Debt Negotiations

Some thoughts on the debt ceiling negotiations...

We are told that if we don't raise the debt ceiling by August 2, we will default on our debt. Why? From what I've read, monthly debt service is about $20 billion. Federal revenues per month are about $200 billion. So, we can certainly service our debt, i.e., not default. That said, we'll have to prioritize spending, and it won't be pleasant, but default? At least in the short term, we'll default only if Obama decides to default.

On our current pace, we will have deficits over the next ten years of approximately $10-15 trillion. We are told that a "big deal" would mean $4 trillion in deficit reduction over ten years. That means we will have an additional $6 to 11 trillion added to the current $14 trillion in debt we currently have. That means we will be Greece. And it won't take ten years to get there.

When the top 5% of income earners pay about 58% of federal income taxes, and approximately the bottom 50% pay none, why do Democrats insist that the wealthy have to start paying their fair share? Aren't they already doing that? Wouldn't "shared sacrifice" mean that at least some of those in the bottom 50% pay some federal income tax?

Why do Democrats assume that if we raise tax rates on the wealthy, we will generate X amount of revenue? Do they not grasp that people change their behavior in response to higher tax rates? Do they not understand that the wealthy are better able than the rest of us to avoid higher taxes? Why don't Democrats understand the concept of dynamic analysis? Why don't they understand that when you punish the wealthy, you also punish those who aren't wealthy (see luxury tax, 1990)? Why can't they see that the pursuit of "fairness" ends up hurting those they claim to champion? Why are they so blinded by their hatred of the wealthy? Why don't they recognize that lower rates on the wealthy not only increase revenues to the government, but also increase the proportion of revenues paid by the wealthy? I realize this is counter-intuitive, but see Coolidge, Kennedy, Reagan, and Bush II. I see where some Democrats are floating the idea of a return to an upper marginal rate of 70%. It is difficult to describe how stupid that would be.

Why do we hear so much about tax "loopholes"? Loosely speaking, a loophole is something which allows someone to evade the spirit of the law. But when oil companies deduct business expenses as permitted by the tax code, just as other companies are allowed to do, we are told that they are taking advantage of a "loophole". No, they are not. They are abiding by the tax code, which Congress has put in place. If we want to change the tax code and disallow these "loopholes", let's not be shocked when oil companies scale back their efforts to find more oil, or pass along their higher costs of doing business to us. Couching provisions of the tax code in terms of being "loopholes" is a deliberate attempt to stir up populist anger. Sadly, it's effective.

Obama tells us that if a deal isn't reached by August 2, social security checks may not go out. There may not be enough money "in the coffers". But what about the Social Security Trust Fund? We've been told by progressives that social security is solvent till 2036. Progressives have ridiculed those who say there is nothing in the trust fund but government IOU's because government has already spent that money. If progressives are correct, we should be able to simply tap the trust fund to keep social security checks flowing. Right? For all the carping by politicians about the excesses of the free market, if those in the private sector did what politicians do, they'd be in jail.

I hear progressives criticizing Republicans for their unwillingness to compromise with Obama. After all, they say, Obama is willing to cut spending and even put entitlements on the table. What could be more reasonable? But while Obama wants tax increases quickly, spending cuts would be put off to the "out years", i.e., sometime down the road. We have seen this gambit before. Both Reagan and Bush the elder fell for it. They trusted that democrats would honor future promises of spending cuts, which of course never happened. Why should Republicans today believe such promises? And does anyone know what Obama's plan is? I suspect not, since he has offered no specifics. He also knows that as long as Democrats control the Senate, he can throw out entitlement reform with no worries that it will actually happen. He wants to pretend to be the reasonable adult in the room while offering nothing of substance.

Obama says we don't need a Balanced Budget Amendment, that politicians just have to "do their job". Does anyone trust politicians to do their job? Wouldn't it be preferable to try to prevent politicians from doing the "job" they've been doing for decades and which they are apparently hard wired to do, namely, screw the public? It would take a while for a BBA to get passed, assuming it could, so it won't help in the short term. But long term, I'd like to see some mechanism in place to make politicians "do their job", rather than trusting when they say "I'll respect you in the morning."