Wednesday, July 27, 2011

Boehner's Flaw

In discussing his latest debt ceiling plans, House Speaker John Boehner said yesterday, "Remember one of the principles here: we are not going to increase the debt limit by anything more than what we're willing to cut spending." Specifically he's proposing to raise the debt ceiling by $1 trillion ($1T) and to reduce future spending by around $1T. The concept sounds reassuring at first, but in practice it wouldn't come close to solving the problem we face.

The debt ceiling exists to limit the amount of debt we can carry. Our debt grows when our federal government spends more than it receives in taxes and has to borrow money to cover the difference. For each of the past 3 years the government has spent about $1.5T that it didn't have, and our debt grew by that much each year.

Boehner's proposal is to raise the debt ceiling by $1T and to cut spending by $1T over the next 10 years. That would mean cutting spending by only $0.1T each year, which would reduce next year's deficit from $1.5T to $1.4T. Well if we only raised the ceiling by $1T, those cuts wouldn't even get us through 1 year without us hitting the ceiling again, at which point Congress could just apply Boehner's principle again...and then again, and again, essentially just paving the way for more astronomical deficits.

The real flaw here is in comparing the amount of spending cuts to the amount we raise the debt ceiling. The right thing to do is to compare the amount of spending cuts to our projected deficits. If we're about to annually spend $1.5T we don't have, we need to cut $1.5T in spending per year! Accomplish that, and there would be no need to raise the debt ceiling.

1 comment:

  1. Very good reading..but Im old fashioned. We have spent way beyond our means for decades now and its going to take someone who has no fear to even begin to get a handle on the financial problems we have created because of greed and corruption in corporations and government and banking institutions and insurance agencies  . Paul how do you feel about treaties developed to make insurance companies exempt from paying any taxes?

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