The debate that has been raging regarding the conditions for raising the debt ceiling has been predictably political and murky. It is true that progressive Democrats have emphasized protecting social programs and raising revenues. At the same time conservative Republicans have argued for massive spending cuts especially for social programs with no revenue increases. This is a good and proper debate for our country to have. Is it the proper debate to have right now and under these conditions? Should raising the debt ceiling be tied to these negotiations? There has been much misunderstanding and many false statements conveyed regarding the consequences of not raising the debt ceiling. There are many leaders who are positioning themselves politically and rhetorically in ways only meant to advance their own agendas and ambitions. The American people should not be used as pawns in their political game. This is a time for statesmen and stateswomen. The decisions being made now will affect many millions of people in some manner.
I will attempt to describe to you in this article what the debt ceiling is and what it means to all citizens of the United States. Then I will analyze the positions of the two parties. Also I will show which leaders in my estimation are attempting to be productive in these proceedings and which are not. Finally I will offer my own solution to both this immediate problem as well as the longer term budget issues. I hope I will succeed in answering the questions I have posed to the satisfaction of my readers as well as any others you may have regarding these issues. The American people need to understand what is going on regarding these debates and how it will affect all of us.
What is the debt ceiling? It was first created in late 1917 in the amount of 11.5 billion dollars. The reason for its creation was for the issuance of bonds and other debts to pay for the United States involvement in World War I. The debt ceiling did not significantly rise again until the early 1940's to fund World War II. It has in total been raised 102 times in its 94 year history. The debt ceiling represents the loan obligations which our country has incurred in the past which remain outstanding and obligations that Congress may legislate for in the future . This ceiling needs to be raised when it is estimated that we will have a higher level of these obligations due to budgetary choices in the near future.
All of the past debt ceiling increases passed very easily. Some Congressional members voted against it at times to protest one issue or another. Senator Barack Obama voted against a debt ceiling increase before he was elected President. None of these votes were cast when the vote's passage was seriously in question. This is because everyone involved knew that the consequences to the United States would be dire if the debt ceiling was not raised. Our credit rating would drop precipitously if we failed to pay our debt obligations. The estimated loan interest payments for 2011 are approximately 420 billion dollars. These payments could easily double if our credit rating was dropped substantially. Interest rates would also rise for ordinary citizens as well as state and local governments because their rates are pegged to the Treasury rates.
The order of budget expense payments is unclear in the event we do not raise the debt ceiling on August 2nd. Loan interest payments would probably be paid first both because we are legally bound to do so and because the economic consequences would be too expensive and damaging to our credit rating. Our troops may not get paid as well as other federal employees. Social Security, Medicare, Medicaid, and all other social program payments might also be held back. The reason that we might need to withhold these payments is that our expenses outstrip our revenues. Only 56% of our current expenses are covered by our current revenues. So choices will have to be made if the debt ceiling is not raised. What will the U.S. Treasury and the Administration do? This is virgin territory. No one really knows what might happen.
Democrats and Republicans have their contrasting political stances regarding this issue. They also have their own party divides. The Democrats are led by President Obama and Senate Majority Leader Harry Reid. They are seeking significant spending cuts along with revenue increases. These increases involve mostly the closing of tax loopholes and corporate tax breaks. They are currently advocating for deals with various advantages of spending cuts over revenue increases ranging from 2-1 to 4-1. House Minority Leader Nancy Pelosi and her progressive wing want much lower social program spending cuts than the President has agreed to.
The Republicans have a much more defined split within their party. The newly elected Tea Party faction of the House of Representatives number at least the 87 newly elected members. Their clout is enormous. They are insisting on massive social program spending cuts with absolutely no revenue increases of any sort. Grover Norquist, the leader of the organization "Americans for Tax Reform", has the signatures of almost every Republican on his no new tax increase pledge. He has threatened to campaign against any of them if they break that pledge. They have effectively abdicated their power to compromise to this non-elected individual. Some even refuse to vote for a debt ceiling increase no matter what deal is agreed upon. Many have stated that they do not think it is even necessary.
Most of the Republican leaders in the House and Senate have been much more forthcoming in their efforts to compromise and reach a deal. They seem to realize what the terrible consequences will be if they fail in their efforts to reach a deal and raise the debt ceiling. They had been negotiating with Vice President Joe Biden for weeks and progress appeared to be moving steadily forward. Even Senate Minority Leader Mitch McConnell seemed to be on board. McConnell famously stated in 2009 that his main goal was to defeat President Obama in 2012.