DEBT CEILING MADNESS

From PUBLIC CITIZEN, Robert Weissman, President.

Washington is in the grip of a fever. It’s hard to find a word other than lunacy to describe what’s going on. We are veering toward potential economic catastrophe. And Congress is hung up on a debate that shouldn’t be occurring. It is debating an imaginary problem that conjures scary future scenarios but ignores dire existing circumstances. The consensus proffered solution to the imaginary problem would damage our country and further weaken our economy.

Democrats and Republicans are at loggerheads, but they are disagreeing primarily about how much harm they want to impose. That’s a very consequential disagreement, but it ignores the fact that we don’t need to impose any harm at all.

Let’s correct some of the upside-down components of the current debate.

1. There should not be a debate over increasing the nation’s debt ceiling.

Prior approval of increases — more than 100 — have been routine, and this time should be no different. Raising the debt ceiling merely authorizes the U.S. government to make good on spending previously authorized by Congress.

It is true that Republicans in Congress signaled some time ago that they would not easily agree to another increase in the debt ceiling. That’s why Democrats should have passed an increase in the last Congress, a move they declined to make because of fear of electoral consequences. At very least, the administration should have insisted on increasing the debt ceiling as a condition of agreeing to the December 2010 deal to extend the Bush tax cuts.

2. The government should be running larger, not smaller, deficits.

The country has not recovered from the Great Recession. One in six people who would like a full-time job are unable to find one. We don’t have to worry about hard times coming sometime in the future — we are living in hard times right now!

To fuel a stalled economy and put people back to work, the U.S. government should be spending more money. This is basic Keynesian economics. It shouldn’t be controversial. State governments are starved for cash, and laying off thousands of teachers, librarians, fire fighters and police. If the federal government gave the states block grants, they could keep people employed, and keep delivering needed services. Our country, and our economy, would be stronger.

Much of the country is suffering through a summer of staggering heat waves. This should be an urgent reminder of the need to take radical action to mitigate catastrophic climate change. Especially with so many people out of work, the government should be spending money to employ people to retrofit buildings around the country and to invest in R&D on solar and wind energy.

And, of course, there is no shortage of other pressing needs to which people can be put to work. By contrast, cutting spending right now will worsen our very severe economic crisis, and push more people out of work.

3. Our economic problems are present, not future.

It is both bewildering and unconscionable that pontificating politicians and pundits express so much concern for imagined future economic problems while ignoring the real and present suffering that pervades the country. There is also some very fuzzy math that takes over the discussion. If it continues to grow economically, and if it makes wise investments, the country is going to be significantly richer in the years and decades ahead. We’re not going to be poorer, irrespective of the size of the national debt.

4. It’s actually not very hard to find a few trillion dollars.

To say that the debt ceiling debate shouldn’t be taking place, and that we should be running larger deficits, is not to say there aren’t appropriate areas of the budget to cut, and appropriate revenue streams to tap.

On the spending side, among many other things, we could:
• Save more than a trillion dollars over 10 years by ending the wars in Iraq and Afghanistan.
• Cut more than $500 billion from the Department of Defense budget by replacing private contractors and eliminating weapons systems the Pentagon says it does not need. Hundreds of billions of more in savings are available through modest cuts at DoD. The United States would still have, by far, the world’s largest military. A very modest proposal from the Congressional Progressive Caucus totals $2.3 trillion in savings over 10 years through ending the wars and cutting the Defense budget.
• Save more than $150 billion in pharmaceutical costs just by negotiating better prices with Big Pharma. More aggressive moves to fix the broken pharmaceutical development system could offer savings far larger, with the government obtaining a significant portion of well over a trillion dollars in savings on pharmaceutical expenditures over 10 years.
On the revenue side, among many other things, we could:
• Tax Wall Street speculation and raise between $1 trillion and $1.5 trillion over 10 years.
• End offshore tax haven abuses, and raise a trillion dollars over the next decade.
• Close corporate tax loopholes. By way of illustration, getting rid of just two large breaks, deferral of overseas revenue and accelerated depreciation, would raise about $700 billion. The Treasury Department lists $365 billion in corporate tax breaks being gifted annually — that’s $3.65 trillion over the 10-year period talked about in these debt debates! Thanks to all the loopholes and escapes, corporations are benefiting from record low tax rates — 21% on average (this is what they are actually paying, not the nominal rate). For a handful, the tax system is a source of revenue. Citizens for Tax Justice looked at 12 major companies that together made $171 billion in profits from 2008-2010 and found that the dozen companies together paid negative $2.5 billion in taxes, thanks to $62 billion in tax subsidies.
• Tax capital gains as ordinary income, and raise $1 trillion.
Many of these and other sensible budget ideas are included in the Congressional Progressive Caucus’s People’s Budget. A key thing to keep in mind about all these savings and increased revenue is that they should be ploughed back into public investments and public priorities. We need more net spending, not less. Over time, we need to reduce the deficit, but much of that will occur automatically, as the country moves back to fuller employment and more robust growth.

We do not need to touch, nor should we touch, Medicare or Medicaid. Nor should we tamper with Social Security, which is financed separately from the rest of the federal budget and has nothing to do with the debt. It’s impossible at this point to know how the debt ceiling debate is going to play out. It’s also highly uncertain what happens if the U.S. government defaults — catastrophe may follow, or it may not.

What is certain is that irrationality is ruling the day.

It’s past time to leave behind this orchestrated and false crisis. Our country faces a legion of real and serious problems. It’s time we got to work taking them on.

See also: "Suicide Watch: Debt Ceiling Showdown" by Jack Random. Posted on Counterpunch 7/29/11.