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Can We Shut Down the Government Even If We Raise the Debt Ceiling?

January 05, 2011 By: Scott Spiegel Category: Economy

Debt-Ceiling
Image by Scott Spiegel via Flickr

In a recent article on the upcoming 112th Congress, the Associated Press warned that gridlock between the Republican House and Democratic Senate might result in a failure to act that “could threaten the nation’s economic health.”

Are they kidding?  What do they think has been going on for the past two years, when Democrats controlled both chambers and the White House and put us further in debt than the first 100 Congresses combined?  Gridlock in Congress is the best prescription for helping our economy recover.

Mainstream news outlets have noted that Republicans hold two main objectives after their swearing in on Wednesday: repealing or defunding ObamaCare and finding a politically palatable solution to the imminent overrun of the federal debt ceiling President Obama signed into law last year.

If Republicans don’t vote to raise the ceiling above its existing limit of $14.3 trillion by March 4, when the current stopgap measure runs out, we are told that they will be responsible for a government shutdown like the one in January 1996.

Obama’s Chairman of the Council of Economic Advisers Austan Goolsbee declared that failure to raise the debt ceiling would have a “catastrophic” effect, in that the federal government would essentially be in default.

In contrast, if we pass a resolution increasing the debt ceiling and continue to spend into the stratosphere, the world will be fooled into thinking that we are on financially sounder footing.

Huh?

An arbitrary limit chosen by Congress that will be increased repeatedly in coming months and years will have that much of an impact on our global creditworthiness, but our actual spending behavior won’t?

If I understand correctly, the purpose of a debt ceiling is to prevent politicians from spending so much that the federal government goes into debt at a level higher than that specified by the ceiling.  In other words, the ceiling is set so that spend-happy legislators trolling for votes can’t overrun a predetermined limit in the future.  The fact that the ceiling is voted into law means the debt level is inviolable and cannot be increased.

Something seems to have gone wrong here.

If we don’t stop increasing the debt ceiling to ever-higher levels, what’s the point of having one?  What meaning does it hold?

Is it at least possible that the world might interpret our declining to raise the debt ceiling as a sign that we intend to scale back our meteoric rise in federal spending and return to earlier levels?

Hasn’t the party that failed to pass a budget for the last two years, and passed but failed to live by its own sanctimonious PAYGO “pay-as-you-go” rule, damaged our international standing more than the GOP’s failing to declare a meaningless debt ceiling could?

Goolsbee scolded Republicans for “playing chicken” with raising the debt ceiling.  This is exactly the same thing Congressional Democrats did when they accused Republicans of being ‘the party of ‘no’” on health care reform, financial regulation, and extending the Bush tax cuts for only the middle class.  Goolsbee threatens that not raising the deficit ceiling will result in a greater financial crisis than the one in 2008, just as Democrats claimed that not enacting all of their other policies would result in catastrophic consequences for the nation’s economic well-being.

Everyone knows there are two ways to reduce the federal debt, one of which is to cut spending.  (The other involves taxes, though liberals and conservatives disagree on the direction: liberals believe raising them increases revenue, whereas conservatives believe lowering them does.)

In that light, I highly recommend for educational purposes the New York Times’ Budget Puzzle: You Fix the Budget from November of last year.

I, for one, was able to eliminate the projected $418 billion 2015 shortfall, and the projected $1,345 billion 2030 shortfall, without raising a single dollar in taxes, obtaining 100% of my savings from spending cuts.

I achieved this primarily by: (1) capping Medicare growth starting in 2013, (2) raising the Social Security retirement age to 70, (3) reducing the tax break for employer-provided health insurance, and (4) increasing the Medicare eligibility age to 70.  That’s it.  Each of these four measures resulted in $100 billion or more in projected savings to the deficit by 2030; combined with other, more minor cuts, the job was done.

True, I had to reduce the number of troops in Iraq and Afghanistan to 60,000 by 2015, and trim some other military spending, in order to cross the finish line.  But I didn’t have to resurrect the estate tax, reinstate taxes on capital gains and dividends, allow any of the Bush tax cuts to expire, impose a millionaire’s tax, or institute a national sales tax, a carbon tax, or a bank tax.  (I didn’t even have to cut Vice President Joe Biden’s salary to its market value of $13,500!)

And all of this was done without relying on the assumption that cutting taxes will increase total government revenue, as it has every time taxes were cut, by Presidents both Republican (Reagan and Bush II) and Democratic (Clinton).  Such increased revenue would mitigate the need for spending cuts or yield budget surpluses.

The budget can be “solved,” without raising taxes or the debt ceiling, solely by cutting spending, in a framework so clear and intuitive even a child could do it using an interactive online “puzzle.”

If certain stubborn teenagers in Congress can’t figure that out, then the government ought to be shut down so they can have a nice, long timeout.

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