Slashing With Butter Knives: The Debt Ceiling Debate

The nation will be waking up on Wednesday with a platitude hangover. Accordingly, GOP senators who want to see the upcoming debt ceiling fight result in mildly significant spending cuts have used the past week to argue that lifting the ceiling is not the only "adult" course of action.

Despite the debt doubling in the past decade and public opinion mostly behind rejecting the ceiling increase, the Republican House leadership has made sufficient talk of "leverage moments" to indicate they will crack when it counts. Sen. Pat Toomey (R-Pa.) took to the Wall Street Journal to argue that the country need not stop governing without new debt:

In fact, if Congress refuses to raise the debt ceiling, the federal government will still have far more than enough money to fully service our debt. Next year, for instance, about 6.5% of all projected federal government expenditures will go to interest on our debt, and tax revenue is projected to cover about 67% of all government expenditures. With roughly 10 times more income than needed to honor our debt obligations, why would we ever default?

Toomey makes no specific calls for cuts, essentially admitting that with the right cuts and reforms Congress will pass a ceiling increase. Sen. Jim DeMint (R-S.C.) gives no such ground, calling for passage of Republicans' Spending Reduction Act, which won't likely be that effective anyway. Sen. Rand Paul (R-Ky.) might boast the biggest chainsaw—details are sketchy, but his budget plan reportedly slashes $500 billion in year one.

The Spending Reduction Act has already inspired hand-wringing over deep cuts and job losses. Toomey's modest proposal inspired the cry that once entitlements are accounted for, we would—horror of horrors—have only enough funds remaining to cover interest twice over. In reality, using the shady accounting and pension fund raids practiced by broke states like Illinois and California, we could waddle along with saddlebags full of IOUs before tipping over. Although they need to trade their penknives for machetes, there's a handful of senators and freshmen congressmen who are squawking in the right key. Don't hold your breath for the rest figuring it out. 

Watch Nick Gillespie discuss the budget ceiling on Freedom Watch earlier this month: 

More from Reason on the debt here. 

Comments

[shrike]

nice article, Josh (new name for me).

The GOP loves Big Gov (see the Stossel article where Bushy-boy DOUBLED spending) - but they LOVE religious big spending......

Show me a hard core conservative/Teabagger and I will in turn show you an aborto-freak/Theocrat/Medicare lover.

[We need smarter trolls]

F-

[shrike]

aww fuck you. Stossel nailed it - the Bushpigs doubled spending and ran a surplus to a $1.3 trillion deficit.

Now the same bastards can't find $100b in cuts in their own pro-forma budget.

I have been around the block you asshole --- conservative = liar.

[heller]

And liberals can do no wrong.

[East Bay Jay]

It's worse than that. After two years of Obama and four years of Pelosi/Reid the best 'argument' the Dems have on the economy is that the stupid, with evil crafty sprinkles, Bush did it all and they just happened to be stuck with power at the wrong time OMG! Like it's not even their fault so get off their back already!

[Spaceno]

Unlike those brave liberals that in 2 years generated more debt than the bush years combined.

Those same brave liberals that couldn't pass their own budget.

Question - why are they called liberals? They don't believe your smart enough to know what to do with your money, food, or life.

[joshua corning]

Show me a hard core conservative/Teabagger and I will in turn show you an aborto-freak/Theocrat/Medicare lover.

I counter your medicare lover with

Sen. Rand Paul (R-KY) might boast the biggest chainsaw?details are sketchy, but his budget plan reportedly slashes $500 billion in year one.

Do you even read the articles you are commenting on?

[jester]

Federal job losses? Tell me it ain't true. A Federal job is a job for life. That's what one signs up for with a Federal job. Well, and a few other perks as well.

Only Capitalist non-union private sector jobs should ever be on the chopping block. Raise taxes instead!

Protect the American worker!

(sorry, just beating the trolls to the punch)

[Jerry]

Passage followed warnings by Republican leaders that failure to raise the lid would prevent the Government from borrowing enough money to pay its bills and might "create panic." Democrats protested bitterly that the 11th hour request, coming as Congress was rushing toward adjournment, was not necessary. Some of them demanded drastic action now to trim Government spending and halt red-ink financing.

Ike Wins Debt Fight In House ca. 1953

[Chad]

No one gets a seat at the adults' table until they admit that 14% of GDP collected as tax revenues aren't going to cut it, and federal tax revenues need to be raised to ~25% of GDP. That means an end to the Bush cuts, a VAT, and a carbon tax, or some similar combination.

Get back to me when you want to have a grown-up's discussion.

Chad

[Tman]

The Chad "Adult Table": where no government program is too expensive, taxes are too low, and we need to have a Unicorn Fantasy Tax to handle TEH EXTERNALITIES.

Do they serve play-doh at your adult table Chad?

[FIFY]

Get back to me when you want to have a grown-up's discussion. suck my cock.

[heller]

First of all the projection for this year is 17% of GDP, not 14%. Second, tax revenue has never gone above 20.6% for 70+ years, despite very high taxes for much of that period. Third, considering that the government can't really control revenue (since revenue is more dependent on how the economy is doing, how much people are investing etc than how much government taxes) we should be looking to change what the government actually has control over, its spending. In both 2009 and 2010 the government overspent 10% of GDP (the money that it spent minus the money it got from tax revenue was equal to 10% of GDP). This year, that overspending is expected to be 8% of GDP but will probably be higher. Where does it stop Chad? When are you going to face reality and realize that the government can't keep spending trillions of dollars (1.4 trillion every year) it doesn't even have?

[Chad]

"Never gone above 20.6%" unless, you know, you look across either pond. Plenty of nations bring in far more taxes as a fraction of GDP than we currently do. It is almost entirely because of VAT and energy taxes.

We really shouldn't raise income taxes much higher than they were in the 90s, though we should cut most of the breaks and loopholes. Corporate taxes should actually be lower, such that they are in-line with international norms. The revenue can be re-captured by treating capital gains as regular income. Inheritances should also be treated as income. This circumvents the hole "death tax" argument, as you wouldn't be taxed for dying, but rather for receiving a windfall.

There is no question that the government can collect more than 40% of GDP in a rich society. Many European nations do just that. I'd settle for ~35% including federal state and local, similar to Germany. That should be plenty.

I AM facing the reality that we can't keep deficit spending like this. When are YOU going to face the reality that we are never going to close this gap with spending cuts alone?

That's what gets you a seat with the adults.

[R C Dean]

Never gone above 20.6%" unless, you know, you look across either pond. Plenty of nations bring in far more taxes as a fraction of GDP than we currently do.

Don't forget to add state and local taxes on top of the federal taxes for a complete tax burden of, if I recall, 30%ish. I think you'll find its not far short to what governments extract "across the pond."

Regardless, it doesn't matter. Once you get into the entitlement/wealth transfer game, there's never enough. Or haven't you noticed that your enlightened friends "across the pond" are having fiscal crises of their very own?

[Rrabbit]

That comparison is flawed. When looking at tax percentages, the US somehow only look at the Feds, but the
states and the cities collect taxes, too.

The numbers you see from various European countries usually are their total taxes.

[Chad]

"Never gone above 20.6%" unless, you know, you look across either pond. Plenty of nations bring in far more taxes as a fraction of GDP than we currently do. It is almost entirely because of VAT and energy taxes.

We really shouldn't raise income taxes much higher than they were in the 90s, though we should cut most of the breaks and loopholes. Corporate taxes should actually be lower, such that they are in-line with international norms. The revenue can be re-captured by treating capital gains as regular income. Inheritances should also be treated as income. This circumvents the hole "death tax" argument, as you wouldn't be taxed for dying, but rather for receiving a windfall.

There is no question that the government can collect more than 40% of GDP in a rich society. Many European nations do just that. I'd settle for ~35% including federal state and local, similar to Germany. That should be plenty.

I AM facing the reality that we can't keep deficit spending like this. When are YOU going to face the reality that we are never going to close this gap with spending cuts alone?

That's what gets you a seat with the adults.

[Tman]

This is why no one takes you seriously Chad.

You don't name a single thing you'd cut, and instead read of list from Pelosi's wet dream.

If you like the way "Europe" takes 40% (ha! 40%? Have you ever BEEN to Europe?) they have flights leaving daily. As flawed as our American experiment might be, I prefer our chances over the available Europeans options.

The "adult" table? Seriously?

[heller]

I AM facing the reality that we can't keep deficit spending like this. When are YOU going to face the reality that we are never going to close this gap with spending cuts alone?

Bullshit Chad! When did you face the reality of spending cuts? What specifically do you support cutting, and by how much?

And after you do that, tell me why you can't cut this gap with spending cuts alone? There are reasonable cuts and reforms that we can do right now that would balance the projected budgets all the way to 2030. The only welfare cut necessary is tying Medicare spending to GDP growth +1%. It can be done without any increase in taxes. If you want the list and the amounts saved, I will type it up here.

[Spaceno]

It's working out well for the European nations - high employment (makes the US's look small).

Italy, Portugal, Spain, Greece - all with high inflation and needing to be bailed out. Britian facing it's own crisis. France rioting because of no jobs and heaven forbid raising the retirement age to 62.

Again, like everyone the government should live within it's means.

[Paul]

Although they need to trade their penknives for machetes

Holding one of these two things in Seattle will get you shot four times in the side by a cop (resulting in subsequent death). Guess which one?

[cynical]

Am I homeless in this question, or an upstanding white hipster?

[Binky]

Next year, for instance, about 6.5% of all projected federal government expenditures will go to interest on our debt, and tax revenue is projected to cover about 67% of all government expenditures.

See, the government acts basically the same as the typical American household.

Feel better now?

[[e-mail]]

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[R C Dean]

Sen. Toomey makes no specific calls for cuts, essentially admitting that with or without the right cuts and reforms Congress will pass a ceiling increase.

The Repubs are hopeless. Weak, and stupid negotiators. They've already said they will increase the debt ceiling, so exactly what leverage do they think they still have to extract concessions.

Its like you're looking at a piece of property, and tell the realtor "Its perfect. I'll pay whatever they want. But I demand $10,000 off the asking price." Hmm. Gee. What do you think the sellers are going to say?

Weak. Stupid.

[SM]

You guys are all pretty funny....you realize the out years of the budget are in balance, save for medical spending? Single payer and its fixed, a tweak to SS...no big deal here.

I do agree the tax code needs reformed, but i disagree with adding a regressive VAT. Instead, as chad said, tax all income as income - including "unearned" and "inheritance" - drop the rates for the poorest americans, make the tax code actually progressive (anyone else realize we're paying at least 15% more on every dollar we make vs. hedge fund managers?), take the wage cap off SS contributions - this isn't too hard to do. Close the double irish and dutch sandwich, MAYBE change corporate rates after closing all the loopholes - although their effective rate may still be a lot lower than 35%...

And if you wany to cut spending for good measure...i'm sure we can all agree to get rid of 80% of our Orwellian "defense" spending...

We really don't need that much new income - after the recession is over at least...or until the next one starts i should say...you don't think the billionaires are going to start a new bubble?

Cmon, can't us liberals and libertarians agree to cut taxes on most of us, cut the military, and we get single payer - although you are still free to get your own insurance if you want? Wouldn't that be better than what we're both getting screwed with now?

We'll put Frank and Paul in a room, and whatever they come out with we'll implement...fair enough?

[Spaceno]

I personally never understood the inheritance tax. I work my life and I'm taxed on what I earned. I want to pass that on to my children so they can have a better life. It's taxed because the government wants to take another cut. It's a double tax - awesome.

What libertarian wants a single payer health care system?