Debt Ceiling 2013: The Next Big Issue Congress Has to Tackle

The first fiscal cliff has passed after much stress and angst. Two major ideological events occurred as a result of the New Year negotiations. One, the middle class was saved from a tax increase, and two, rich people incurred an increase in their income tax rates. These events are ideological because neither does anything substantive to rectify the most important problem of the country: out-of-control spending.

Saving the middle class is a populist mantra that resounds on the floors of both houses of Congress. But, if you dig deeper into this action, you should recognize that if our government is going to chip away at the national debt by increasing revenues, the middle class will have to participate.

Consider the settlement of the first fiscal cliff. By not allowing middle class tax rates to increase, the federal government lost $182 billion of potential revenue annually ($1.82 trillion over 10 years) according to a report prepared by the National Economic Council ...  dated November 2012. It estimated that there are 114 million middle class families in the U.S. that will save $1,600 annually from the tax cut extension. Whereas higher income tax rates on the rich will result in $600 billion of additional revenue over 10 years. And, by not renewing the withholding tax holiday, which affects every American, revenues increased $120 billion per year ($1.2 trillion over 10 years). The tax increase on the wealthy had, by far, the smallest impact on revenues among these three items.

The tax increase affecting those earning more than $400,000-450,000 was something Obama implemented because he is an ideologue and wanted to make a point. Frankly, the “yield” obtained from increasing taxes on those he classifies as rich is a mere pittance. He used an enormous amount of political capital for this revenue, which is not much more than a rounding error. Politically, the president believes this event scored him huge favor with the electorate. After all, why wouldn’t the 99% of those not affected care if 1% of Americans incur higher taxes?

The problem with Obama’s redistribution of wealth strategy is that it does not address the debt crisis. Many others and I believe that the national debt is going to blast through the $20 trillion barrier and higher during the next several years if entitlements are not curtailed; we are at $16.4 trillion already. Seriously, what difference will the $600 billion of new taxes on a small percentage of the population do to ameliorate the debt crisis? If you ignore all the bulls--t about paying fair shares and the rich doing better than the middle class, the answer is that $600 billion doesn’t do a damn thing to help America become more fiscally secure.

Social Security, Medicare, and Medicaid are growing problems that will destroy the nation. Why is it so difficult for Americans to realize that the original arithmetic relating to entitlements was faulty? Our current dilemma did not come about because the designers of entitlements programs were incompetent. No, they just did not anticipate that Americans would live into their 80s. The math no longer works, as older people in this country are draining the system. In the near future, the aforementioned entitlements will equal the revenues of the United States, so that, the country will have to borrow to pay for all other expenditures. Does this give anyone, other than conservative politicians, a sense of concern? Are Republicans cold-hearted bastards because they put pencil to paper and observed that the numbers don’t add up?

Of course, every American wants more from the government. Generally, people want more services and security. Poor people want more aid. Unionized federal workers want more money and a shorter work week. Generals want more to fight wars around the globe and to build newer and more powerful weapons systems. Diplomats want to give more money to poor countries even while Americans are struggling more every day. Lobbyists want to create more opportunities for their supporters. Demand is growing much faster than revenues, as lawmakers continue to bring home the bacon. But the game is nearly over. The national debt has increased exponentially during the past two administrations  to untenable levels.

Paul Krugman, the New York Times columnist, and his liberal posse say don't’ worry about the national debt and the deficits. Just keep spending. It’ll all work out as the economy bounces back. Based on what premise? Businessmen across the country are clamoring for actions to address exploding federal debt. They are deferring expenditures until the government proves to them that the country is on a track leading towards fiscal responsibility. Is our government giving us confidence in its ability to respond to difficult conditions? Just think about the political circus that just transpired in Washington over the new-year before you answer this question.

Let’s get back to reality. In his defense, Obama said one thing that resonated with me. He indicated that resistance to increasing the debt ceiling is wrong because it makes it impossible for the country to pay obligations already authorized by Congress. In my humble opinion, the next cliff, the debt ceiling controversy, is very dangerous territory that could unnecessarily involve outsiders including the global financial community of investors and the rating agencies. No, the debt ceiling is not an appropriate battleground for fiscal conservatives.

The best way for Republicans to bring a sense of reality to all those that believe the U.S. can borrow without limits is to force implementation of the spending cuts, to defense and social programs, which were part of the “original” fiscal cliff. Congress should start cutting right now with these items.

Yes, Congress should slash spending of outdated programs and only consider critical expenditures moving forward. Will lobbyist go insane? Probably, but who cares? We are talking about the security of our country.