So What’s the Big Deal About the Debt Ceiling?

Get ready for Round 2 of a main event that’s going to play our over the next 18 months.  And the bell rings on the debt ceiling debate.

So here’s a question for everyone to ponder.  If you were loaning someone money, which type of person would you prefer?

  • A person who is taking this loan as their last loan without any further borrowing, and has a comprehensive plan in place to pay off the money you are loaning them, as well as all the other money they owe.


  • A person who is borrowing money from you, is already in debt equal to about 60% of their yearly salary, and has no plan in place for paying any of the debt off, in fact, is certain that they will have to borrow more money in the future.

In this scenario, if we were to simply vote to raise the debt ceiling, we are the second example.  If we refuse to raise the debt ceiling, and put a plan in place to pay off our debt, then we are first example.

So why does anyone think that if we don’t raise the debt ceiling, we will default?  We will actually become more attractive to lenders if we decide to get our fiscal house in order.

The fact is that we have more than enough money from tax revenue to cover the interest on our national debt without raising the debt ceiling.   We will not default on any payment regardless.  We will however have to cut other expenses.

Only the Treasury deciding not to continue to pay interest on our debt from current tax revenue would cause a default, not a failure to raise the debt ceiling.

Don’t fall into the trap of believing that not raising the debt ceiling is catastrophic – its fear mongering.

Not raising the debt ceiling and SUBSTANTIAL spending cuts is exactly the message of fiscal responsibility we need to send our creditors.

Who would you loan money to?

Guest Blogger Jeff


8 responses to “So What’s the Big Deal About the Debt Ceiling?

  1. The first example sounds appealing, except many proponents of that scenario have largely been guilty, or partisans of those guilty of creating massive deficits, in the 1980s, early 1990s, as well as the 2000s, so things are not so clear cut.

    Also, one may have a plan, but could also be a liar or fraud, and back out – say push through spending cuts and then unbalance matters with further tax cuts for favored constituencies.

    Otherwise, I doubt our situation could just be easily resolved just by cutting spending (the Irish tried that and didn’t work, same with the British).

    I would argue too that the top personal income tax brackets should be raised (or new ones created) at a minimum to pay for the wars, to make sure that “leaders” are not so complacent about engaging in conflict again. Also, wars demand some semblence of sacrifice.

  2. Michael – what do you think about a specific “war tax”?. For my conservative friends who are about to get all over me with the obligatory RINO rhetoric, I’d argue that a war tax is a quite conservative idea. A fiscal conservative – above all – should stand for paying for whatever we spend. You can argue the “what” all day long – but in the end – if you spend it – then pay for it. While I’m more in the Rand and Ron camp fiscally, its hypocritical to take taxes completely off the table if one is truly serious. A 5 to 1 ration sounds good to me. $1 of tax increase for every $5 of spending cuts.

    A war tax would be a great way to make all of us dip into our pockets every time we think there is an injustice that needs to be made right. We’d likely end up with a less interventionist foreign policy.

    BTW – did anyone see that CBO just came out and said that the short term budget deal will actually not decrease the deficit at all – just freakin brilliant.

  3. I agree with a war tax. Actually I think a tax should be increased even if their is just a “resolution” a la the Formosa Straights resolution, Tonkin Gulf resolution, etc.

    And, increase it or decrease it based on 6 month reviews for the cost of the action as well as for the support operations back in CONUS.

    Would make people pay attention at least to what is going on in the world and think a little bit more seriously before stepping into some situation. I would have the war tax resemble the old LBJ surcharge circa 1968, for top brackets, or even made up ones, since the decision makers seem to come from those sectors as well as their lobbyist friends and more active partisans and supporters.

    Now to be provocative, I would argue your friends are not conservative, but seem to veer towards an odd, recurring strand of southern planter elitism that never wanted to pay taxes, as well as royalism (which modern conservatives arose in opposition to in the vein of Adam Smith).

    For the southern bit, remember, they lowered taxes during a war – the Mexican one. Also, in the name of lower taxes took umbrage at funding railroads, which put them in a pickle in the 1860s.

    To top it off, this strand of pseudo royalism also instigated some of the few of the real defaults in government history, with predominantly southern states under these elites stiffing the British bondholders in the 1840s or 1850s (which the British clearly remembered – both events and specific slavers – in the 1860s).

  4. OK – you lost me when you targeted the wealthy. Two things never cease to amaze me.

    1. The philosophy that government has a right to my money as a never-ending source to fund whatever injustice it believes exists.
    2. The idea that the wealthy do not already fund a disproportional amount of our spending.

    Some facts. 47% of Americans pay zero federal income tax. The top 1% of Americans pay 40% of all taxes. According to the OECD, of all OECD countries, the US has the MOST progressive tax system. The top 10% of income earners make 33% of the income, yet pay 45% of all the taxes. More than – for example – countries like Sweden, Norway, France, and the UK.

    I’ll bet that’s shocking to most. These social democracies actually rely more heavily than we do on taxes like consumption, VAT, and sin taxes that spread the burden fairly – or as American progressives might say – stick it to the poor and middle class.

    On a completely different topic – I cringe when I hear folks say things like “curtailing tax expenditures” – code for letting the Bush tax cuts expire. While I am actually for their expiration since we have to pay for what we spent, it offends me that there are people (not you Michael) who believe that taking more of my money counts as a “spending cut”. Obama actually just said this in a speech – for real!

    Great debate for April 15th!!!!!!!

  5. I say target the wealthy for a war tax because I believe they would prove more responsive to think twice about the implications of a conflict. Essentially they are likely to have more lobbying power, more magnified opinion on the subject- One doesn’t have to be a marxist to suspect that…..LBJ’s 10% surcharge in 1968 started getting people thinking/worrying/antsy about Vietnam..

    Actually, weren’t deductions in some ways devised to make taxation more palatable for the regular working stiff? Both income, payroll, etc.? May be apocryphal, but thought I once read that Milton Friedman had a hand in it..

    Knew about VAT, and never liked it. As for closing deficits, well for now I would say create higher income tax brackets temporarily (simply because that is where the money is), and institute sin taxes. If those don’t work, then a gas tax or some federal sales tax. In addition, close loopholes in the code (like are we still allowing a percntage of entertainment be deducted by businesses?). And then there is the “back to the 80s” tact and raise payroll taxes for medicare/social security.

    As for the OECD figures, do they include capital gains? That is key considering the interest carry controversy with hedge funds.

  6. Ok how do you close the Tax codes loop holes ?
    1. Do away with the 16th amendment in the Constitution that allows congress to tax people . There is the power that congress has and makes it a issues each time during a campaign or makes people turn on a class of people.
    2. Do away with income base tax and replace it with a National sales tax at a level that people can live with. This way every one pays and puts money back into the system.
    Do those two things and see and see how fast the we pay off our debit over about 4 years and April 15th becomes just another day.

  7. Actually with tax loop holes was thinking of business/commercial concerns. Maybe tax them on revenues, but by a smaller percentage, focus initially on revenue neutral. Personally believe we should focus on lower business taxes once we are done with this fiscal mess, not personal income taxes, to drive investment in companies and create jobs.

    Otherwise, I believe the Constitution gave teh Congress the power to tax from the start. It seems to me the 16h amendment allowed them to practice some discrimination based on income (not have to apportion by state or census was the original terminology I think, allow a graduated income tax).

    Article I, Section 8 had this opener: “The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States”

  8. Michael – now go read Federalist 45. The founders intended the government to tax for war and foreign trade.

    Not saying I agree with that 100% but it is certainly telling.

    “The powers delegated by the proposed Constitution to the federal government are few and defined. Those which are to remain in the State governments are numerous and indefinite. The former will be exercised principally on external objects, as war, peace, negotiation, and foreign commerce; with which last the power of taxation will, for the most part, be connected. The powers reserved to the several States will extend to all the objects which, in the ordinary course of affairs, concern the lives, liberties, and properties of the people…” James Madison

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