Two unfunded wars (Bush)= $3 trillion of the debt, two tax cuts that clearly DID NOT create jobs(Bush) = $4 trillion of the debt, refund of the budget surplus (Bush) = $800 billion

Annually- $500 billion more/yr in defense spending, $ 150 billion/yr in debt service expense, $75 billion for Homeland Security, $300 billion/yr at least in lost tax revenue. = MORE THAN $1 TRILLION EVERY YEAR.

Fix these things and we can balance the budget. Do you think that the GOP wants to do this? (taxes are OFF the table!, military cuts are off the table!)

TheGOP/TP is unwilling to undo the things that broke this economy - that they led the charge to do.....

Let's get real and truly understand the numbers, why they are as they are..... You cannot fix a probem if you have no idea what is causing it....

America - wake up!

DeeToo of SC 10:44AM May 25, 2011