Quote from piezoe:
In principle I suppose the decision could be made to continue paying on Treasuries and default on internal obligations. But that would still be a default on U.S. financial obligations, and it wouldn't avoid a downgrade of U.S. issued securities.
The threat of a rating downgrade if the debt ceiling is not raised is very real. It can't be avoided by paying on Treasuries but defaulting on internal obligations.
Default would be disastrous for jobs recovery.
Those congressmen who stupidly signed a pledge that they would never raise taxes, and also told their constituents that they would make jobs their first priority and that they would not vote to raise the debt ceiling, have boxed themselves into a corner!
If the debt ceiling is not raised, the economy will be wrecked along with any prospects for a jobs recovery. If the debt ceiling is raised but there are draconian budget cuts; the fragile recovery will be stalled and prospects for a jobs recovery will stall as well.
There is only one reasonable way out of this mess, and that is:
1. to raise the debt ceiling;
2. make very modest cuts in the budget now, but deeper cuts with time, as the economy recovers;
3. raise marginal tax rates on the wealthy back to the pre-Bush level plus an additional amount to compensate for a meaningful lowering of the tax rate on the middle class. Without money in the hands of the middle class a robust economy is only wishful thinking.
If congress does these things, and also closes unneeded tax loopholes, the international community will be assured that the U.S. is serious about getting its financial house in order. Interest rates can be kept low. Uncertainties going forward will be reduced, and the groundwork for a jobs recovery will have been laid.
Unfortunately, those congressman stupid enough to have signed that tax pledge can't act responsibly without breaking their idiot pledge. This pledge business turned out to be an I.Q. test. Those who signed it failed!
These same congressmen are now running around saying that a roll-back to the pre-Bush tax rate on the top dollars earned by the wealthy would be a bad idea. They are claiming that raising the marginal rate on the wealthy would harm job creation; hard evidence to the contrary. In fact, there is plenty of data to show that robustness of the economy, and NOT tax rate, is the important factor in business health and jobs creation. (see the column by Robert Reich at the link provided.)
http://robertreich.org/post/6601537237
I want low taxes. We all do. But right now we have a crisis on our hands. The country's future is threatened, and if we don't get serious, this economy has the potential to suck for years to come. I'm happy to pay a few percent more in taxes on my top dollars earned to help restore the economy and put people back to work. Once we are running on all cylinders, it will be time for tax cuts, but not until. And too, we must have a substantial, phased in reduction in military spending while inventing ways to bring medical costs in line with other countries. These are the two budget items that are pushing us toward insolvency. It only makes sense that these are two areas that budget reductions must focus on.
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*It is only a modest increase of a few percent on the last dollars earned by high income individuals that's being proposed, but this would be very effective, i.e., ~0.33 Trillion per year additional revenue, because it is the top 5% of individuals that own most of the non-government assets and wealth in the U.S., and provide ~60% of the tax revenues. It was the Bush tax cuts combined with the Bush wars, that was largely responsible for the increase in Federal debt since 2001. It is reasonable to reverse those cuts. Expenditures must be cut first, then revenues. The Bush administration got this backwards.
Not sure if default is the right word. It's more like forced austerity.
I agree that, in a perfect world, the debt ceiling should be raised and the budget shoud be cut slowly.
What I'd like to see:
1) Move the upper tax bracket to 1 mil+ . As anyone who lives in New York, Conneticut, New Jersey, California etc knows, a family that makes 300k is not wealthy considering state, property, excise, sales taxes and the cost of living. At 1 mil+ in income you can do a 35%-40% federal tax and then do something of a flat (or gradually progressive) rate for everyone under that. Simplify the tax code.
2) Close tax loopholes on corporations and the super-rich(100 mil+). Although the nominal corporate rate is high the effective rate is pretty low. Don't let people create a tax-exempt foundation that they can use as their piggy-bank.
3) End all corporate subsidies. Stop giving free money to the big agriculture, energy etc.
4) Scale back the empire. Stop spending $1 Trillion a year to keep troops in germany, japan etc.; creating new military bases; throwing money at the defense establishment; bestriding the world looking for dragons to slay(Iraq, Libya, Yemen etc.) Why exactly do we have 10's of thousands of troups in Germany anyway? Are we worried Hitler is going to resurect himself?
5) Come up with some type of plan to scale back entitlements considering the demographic trends. If you can convince the market there's a plan for dealing with the unfunded liabilities you can afford to not drastically cut the deficit in the short-term, so as not to repeat the mistakes of 1937.
Of course they will do none of that.
Quote from endsongs:
Just so no one forgets, spending on soc Sec, medicare, and medicaid is mandated by law. So these WILL be paid first if the ceiling is not raised. Then comes interest payments. Any remaining money will be split for defense and other discretionary spending. In numbers for 2010:
total tax receipts ~$2.2T.
Total spending for Soc Sec medicare medicaid ~$1.5T
total spending on interest ~ ~$0.2T
So, after spending on Soc sec, medicare, medicaid, and interest, there would be ~$500B left over for the rest of gov't. I actually feel this is enough for the remainder of gov't. In my opinion, it's probably best to just pay the three entitlement programs (since a tax is collected for two of them), pay the interest so there is no technical default, and divide the remaining $500B for the rest of gov't. This way, all mandatory obligations are met, so the ratings agencies can't say we defaulted on our obligations, and we have a balanced budget to boot, going forward.
Well, as we all know the government is not bound by the law. But I generally agree, if the government can pay entitlements and the interest payments there will be no default, just forced austerity in the defense and discretionary budgets.
