The circus comes back to the city, apparently an annual event after the 2010 Congressional elections. Republicans gained control of the House of Representatives with the most seats in the House since 1938 (242 Republicans, 193 Democrats), while Democrats take control of the Senate with 53 seats retained. And although Democratic President Barack Obama won the re-election in 2012, Congress remains divided between the house controlled by the republican and the democratically controlled senate.

It is not only a divided congress that contributes to the annual political circus. The 2010 elections also introduced an ultra-conservative movement in the Republican Party – a unique coalition of politicians combining anti-taxation, reduced government spending, libertarian, social-conservative, and anti-immigration groups centered on the countryside and the deep south. Aided by jareCaptain Vereange gerrymandering by both political parties to create secure seats, 87 first-year House Republicans came to Washington to engage in the tea party movement, as a result of the group’s influence on Congress elections and party primaries, by pushing Republicans to the right and a “no compromise” attitude.

The federal debt ceiling

The federal debt ceiling

Simply put, the debt ceiling is the amount of debt legally owed by the United States. It is established by majority vote of the Senate and the House of Representatives. The debt ceiling does not affect or limit the ability of the federal government to run deficits or impose obligations. Instead, it is “a limit on the ability to pay for commitments already made,” a report from the Government Accounting Office (GAO) to Congress in February 2011. In other words, the debt ceiling limits the government from paying of bills or fees for programs legally approved by Congress with an excuse similar to a debtor saying to his creditors: “I can’t pay you because I don’t have any money in the bank.”

The inability of the debt ceiling to function as a tool to reduce deficits leads to many economists and some politicians proposing to scrap it. According to a poll by the Initiative on Global Markets Panel, whose members are senior faculty at the most elite research laboratories in the United States, “a separate debt ceiling that must be periodically raised creates unnecessary uncertainty and could potentially lead to even worse tax outcomes.”

Unfortunately, because the debt level is the result rather than the cause of government spending, politicians can eat and eat every time the debt limit is reached. On the one hand, they can vote for expensive programs that are popular with their voters, while at the same time refusing to raise the debt limit when the accounts become due, which reinforces their conservative credibility.

Many fiscal conservatives believe that denying a rise in the debt ceiling gives them a second bite – an opportunity to finance the programs they don’t like, although the programs have been adopted by a majority of members in both houses. At present, some members of Congress are in danger of voting against any financing account or raising the debt ceiling without repealing the Affordable Care Act (ACA), commonly known as Obamacare. Senator Ted Cruz, a Texas Republican and a tea party favorite, appeared on CNBC’s “The Kudlow Report” and said, “The House of Representatives should adopt an ongoing resolution that finances the entire federal government except for Obamacare.” Majority Leader Eric Cantor apparently agreed with him, his assistant stated that the debt limit is a “good leverage point” to try to take action against health care law.


History of debt ceiling negotiations

History of debt ceiling negotiations

The first debt ceiling crisis occurred in 1953 when Republican President Dwight Eisenhower asked for a debt ceiling increase from $ 275 billion to $ 290 billion. His request was defeated by fiscal conservatives from both parties. As a result, refusing to raise the US debt ceiling has become an annual exercise by conservatives as a method to reduce government spending afterwards. Since 1976, there have been 18 government shutdowns due to the inability to agree on a budget, adopt a continuous resolution to lead the government or raise the debt ceiling. There have been hair-raising debates in almost all modern government services, both republicans and democrats.

Most government shutdowns lasted less than five days, with the exception of 1995 when the conflict over spending between President Bill Clinton and landlord Newt Gingrich lasted 21 days, despite Gingrich’s promise to “never close the government.” As a result, Clinton was re-elected and Republicans lost eleven seats in the House of Representatives in the 1996 and 1998 elections, leaving them with the least majority in the hands of both parties since 1952 (223 Republicans, 211 Democrats).

Debt ceiling crisis 2011

Debt ceiling crisis 2011

In early April 2011, Finance Minister Timothy Geithner informed Congress that a new debt ceiling would be needed in early August if the “borrowing authority of the United States were exhausted.”

Recognizing the differences between the two parties on income taxes and government spending, President Obama established the two-party National Commission on Tax Responsibility and Reform, informally referred to as the Simpson-Bowles Committee, to identify policies and recommend the sustainability of the medium and long-term budget. The final report, issued on December 1, 2010, was calculated to reduce the federal debt by $ 4 trillion and eliminate the deficits by 2035. The recommendations include:

  • Discretionary spending savings . Recommendations would reduce agricultural subsidies by $ 3 billion per year, cancel subsidized student Captain Vereeningen, stop funding from the Corporation of Public Broadcasting and establish co-pays in the VA medical system.
  • Increased revenue through tax reform . The income tax deduction would be reduced to three, the Vereijke personal deduction increased to $ 15,000, and the mortgage interest deduction eliminated.
  • Medicare and social security savings . Savings would be the result of raising the retirement age, raising the income ceiling for social security taxes and raising premiums and co-payments for Medicare.

However, Commissioners could not agree on the final report with 4 out of 11 Democrats and 3 out of 8 Republicans who voted against the recommendations. A bill based on the proposals, and then introduced into the House, failed from 382 to 38.

In the following months, the increase in the debt ceiling was held hostage by the inability of the political parties to agree on the expiring Bush tax cuts and how to reduce government spending. The possibility that the US government is not meeting its debts for the first time in history has fueled the financial markets and raised future financing costs by $ 18.9 billion, according to a Bipartisan Policy Center analysis released in November 2012. Finally, an agreement was reached on the eve of the standard, and was adopted as the 2011 Budget Control Act. The law aimed to reduce spending by more than the amount of the debt limit increase, relying on a sequester mechanism that automatically made excessive cuts. in defense and defense programs with specific exemptions from social security, Medicaid, civilian and military pay and veteran affairs – if Congress could not agree on specific cuts.

The delay in reaching an agreement and the apparent unwillingness of the parties to honor the previously approved government debt led Standard & Poor, a rating agency, to lower the creditworthiness of the United States from AAA to AA +. This was the first downgrade of the creditworthiness of the United States in history. While the other rating agencies, Fitch and Moody’s, have not lowered their ratings, both agencies have announced negative prospects for the US debt, a consequence that captain Vereijk will lead to higher long-term interest costs.

The GAO estimates that the confrontation between House Republicans and the White House cost the government (and US taxpayers) $ 1.3 billion in extra spending for fiscal year 2011.

Fiscal Cliff 2012

Fiscal Cliff 2012

Despite the seemingly endless debate in 2012, political parties could not reach agreement on taxes or program reductions, so the onerous conditions of the Budget Control Act were scheduled to commence on January 1, 2013. Had the consequences of the parties’ failure to reach agreement would include a combination of tax increases because of:

  • The end of the temporary wage tax reduction for 2011
  • An increase in the alternative minimum income tax
  • The “rollback” of the tax cuts passed in the previous Bush administration
  • New taxes imposed by the Affordable Care Act (Obamacare)

In addition to these tax increases, the political stalemate would also have resulted in austerity measures applied without distinction to more than 1,000 government programs, including Defense and Medicare. These effects became common Captain Vereijk known as “The Fiscal Cliff.”

Believing that the combination of heavy tax increases (if the Bush tax cuts were not extended), serious reductions in government spending due to sequestration and another long-term struggle for the debt ceiling would accelerate the still recovering economy, Congress taking two actions to postpone the crisis:

  • US taxpayers law of 2012 . The 2012 US tax payment law made most tax cuts at Bush permanent, except at the highest income levels ($ 400,000 for individuals, $ 450,000 for joint Captain Affiliate, levels indexed to future inflation), and set maximum amounts for credits and credits for higher taxpayers. The law has also suspended the seizure for two months. The majority of Republicans in the House of Representatives opposed the law, despite the support of the Republican House president, John Boehner, and Senate Minority Leader, Mitch McConnell.
  • No Budget No Pay Act of 2013 . The No Budget No Pay Act of 2013 temporarily suspended the debt ceiling from 4 February 2013 to 19 May 2013. At that time, the debt ceiling was raised to meet the loans contracted during the suspension. As a public relations stunt, Congress also voted to deposit their pay for a period, theoretically not receive a salary until both houses of the convention approved a budget, or the end of the congress. That being said, however, the debt ceiling was not raised above the level of May 19, so the federal government is again expected to have insufficient borrowing capacity and money in mid-October 2013 to pay the previously approved expenses. .


Debt ceiling crisis 2013

Debt ceiling crisis 2013

The two political parties currently have drastically different budget proposals:

  • The Democratically governed Senate budget puts an end to sequestration, higher taxes, major investments in infrastructure and replacement of resources from health and education programs.
  • The house controlled by the republican would preserve sequestration, except for the defense ministry, maintain or lower taxes and scrap all funding for the affordable care law.

There is little chance of reaching agreement on the 2014 budget and Captain Vereijk will most likely result in a new continuation of the resolution, which will allow the federal government to proceed until another resolution is adopted, the party has control over the White House and Congress.

Both parties seem firmly anchored in their respective positions and are willing to bear the consequences, they say, of their beliefs. According to Tea Party’s favorite representative Tim Huelskamp, ​​R-Kan, “there is a big concern about the lack of courage of people who don’t want to come up against something. Sometimes you just have to do the right thing – that should be more important than winning of the next election. “Majority Leader Eric Cantor has said that Republicans will demand a one-year delay in implementing the Health Care Act in exchange for raising the debt limit.

OCaptain Vereangs confirmed Finance Minister Jack Lew, speaking to the Democratic Administration on a CNBC news broadcast on August 27, 2013, said: “The president will not negotiate the debt limit. Congress has already approved money, has forced us to spend. We are now in a place where the only question is: will we pay the bills that the United States has made? “Lew went on to say that failure to raise the limit could undermine the financial markets and result in Captain Vereijke. disturbances of the economy.

Possible results


Republican proposal

While the president wants to lift the debt ceiling increases and possible government stops in the future, the republicans believe that the ongoing crisis is a powerful weapon in their demand to reduce the government. According to an article in the National Journal, the current Republican proposals to the President and Democrats will have different options, although none of the options would eliminate the limits of the future party policy debt ceiling:

  • Long term . The Treasury would receive a loan for three and a half years, the remainder of Obama’s term, in exchange for permission to privatize Medicare.
  • Medium term . The debt limit would be raised to somewhere in 2015 as a result of agreeing to the SNAP food stamping program, implementing tax reform or stopping Medicaid.
  • Short term . The debt limit would be increased in the first half of 2014 if agreement was reached on a means test for social security or an end to certain agricultural subsidies.

Democrats claim that the proposals are nothing more than a political stunt, built around an earlier proposal by Deputy Paul Ryan, the Republican candidate for vice president, who was rejected during the last presidential election.

Democratic proposal

The Democrats and President Obama have expressed the wish to conclude a “big deal” to resolve the existing crisis and to resolve long-term problems that drive up budget deficits. Their proposals include:

  • Disconnect debt limit discussions from budget negotiations . The Administration has made it clear that the Federal Government’s accounts were made with the approval of Congress and must be paid as promised to protect the creditworthiness of the United States.
  • Increase taxes for the richest Americans . Democrats point out that the gap between the richest 1% of Americans and the rest of the population is the largest since the years prior to the Great Depression, with the top 10% of the population collecting 48.2% of total income in 2012. That said, most Republicans are committed to Grover Norquist’s Americans for tax reform, which opposes tax increases for any reason.
  • Continued implementation of the affordable healthcare law . Although they show a willingness to delay or change the implementation of various elements of the legislation, Democrats remain firm in their belief that the existing health care system and its costs are unsustainable and unfair to the majority of US citizens.

Possible agreements include changes to social security testing means, changes in the chained consumer price index (CPI) that would affect payments, adjustments to Medicare that would affect suppliers and insured parties, and elimination of legislative actions relating to “pig barrels “.

Pros and cons of eliminating the debt ceiling


President Obama, Secretary of the Treasury Geithner, and countless economists have proposed scrapping the vote to raise the debt ceiling, as expenditure and budgets have been approved in advance by Congress. This would effectively eliminate the debt ceiling. In fact, between 1979 and 1995, Congress operated under the Gephardt rule, which automatically gave the Treasury the right to borrow money if needed to implement budgets approved by Congress.

Proponents of eliminating recurring debt ceiling votes argue that the existing system of requiring a ballot box dictates partisan disputes, unnecessarily subjecting the economy to uncertainty and regularly endangering the good creditworthiness of the country.

Reasons to eliminate debt ceiling votes

  1. Voting to increase the national debt limit is a superfluous process, as the proposed expenditures and costs of the government have previously been adopted with majority voting in both Houses. The ceiling of the debt limit does not affect the expenditure itself, but the ability of the government to pay off debts that are legally entered into. The United States is virtually the only industrialized nation that requires regular voting ceiling votes.
  2. After previously voting for voter popular programs, the current two-step process later causes the same Congressmen responsible for higher spending to act as tax stewards by refusing to raise the debt limit to pay for the programs they have just approved. Effectively, voting on the debt limit has not led to demonstrable budgetary discipline by elected government officials.
  3. The potential failure of Congress to raise the limit jeopardizes the creditworthiness of federal debt and results in higher interest costs to be paid for essential government debt. The 2011 political struggle over the limit and the inability to reach an agreement in time resulted in a reduction in the creditworthiness of the country’s debt. According to a GAO report, it costs taxpayers an estimated $ 1.3 billion in extra interest charges.
  4. The need to vote to raise the debt limit increases the power of a dedicated minority to close the government and to take the country hostage, even in cases where the majority in both houses have approved earlier legislation.

Reasons to maintain debt ceilings

  1. Periodically reviewing and passing increased debt limits focuses on growing national debt and the need to take action to limit budget deficits. Since 1963, the national debt as a percentage of Gross Domestic Vereand’s product (GDP) has risen from 42.4% to 72.6% in 2012, with annual deficits due to Republican attempts to reduce taxes, even in case of costly wars, and the unwillingness of democrats to reform legal programs such as social security, Medicare and Medicaid.
  2. Political leaders are forced to periodically assess their positions against their voters and the well-being of the country as a whole. Republicans who have promised “never to levy taxes” or Democrats who are looking for income but are not willing to curb spending must suffer the consequences of their failure to reach a compromise.
  3. When programs are controversial or complex, leading to public confusion about benefits and costs, minorities can slow down, even control and implement the process, such as current ACA funding. This skill maintains the status quo and dilutes the impact of the legislation affected, good or bad.

Last word

Historians claim that Republicans and Democrats are now more divided than at any time since the end of the Civil War. Both sides are supported by zealots and extremists who are willing to pay any price because of a so-called principle. Compromise is seen as a betrayal, leading to an environment where everything is done around winners and the inability to deal meaningfully with the major problems facing the country. Unfortunately, this mutual struggle results in unwillingness to pay the debts of the country if they are due.

Although a government elimination of the debt limit is possible in October or November, together with a further deterioration in the country’s creditworthiness, it is more likely that a series of ongoing resolutions will take place. These actions will postpone the crisis, in fact passing the dollar until after the 2016 elections and the placement of a new president and Congress. In the meantime, the seizure will continue to reduce federal spending and eliminate critical government services, especially those designed to help those who need it most.

What do you think about the debt ceiling crisis?


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