Navigating Politics

Democrats and Republicans in Washington are in a huge dispute over raising the debt ceiling. The issue itself is one that is extremely complex because of the extreme political posturing involved in the entire process. To help you understand it all, Navigating Politics has provided some answers to common questions in hope of helping you contextualize the debate.

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What is the Debt Ceiling?

Established in 1917, the debt ceiling has been raised 74 times (about 9 Times alone in the Bush Administration) by both political parties. As we’ve reported, the debt ceiling is a mechanism that caps the amount of debt in which the United States can hold. It is comparable to a limit on your credit card, however congress (the borrower) has the power to increase its own limit. The reason why the debt ceiling is unfamiliar to most people is because, in addition to being hidden in popular legislation, its increase has never sincerely been at risk.

What happens if the limit is not increased by August 2^nd?

The United States has never before defaulted on its debt , so we cannot look back at history to judge (like we did during the government shutdown debate). However, many economists insist an US default would be economically catastrophic. The President of the United States himself said that he could not guarantee medicare and social security checks would go out on time and Treasury Secretary Timothy Geithner warned there would be dangerous consequences.

If the United States of America were to default it would be catastrophic for the American economy, for the American financial system, for the average American people, it would be a substantial unfair tax on all Americans and it would bring the world economy … to the edge of recession again, -Timothy Geithner

To understand why, lets try to simplify and scale down the numbers as much as possible; The US currently spends 10 dollars on national defense, veteran care, Medicare, Social Security, college loans, debt interest payments, and other federal programs(just to name a few). However, it only collects 6 dollars in taxes to pay for all these expenditures. This means the United States currently borrows (puts on credit card) about 4 of every 10 dollars it spends. If the debt ceiling is not raised, that credit card would be gone. The US will IMMEDIATELY no longer be able to borrow the 4 dollars, and would only have access to the 6 it collects. This means the government would be taken to a point in which it must pick and choose which bills it will pay.

Because the US has never in its history reached its credit limit, we don’t know the priority of each expense and what expenses the government will not be able to pay. For example, while there may be enough money to pay for Medicare, Social Security, and defense,  there will be none left for federal salaries, college aid, bridge inspections, disaster response, unemployment insurance, or food stamps. The government may have to choose which troops it pays, or which seniors get Medicare and social security.

There are also potential credit risks because people who loan money (the 4 dollars) to the US, would become less certain that they will get their money back. Therefore, interest rates will increase for not only the government, but also business and consumers. This can make it harder for small business to take out loans, and will make the loans they have more expensive (potentially requiring them to lay off workers). President Obama said if the credit rating (like your own credit score) for the United States is downgraded, it could essentially have the same financial effect of a massive tax increase on the middle class.

What is stopping an increase?

An increase in the debt ceiling/limit, like any other law, must be passed by congress and signed by the President.

On one side you have Republicans, who have threatened not to raise the debt ceiling unless spending reductions of an equal amount accompany the increase. The President wants an increase of about 2.4 trillion dollars that will last through the 2012 elections; therefore, republicans want at least 2.4 trillion dollars in budget cuts. Republicans want to cut deeply into Medicare and Medicaid whose budget is dramatically increasing and is on track to becoming unsustainable within the next 10 years. However, the Republicans are completely against tax increases of any kind, citing the high unemployment rate.

Republicans, the speaker and I are united in saying we don’t want to raise taxes on the American people. Our conference is united, and we have said as he set out the goal that we would like to cut spending more than what we raise the debt limit without raising taxes. -House Majority Leader Eric Cantor

On the other side there are the democrats who, in bipartisan negotiations led by the Vice President, have agreed to about 1.3-1.5 trillion dollars in budget cuts. Democrats are against cutting Medicare or Social Security and are completely against making any changes that could cut cost or raise prices for current Medicare recipients. Instead, they are pushing for tax increases on the wealthy.

It is unfair to ask seniors to get less in benefits and wait longer to get onto Medicare — all while Republicans back tax breaks for big oil and corporations that ship American jobs overseas. -House Minority Leader Nancy Pelosi

Then there is President Obama pushing for what he calls a “balanced approach,” that seeks to find some middle ground. The President is pressing for a large-scale deficit reduction package of about 4 trillion dollars over the next 10 years.  In his package he cuts spending by 3 trillion dollars, including cuts to Medicare and Social Security. He also calls for 1 trillion dollars in tax increases through tax reform. He wants to eliminate government subsidies to big oil and gas companies, limit corporate tax deductions, and close loopholes for private jet owners.

I think the American people hold that we should not be asking sacrifices from middle-class folks who are working hard every day, from the most vulnerable in our society — we should not be asking them to make sacrifices if we’re not asking the most fortunate in our society to make some sacrifices as well. –President Barack Obama

What are the options for compromise:

There are currently about 7 different plans out there. (Recommended: Click link to view a quick summary of each) However, out of the 7, there are 3 that are said to be most feasible.

One option is a small deal, one that raises the debt ceiling to the necessary levels, but does not cut spending by the same amount. This will force republicans to walk back on their insistence to match the debt ceiling increase with equal or greater spending cuts. It would also force democrats to accept about 1.5 trillion dollars in spending cuts without tax increases. The problem with this deal is it doesn’t solve the deficit problem, but serves as a down payment.

The second option is what the President is pushing for: a large-scale deficit reduction plan of about 4 trillion dollars. This plan cuts spending seriously, increases taxes through tax reform, and truly addresses our deficit problem. This would require democrats to accept deep cuts, including ones to Medicaid and Medicare-a big concession. And it would require republicans to accept tax increases (covered by the word “reform), something that House Republicans  are skeptical of. However, this plan got a boost after a bipartisan group of senators called the “Gang of Six,” proposed a package very close to the President’s plan.

The third option is PURE politics and is one proposed by the republican minority leader in the Senate(the man who said it is his #1 job to make Obama a 1 term president). Without getting too specific, it would change the rules so that the President can increase the debt ceiling in three increments by sending a formal request and “proposing” spending cuts (that don’t have to pass). Congress can then pass a “resolution of disapproval,” that would stop the increase. The President, knowing the consequences of default, would respond with a veto to the resolution of disapproval, allowing for the debt ceiling to be increased(I know, its weird). The politics behind this is that through legislative maneuvering, it allows for both an increase of the debt ceiling(to avoid economic collapse) and for all republicans to be able to vote against it. This puts the President and democrats on the defensive for the 2012 election because: (1) they will be on record for increasing the debt ceiling three times,  (2) it allows the Republicans to be able to fight and vote against the increase three times(even though they proposed this system), and (3) it forces the President to detail 3 sets of specific spending cuts that will give republican candidates political ammunition. The President calls this the “fallback” option if debt talks stall because although it sets him up, it fulfills the responsibility to raise the debt ceiling. The problem with this is it doesn’t solve our debt problem at all, it just allows Republicans to assign blame to Democrats.

My Take, My Opinion

What is going on right now is a shame and it represents the exact reason why people get turned off by politics. While this debate is built upon a sincere and genuine need to solve this country’s deficit and debt problems (it is a growing problem), it has morphed into a circus in which everyone can showcase their own political stances while achieving nothing. Democrats need to look at the data and see that Medicare costs are out of control and the program will be bankrupt within 10 years if nothing is done. Entitlement spending is about a third of our budget, so you cannot exempt any cuts to entitlements if you are serious about cutting spending. The Republicans NEED to accept the fact that Taxes are apart of the solution to this problem. The claim that “We don’t have a revenue problem, we have a spending problem” is simply not true. The truth is we have BOTH a spending problem and a revenue problem. This is something that multiple bipartisan deficit commissions have accepted and is a fact the American people overwhelmingly approve. It is also something that just seems morally correct: If we as a nation are going to cut deeply in federal programs, increase interest rates on student loans, and dramatically cut Medicare, then it is only right to ask the people at the top to do their part in solving this problem; especially considering the fact that the bush tax cuts for the wealthiest 2% of Americans increase the deficit by more than 700 billion dollars ALONE.

Therefore, I support the large-scale plan, and would try to go larger. The fact is, in this deficit deal, NOBODY is going to come out completely happy. They are going to feel like they just had their wisdom teeth pulled; in which there is much comfort in knowing the long-term problem is solved by thwarting the pain that was to come with inaction, yet there is still no desire to celebrate after the painful surgery. Republicans, if they are serious about solving the problem, will have to compromise on taxes. Democrats, if they are serious about solving the problem, are going to have to accept cuts AND REFORM entitlement programs like Medicare and Social Security. President Obama, if he continues to walk the middle road, will have to realize that this may hurt his re-election campaign(who wants to vote for the guy who increased the Social Security age). However, this is why we send our politicians to Washington. We don’t send them there to  simply build and polish their records for their re-election campaign, we send them there to solve the problems that got them elected. That is why President Obama is there, that is why Speaker Boehner is there, and that is why Harry Reid is there. They are there to solve the problems facing our country, not to prepare and set themselves up for the next election.

It is time they realize that, it is time they solve the problem in which THEY CREATED. Therefore, it is time to reduce the deficit and do it now, so we can move on and address our immediate problems, like Jobs and our Rising Unemployment rate. Lets hope they do the right thing.

Tell me what you think about the debate, what would YOUR compromise be. Post a comment below!!

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