See post 446.
Except that I didn’t, and I just finished posting a long message which backed up everything I said.
Really? Which points did I miss, and what did I say that was an ‘outright falsity’?
And mostly wrong.
The ‘best’ recent history, or the only one you read? Did you bother reading the CRS paper I linked to? It differs quite substantially from your understanding.
Using the word ‘fabrication’ doesn’t change the fact that you’re calling me a liar. That’s unfortunate when it turns out that you don’t have your own facts straight. Maybe you should dial down the invective and start giving your fellow posters the benefit of the doubt. Even if I had been wrong, it could have been an honest misunderstanding - as I’m sure your errors are - or a legitimate difference in interpretation.
The bottom line is that the debt ceiling was added so that the Treasury could borrow only so much money before coming back to Congress and asking for a ceiling raise. I don’t see this as a check on the executive, since it’s still Congress that writes the spending bills that the Treasury is charged with funding. The Congress didn’t need a debt ceiling to prevent the executive from spending whatever it wanted - all it had to do was change the amount of spending authorization in the budget. But I’ll admit I could be missing some nuance here - what power does the executive have to engage in unlimited spending without Congressional approval, absent a debt ceiling? Bear in mind that the debt ceiling applies to all federal debt, including trust funds and entitlements, that are outside of executive control. If the sole purpose of the debt ceiling was to act as a check on the executive, why is it so comprehensive?
Besides, the Liberty Bond Act of 1917, which is what you’re talking about, wasn’t the only debt ceiling legislation, and at the time it only applied to certain debt instruments the treasury was specifically authorized to use. The debt ceiling law was changed before WWII and made comprehensive for all government debt. Not only that, but the ceiling was lowered dramatically to only about 10% above the current debt limit, indicating that congress wanted more oversight.
And this may be the source of our disagreement. Your point would be stronger if the executive really had a broader mandate to add spending without congressional oversight. I’m unaware of that power, but if it did exist, it would add strength to the notion that the debt ceiling was intended as a check on the executive. But it seems to me the power of the purse is written into the constitution as the responsibility of the Congress, so if the President was given wider lattitude before 1970, was that just a matter of convention? In other words, couldn’t the Congress have stopped it at any time by asserting their constitutional privilege? If so, then that can’t be the justification for the debt ceiling.
But they could have done this at any time if they felt the executive spending too much, right? In which case, what additional power did the debt ceiling give them? The answer is that it forced the debate. The Congress is the house of the people, and the feeling was that the government shouldn’t be allowed to spend money willy-nilly without the representatives of the people voting on it. So the debt ceiling was set to allow the day-to-day operations of government, including management of debt, to be carried out without the Congress having to be bothered, while still invoking congressional authority if the debt got too high.
It seems to me to be doing exactly what it was intended to do - force the elected representative in congress to consciously make the decision to extend the debt ceiling and put their vote on the record, making them accountable to their constituents.
It’s only ‘quite obvious’ if you start with certain assumptions. Under other assumptions, you could say that it’s obvious that the debt ceiling is a political tool to force compromise in cases where the debt is out of control. You could also make the case that the debt ceiling is a mechanism whereby Congress can force a future Congress to take ‘ownership’ of the debt by explicitly voting for its increase, so that future politicians can’t wipe their hands and walk away from a debt problem.
To know for sure all the various reasons why people voted for their various debt ceiling laws, we’d have to go back to the papers and other written records of the time and read what the actual legislators had to say. Sorry if I don’t take the opinion of a writer at the New Yorker as the last word.
That’s a simplistic way to state it. Think of how the debt ceiling is used today, and you’ll see that it’s VERY SPECIFICALLY being used by Congress to place a limit on itself. Why do you think it’s always raised only enough to get through an election cycle? Why doesn’t Congress simply raise it to a gajillion dollars, effectively making it irrelevant? The answer, at least from the Republican side, is that Republicans do not want to give future Congresses a blank check on spending without forcing a debate on the debt. Which is exactly what I said it was used for. And given that the first comprehensive debt ceiling law before WWII only raised the ceiling by 10% over the current debt, I’d say that the Congress of the time felt the same way.
Well, at least you’re admitting that the current debt ceiling crisis is not ‘unprecedented’. I’m getting pretty tired of hearing, “the debt has been raised xx times in the past, and this is the first time it’s been used to play political brinksmanship”. This seems to be a growing meme on the left side of the aisle - that this type of thing has never happened before - and it’s completely bogus, to the point of being a rewriting of history. In fact, the debt ceiling has been used exactly like this repeatedly in the past 30 years, and the U.S. government has gone right to the precipice of default on several occasions in the past because the Congresses of the time would not sign an extension of the cap. This is nothing new.
What IS new is that this current debate is taking place in an atmosphere where the markets and foreign countries are already very nervous about U.S. debt. In the past, taking the government to the brink of default wasn’t seen as being as serious because no one doubted the ultimate creditworthiness of the U.S. This time it’s different, because the debt is out of control and the entitlement crisis is on the doorstep. That’s raised the stakes, but the nature of the game hasn’t changed.
See, you’re just wrong again. I mean, you don’t even have to research this. Surely you’re old enough to remember the debt ceiling ‘crises’ under Bush, aren’t you? If not, go read that CRS paper I linked to, which has nice timelines. The fact is, the debt ceiling has been pushed down to the wire and beyond on several occasions in the past, including to the point where the Treasury secretary had to dip into retirement funds to pay debts and engage in other ‘creative’ bookkeeping. The treasury even had to suspend an auction because it didn’t have the authority to issue the debt. It was saved in 2002 only because the limit was hit right before April 15, at which point the Treasury got a whole lot of tax money that it managed to use to keep the government going until Congress finally got its act together. Even so, the Treasury announced that the U.S. would default on its debt in the beginning of July. The ceiling was raised - on June 28. And since the House and Senate couldn’t agree on a ‘grand bargain’, it was raised only enough to kick the debt debate into the next year.
In fact, if you scrubbed the dates off the 2002 timeline, it would look almost identical to this year’s debate, including the break between the House and Senate and the lack of ability to get a comprehensive deal, leading to a short-term ceiling raise (which is probably what’s going to happen this time as well).
Funny then that when the Democrats controlled the Senate from 2001 to 2003, the debt ceiling became a ‘crisis’ three times in those two years.
And besides, you seem to not understand that the ‘Gephardt Rule’ was only in the House, and did not apply to the Senate. So it had no no ability to automatically authorize the President to do a damned thing. It was simply a procedural rule that expedited clearing of certain bills in the House. They still had to make it through the Senate and then through the reconciliation process, so there was plenty of room for people on both sides to create a debt ceiling crisis.
This is just bizarre. If you think the Republicans are the only ones who have played debt ceiling games, you need to go back and read the history of the debt ceiling debates and their legislative outcomes. This is a very common situation. As I said, the only thing different this time around is that this time the U.S. government’s finances are actually shaky enough that the debt ceiling ‘crisis’ is spooking everyone.
And what you’re not addressing is the argument that what’s really spooking the market right now (well, at least before a couple of weeks ago) is not the ceiling itself, but the fact that the government still can’t come to an agreement to correct its fiscal disorder even under the looming threat of a default. It’s symptomatic. Moody’s had already placed the U.S. on a downgrade watch before this ‘crisis’ even started, and they’ve said that the form of the resolution of the debt ceiling issue will be a major factor in whether the U.S. actually IS downgraded. In other words, there are two risks here for a debt downgrade - one if the government defaults, but another if it comes out of this debate with a sham bill that makes it clear to the markets that there is no political will to get the U.S. on a sustainable trajectory.
The Republicans aren’t playing games here. They’re not holding up the debt ceiling in order to stop gay marriage or some other unrelated pet issue. They’re very specific that they want a debt ceiling increase to coincide with hard commitments to do something about the exploding debt. They may be wrong to refuse to consider any tax increases, but the Democrats have also been playing games by submitting fake cuts and the usual budgetary gimmicks to make it look like something is going to be done while actually avoiding doing anything.
Depravity? I read a lot of Republican commentary, and this refusal to deal comes from an honest belief that the government’s finances are heading over a cliff and this is their last chance to change direction. They believe that any tax increase will make it less likely that any cuts will happen, and they’re determined to not be snookered as they were repeatedly in the past with promises of cuts to be made after the report of some commission or after the next election cycle.
Not only that, but they ran on a campaign of stopping the Washington juggernaught, and they were elected in a landslide election. Furthermore, until about last week, polls showed that an overwhelming majority of Americans didn’t want the debt ceiling raised at all. This Gallup Poll in may found that only 19% of Americans approved of raising the debt ceiling, while 47% believed it shouldn’t be raised at all (the rest had no opinion).
There’s an honest divide in the U.S. over the debt. The people the Republicans represent are very serious about getting the debt under control. It’s unfortunate that tax increases have been taken off the table by the Republicans - I’d rather see them negotiate for tax increases that are tied to hard spending cuts that must happen first - but they’re not playing political games. They’re trying to do the right thing. And I’m sure the Democrats are as well. They just don’t agree on what the right thing is.
I’ll leave you with this:
Notes from the 2004 Debt Ceiling Debate
Swap ‘Republican’ with “Democrat”, and “Bush” for “Obama”, and that could read like a headline from 2011.
I suggest folks look for the Bruce Bartlett interview from Hardball yesterday, it lays it out pretty clearly. THe link between a strong economy and the highest marginal rate is non exeistent or if anything it is a locally positive relations ship at the current rates. The current debt comes fro the following primary sources: Bush tax cuts, two unfunded wars, Medicare Drug benefit, bad economy. That is the lion’s share…by far.
So for the Republians to piss and moan about the debt when they won’t raise revenue a cent…NOT ONE CENT…is ludicrous and it is very clear who pulls their strings.
Um, did you read your link or just the headline? From your cite:
unclear means that some certainly could have come from tax cuts. Which is kind of what I’ve been saying.
Maybe that’s why the Tea Party is taking a stand here? Because there is really only extremely minor cuts to the budget, but both sides are pretending to make real ones?
I mean if taxes are high I understand how it could help job creation. I can either ship off a bunch of profit to the government in taxes or use that money instead to hire a bunch of people to spur growth and ship off less to the government.
But why don’t jobs get created when taxes are low? Doesn’t that just mean less money is coming into the government? People pay less overall? How does this decrease demand or the amount consumers can spend on the outputs of the rich?
Unclear also means that some or all could have come from the fact that Obama was elected to the senate in that range. :smack:
I finally read that article. That guy is so full of shit it is amazing – his proposal to abolish the debt ceiling is amateur hour.
The issuance of debt is a legislative matter. Congress cannot permanently delegate its legislative power to the Executive. This article should not be taken seriously at all, as the author apparently has no clue what the nondelegation doctrine is.
Did you read the overall conclusion?
“But it is clear they did not “increase revenues.””
There is an ingteresting article at CNN that outlines how the Fed has the authority to simply mint platinum coins that they value at $1 tillion each. Not really a practical option I am sure, but still quite creative.
I guess you’ll have to question mine then, because the U.S. DOES have a revenue problem. Revenues are down to around 15% of GDP, when historically they’ve hovered between 18% and 21% of GDP. Unless you’re advocating the immediate reduction in the size of government to 15% of GDP, then it seems pretty obvious that revenues are too low.
The Democrats are also right that taxes are lower than they’ve ever been, both in terms of rates and total revenue collected from various taxes.
The supply siders are also wrong to believe that tax cuts at this point would lead to more growth and more revenue. It’s very clear now that the problem with the economy is not that its being taxed too much. Businesses are not hurting for cash.
Where the Democrats are wrong is that they think the revenues can or should be raised on the backs of the rich. The real revenue problem in the U.S. is that the middle class is paying an historically low level of taxes - an effective tax rate of around 11% on average. The numerous tax reductions that have happened under Bush and Obama have primarily gone to the middle and lower classes. In addition, the entitlement crisis has more to do with a crazy-low withholding rate for FICA taxes.
Also, putting the tax burden on a small slice of the population makes taxes unstable as their taxable income tends to fluctuate wildly and in synch with the business cycle (i.e. in a recession, when government needs more money, paper losses in wealth reduce the tax revenue from the wealthy). The U.S. tax system should be more broad-based than it is, with the middle class carrying more of the tax burden. A VAT should probably be instituted, in conjunction with reforms to the tax code which remove loopholes in exchange for lower rates in a revenue-neutral manner.
The reason cutting taxes won’t increase growth at this time is because taxes are already low, businesses are currently not under-capitalized, and the key impediment to growth is regime uncertainty due to regulatory changes and a growing debt. If a tax cut increases uncertainty over the U.S.'s fiscal position, it will actually impede growth right now.
I would have suggested Californium-253.
Advantage: the 1/2 life is about 17 years; perfect for depreciating in value as the money supply is steadily increased.
Disadvantage: cost to manufacture an ounce is ~ 5 billion dollars. Also, putting one in your pocket as loose change will give a 4th degree sunburn.
So what, are we in a state of low demand? Do we really need to raise revenues to solve this problem? If companies aren’t hurting for cash, why aren’t they hiring?
Boehner’s plan cuts $22 billion from the budget this year. If we assume a deficit of $1.4 trillion, the GOP, the party elected to cut spending in Washington, the deficit hawks, the party of limited government, has proposed an elimination of 1.5% of the deficit this year.
And the Dems think that is too much.
Can anyone see why we need a Balanced Budget Amendment before this spending swamps us?
Interesting post Sam and I agree with most of it.
Except that Democrats are saying raise the taxes on the rich as a headline. I am not a Dem but I believe their stated goal is a repeal of the Bush tax breaks, which would raise taxes across the entire tax base.
I would also argue that the key impediment to growth is lack of consumer demand instead of regulatory uncertainty.
No, the stated goal on the income tax side is letting the tax breaks expire on only the top two brackets. Sam is exactly right on this one.
And I also agree that a broadening of the tax base (and a move towards getting a larger percentage of revenue from a consumption tax) would be a good thing. I would couple that with a much larger inheritance tax to help combat the accumulation of wealth over generations.
They are both probably factors. But I would agree with you that soft demand is the key issue. That said, I have seen first-hand companies with high levels of cash-on-hand then still will not hire at least in part due to uncertainty regarding future obligations (health insurance being a primary one).
Sort of a chicken/egg problem.
If there’s low demand, why increase supply? If not increasing supply, why hire? There’s no need to run up your payroll if employees will just be twiddling thumbs.
But if nobody is hiring, that somewhat hampers demand by depressing the number of buyers.
In my opinion, there are a number of reasons companies aren’t hiring:
-
Uncertainty about the debt. On the current trajectory, the debt will have to be dealt with soon, and just about every way of dealing with it will put a hit on the economy. Cutting spending and/or raising taxes are both contractionary measures. If the debt isn’t dealt with and continues growing, at some point there will be a crisis which will ultimately cause an increase in interest rates and maybe even massive externally-imposed ‘austerity’ demands which could also drive taxes up. Businesses planning for the long-term see the debt as a form of implied taxation.
-
Inability to plan. You don’t invest money, or get other people to invest money in your company, unless you can come up with a reasonable business plan. Right now, there are so many risks and instabilities in the future that companies are finding it hard to plan. Some of this is imposed by the government (new EPA regs, new financial regs, new health care regs, none of which have been fully written out by the bureaucracy so no one knows how they will impact them), and some of it is due to the state of the world.
-
Structural Inefficiency. The last fifteen years has seen a continuing sequence of bubbles followed by government ‘stimulus’ in an attempt to prevent a fall from previous bubble-level economic levels. Interest rates have been held artificially low for a decade, tax levels are in constant flux as the government jiggers with it to stimulate the economy, the stimulus package injected a whole lot of money in semi-random fashion… All of these things have distorted investment and moved money where it wouldn’t otherwise have gone. The U.S. overbuilt in tech in the 1990’s, overbuilt in real-estate in the 2000’s, and overbuilt the government along the way. The bailouts prevented clearing out some of the poorly structured industries. For example, there’s probably an over-supply of car manufacturing capacity given the realities of the new market, and there’s definitely an oversupply of housing construction capability, and of houses themselves.
-
**Demand is down. ** Demand is definitely down, both because of high unemployment and also because the asset bubble collapse exposed the fact that both government and the private actors (individuals and business) were too much in debt. People are working now to correct their balance sheets, not to buy stuff.
-
Loss of Confidence. Keynes’ “Animal Spirits”. A confident country invests more, works harder, and takes risks. A country whose population thinks its best days are behind it and that the future will be increasingly worse is a country where people hunker down and try to preserve what they have. Malaise sets in. I don’t know how big this factor is, but it’s there.
-
**Regulatory uncertainty. ** This is part of ‘regime uncertainty’, but deserves to be called out on its own. If you hire an employee today, what’s your annual cost for that employee going to be five years from now? No One Knows. The health care bill promises hefty fines for companies that don’t provide health care, or whose health care plans aren’t ‘adequate’ as measured by the level of care the exchanges offer. But no one knows what that level of care will be, because the specific rules have yet to be written. So no one knows if their own employee health care plans will be adequate. If not, companies could see an increase in employee cost of $3000 per year. For low-paid employees, that’s quite a chunk.
Speaking of low-paid employees… Just before the recession hit, the minimum wage was given a very large bump from $5.85 to $7.25. At the time, prevailing wages were actually higher than that, so it didn’t seem like a big deal, but the recession hit just as the new minimum wage went into effect. Add to that a $3,000 fine per employee for not providing health care (minimum wage employees often don’t get health care coverage, so they’ll be subject to the fine or the company will have to provide health care coverage with no room on the wage side to negotiate), means that the lowest-cost employees are now significantly more expensive than they were three years ago. I suspect that has a lot to do with the very high unemployment rate for young people, which in turn depresses demand further.
At $5.85/hr with no health care plan, a full-time minimum wage job cost a company $12,168 dollars in 2007. The same job in 2014, with the government health care penalty added, will cost $18,080 - almost a 50% increase in cost per employee. That’s got to affect the number of jobs available at the low end.
How about operational costs? That’s up in the air too. The EPA is threatening to regulate CO2 as a pollutant and use that regulatory power to cap CO2 emissions. If that happens, energy costs will skyrocket, at a time when they’re already increasing due to natural market conditions. Government actions like the National Labor Relations Board refusing to allow Boeing to open a new plant in Louisiana because it’s a ‘right to work’ state has a lot of companies scared. At the same time, regulations are increasing at the state and local levels, and in many states taxes have been increasing rapidly.
I could go on. The economy is over-regulated, businesses are being assailed by new regulations and mandates, the debt is exploding, asset bubbles have popped, government is increasingly dysfunctional, the Euro is imploding, Large corporations have captured the regulatory power of government and are using it to punish new entrants into markets, people aren’t consuming like they did because they can no longer borrow against their homes because there’s no value left, yada yada. There’s no one cause, but the sum total of all of it has choked off innovation and investment.
That also means there are no easy fixes, either. I’ve been saying for several years that the U.S. is likely heading into a ‘lost decade’ of very low growth and high unemployment, and I still think that’s the case. And if the government keeps intervening to ‘fix’ it while ignoring its own huge structural problems, the ‘lost decade’ will turn into a meltdown and a massive reduction in per-capita GDP and standards of living.
Cite?
Obama campaigned explicitly on keeping the Bush cuts for the middle class, and AFAICT has never moved off that. Outside of a few very liberal types, I’ve never heard anyone admit that a lot of the increased revenue will have to come from the middle class.
So what of the Laffer curve? It seems like if taxation is too high, people stop working, but if it’s too low, there’s not enough revenue to provide for governmental services.
What, then, actually stimulates job creation? It seems like a “job” is really just a combination of a company’s ability to afford to hire someone who can use their capital/resources to produce value for someone who has demand/ability to pay for that good/service.
I have a hard time understanding how lower taxes can hurt this. If a consumer is taxed less and a firm is taxed less, that means both parties have more money if we’re being taxed at a point to the right of the Laffer curve (and the government as well). Lower tax rate means there’s more incentive to work, hire, and produce with the additional profits.
But in practice, is this false?
What happens if we’re lowering/raising taxes on the left/right sides of the curve?
In large part I can’t wrap my understanding around whether or not we need to increase taxes. I don’t know the reality of the ramifications.