Debt ceiling crisis breaks down into simple problem

Friday, July 29, 2011

Despite all the drama and analysis, the national budget problem isn't that hard to understand.

The government will bring in about $178 billion in revenue in August, but needs to pay about $308 billion in bills.

We've all faced similar "crises" with our personal budgets, and most of us deal with them in the same way: paying off the bills as soon as possible and, if we're wise, making changes that may involve doing without some things that add to our debt.

If we have a real crisis -- medical emergency, unexpected major bill, divorce or death in the family -- we may go into debt, or even declare bankruptcy.

Rather than paying down the debt, or even bringing the budget into balance, the federal government has routinely charged the extra bills to the national credit card by raising the debt limit.

Today, congressional leaders who might have otherwise compromised have found a themselves forced to cater to a group of new delegates who were elected on pledges to stop the spending.

The problem is, attempting to fix a problem in one budget year that took decades to develop will be a disaster.

Democrats like to point out that President Clinton submitted a balanced budget in his last year in office, and that President George W. Bush's policies -- cutting taxes, entering wars in Iraq and Afghanistan, the new Medicare drug benefit, 2008 stimulus and other changes, added more than $5 trillion to the national debt.

President Obama's stimulus package and tax cuts, health reform and other spending, have added more than $1.4 trillion to the problem, however.

That works out to $633 billion in deficits for each year Bush was in office, $720 billion for Obama, including projections out to 2017. Neither fiscal performance is anything to brag about.

At worst, congressional inaction will result in a default and, who knows, a worsening recession and even depression.

At best, the current crisis will shock Washington into making real, long-term change.

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  • There are many ways to view the current financial crisis our country faces.

    Your analysis leaves out one very important consideration when comparing the amount of debt incurred by President Bush and President Obama. When President Bush took office there was a $236 billion budget surplus and a revenue stream as far as the eye could see due to the creation of 22 million new jobs. The projected 10 year surplus at that time was $5.6 trillion. "Under then current policies, total revenue surpluses would accumulate to an estimated $2 trillion over the next five years and $5.6 trillion over the coming decade, and would be sufficient by 2006 to pay off all publicly held debt that is available for redemption."

    When President Obama took office there was a $1.2 trillion budget deficit and a 10 year projected revenue shortfall of over $3.1 trillion ($8 trillion by some estimates).


    How could a fiscally conservative administration turn an existing budget surplus and a projected revenue surplus into shortfalls? One method was by borrowing against the projected revenue surplus instead of actually borrowing from the surplus funds to pay off the debt. This is the exact argument that was made by the Republican House in 2001 to justify the proposed tax cuts. Following is testimony contained in the Congressional Records by then Representative Shays - who was then a member of the Committee on the Budget.

    We can pay down debt. We are going to pay down $2.3 trillion worth of debt. We can reduce taxes. This is a debate of spend more or maybe have more in tax cuts.

    Now, I think that what has happened in the last so many years, we have had deficits from 1969 to 1998, 29 years of deficits, and those have ended. We have had 35 years of using Social Security reserves for spending. We paid down $500 billion of debt and, by the end of the year, $620 billion.

    What scares the heck out of me, though, is this is a steep line of 587 to 635, which was last year; and it seems to me my colleagues on the other side of the aisle think it should remain steep. All I have heard is more spending. We are going to spend $635 billion now to go up to $661 billion, which is what the President wants, a 4 percent increase in spending. That is a lot of money.

    But we also wanted a tax cut, and it is a responsible tax cut. We are taking one-quarter of the surplus, and we are going to have a tax cut with it, one-quarter of the surplus.

    Someone said it is not going to the right people; it is going to the people who pay taxes. Five percent of the American people pay 50 percent of the taxes, and 50 percent of the American people pay 95 percent of the taxes; and they are going to get a tax cut with our proposal. I am eager to vote for it.

    People have then said, well, this tax cut is irresponsible. Kennedy had a tax cut that was twice as large as ours, and he did not have a real surplus. Reagan had a tax cut which was three times as large, and we had a deficit. We want a tax cut, and we have a surplus, and we only want to take a quarter of it.

    So this is the debate I look forward to having in the months to come. I hope that we do not make it smaller than $1.6 trillion; and I hope it goes to the people who deserve it, the people who pay taxes.

    Again, I would like to thank my colleagues on both sides of the aisle. It has been an interesting debate. I am happy we are on the right side on this one.

    We do not want more spending, at least not more than 4 percent. We want to return some of it back to the American people because they are the ones who pay the taxes. We do not want to make government larger than it already is. We want to make it consistent with our needs.


    It is one thing to borrow against projected revenues as long as that revenue stream stays consistent. It is another thing to continue borrowing against that revenue stream after it has long ceased to exist.

    This is the tenth year of the 2001 tax cuts and the eighth year of the 2003 tax cuts. It is time to put our country on a path to economic recovery that has been proven to work. Yes, we need to cut the fat out of government and strive for efficiency -- but to reach economic conditions that will allow repayment of our countries debt obligation will mean letting the 2001 and 2003 tax cuts expire.

    -- Posted by Geezer on Sat, Jul 30, 2011, at 11:57 AM
  • Determining the problem wasn't the issue. It is finding the solution that is.

    -- Posted by bberry on Sat, Jul 30, 2011, at 1:26 PM
  • bberry

    Some of the solutions are available and have been for a long time. The concept that there are no solutions available is just not valid.

    As an example - last years legislation that was passed extending unemployment benefits also contained legislation extending the Research & Development Tax Credit along with new Environmental Remediation Expensing Allowances.

    Many think that the Environmental Remediation Expensing was taken back to Dec. 31, 2009 to facilitate the BP Oil Spill time-line. Regardless of your point of view on inclusion of the BP Oil Spill, it provided an opportunity for those companies with toxic waste sites to expense their costs and to meet their obligation to the American Public. Many of the companies that have multiple toxic waste sites have also been posting record quarterly profits in the billions of dollars -- it isn't like they haven't had the resources to address the problem.

    The last EPA assessment listed over 250,000 sites that needed remediation work, so there isn't a lack of shovel ready projects by any means. What we lack is a willingness of industry to step forward and meet their obligations. Instead we hear nothing but politicians and lobbyists claiming that the EPA is constantly over-reaching their authority. If that were true, we wouldn't have 250,000 toxic waste sites impacting the health and welfare of our citizens -- and we wouldn't have such a high unemployment rate.

    There are solutions available to help ease the economic situation, but many prefer to lay the blame strictly on Government Spending. Control of excessive Government Spending is just one part of the solution - every segment of our economy will have to contribute if we as a country truly intend to address our debt obligations in a reasonable time frame.

    -- Posted by Geezer on Sat, Jul 30, 2011, at 3:41 PM
  • I agree there are many solutions. The Boehner plan was a possible solution; the Reid plan was another, although both have been rejected. It is more specifically finding a solution both sides will agree on. Let's hope they can do so before a default.

    -- Posted by bberry on Sat, Jul 30, 2011, at 4:54 PM
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