What Actually Happens With No Debt Ceiling Relief?

The Bipartisan Policy Center (BPC) released a study this week describing what it thinks would happen if the arbitrary debt ceiling isn’t raised before August 3, the day it says the government will no longer be able to pay current obligations without borrowing in excess of the debt ceiling.  The BPC report has lots of useful data, including estimates of inflows and outflows for every weekday from August 3 to August 15.

BPC uses historical cash balance data to estimate that sometime during the week starting on August 2 (the date stated by Treasury Secretary Geithner earlier this year), the government will no longer be able to meet all of its obligations without further borrowing, and will be forced to reduce spending.

BPC reports that the government will be able to pay only 56% of its obligations.  True, but because debt service, Social Security, and Medicare must be fully funded, the situation for the rest of the government is, amazingly, even more dire.

Why Social Security and Medicare Payments Will Continue

Note: My thinking on this evolved over the course off the day, so I’ve edited this somewhat.  To the one person who read it previously, I apologize.

The United States is rapidly approaching the arbitrary limit known as the debt ceiling, which would cause the government to stop borrowing money and consequently cause all kinds of bad stuff to happen.  The President would be faced with extremely “tough choices,” but these won’t include reducing Social Security and Medicare payments. Here’s why.

To Reduce Unemployment, Just Raise Tax Rates!

All we have to do to reduce unemployment is raise individual income tax rates across the board.

Okay, no, I’m not saying that raising tax rates in isolation would lead to lower unemployment.  That would be dumb, kind of like claiming that reducing government deficits would cause unemployment to fall.  Kind of like arguing that lowering today’s tax rates would lead to higher tax revenues.  Kind of like saying that Paul Revere rang bells and fired his musket while on his midnight ride.

Like I said – dumb.

But here’s how to encourage more hiring by the private sector: eliminate the employer’s side of payroll taxes. 

Peter Ferrara’s Debt-Ceiling Fantasies

Peter Ferrara again.  Sheesh.

“Suppose you were suffering long term unemployment, and you had maxed out all of your credit cards,” writes Ferrara, setting up a strawman for his latest looking-glass tale.  “Would your first action this morning be (1) get out of the house to look for a job, or (2) start cutting back on expenses, or (3) focus on increasing your credit limit?”

He then goes on to claim that Obama, Pelosi, and Reid (oh my) would advise increasing your credit limit in such a circumstance, that the Obama administration is threatening to default on the national debt, that Democrats are evil, and that they want to drown kittens.  Okay, I made that last part up.  The part about the kittens.  I’m not sure about the “Democrats are evil” bit – I’m afraid Ferrara may believe that.

Why Republicans Shouldn’t Want to Talk About Combined Federal Marginal Tax Rates

In recent arguments against tax increases on the wealthy, conservative legislators like Congressman Paul Ryan and pundits like the Wall Street Journal’s Stephen Moore have been including payroll taxes to derive comprehensive marginal tax rates.  They argue that marginal rates that are too high damage incentives for top earners so much that they may elect to work and invest less, with an aggregate effect on the economy of less growth.

This is a genie Republicans should not want freed. The optics are awful for them if the argument is extended to the middle class.

Why Aren’t the Democrats Playing?

The games surrounding the debt ceiling continue, but only one side is playing.  Few believe the Republicans will actually force the radical, damaging spending changes that failing to raise the debt ceiling would eventually make necessary.  If not, then why do they continue to try to force President Obama to accept their proposal, which is an amount of spending cuts equal to any debt ceiling increase?

Better question: why don’t Obama and the Democrats take the question straight to the people?

As reported by The Washington Post, “Rep. Diane Black (R-TN) said she had drafted a letter to Obama asking for a detailed deficit-reduction plan that could be evaluated by the nonpartisan Congressional Budget Office and for a contingency plan in case Congress does not raise the debt ceiling by August 2.”  Well, why not?

More on Stephen Moore – 62% Doesn’t Pass Muster

In my original post on Stephen Moore’s claim of a prospective 62% top combined marginal tax rate , I gave Moore’s math a thumbs-up, assuming his assessment of the impact of so-called “PEP and Pease” deductions was accurate.

So much for the benefit of the doubt.