The 2011 Sequel Of A Disastrous Debt Crisis Looms — And Republicans Couldn’t Be Happier Inside
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Rep. Guy Reschenthaler (R-Pa.) confers with an aide as the House Rules Committee meets to prepare Speaker Kevin McCarthy's debt ceiling package for the floor, on Capitol Hill in Washington, on April 25. Reschenthaler serves as Speaker McCarthy's chief deputy whip in the Republican Conference.
It is stunning that no one in this whole debt ceiling debate has mentioned the real root of the problem: taxes. Namely, the lack of them.
We know the scenario: Republicans control the House. Retook it, actually. Democrats hold the Senate and have the White House. Republicans are posturing: no increase in the debt limit unless we get our spending cuts. If the showdown results in a default, an economic disaster could result.
Does that sound about right? Welcome to 2011.
Like 2023, that was the scenario then. Republican obstinacy in 2011 brought us so close to the country going over the brink that we didn’t even need to go into default. The near hit — negotiators then said we were 72 hours away from default — resulted in Standard & Poor downgrading the country’s credit rating for the first time in its history, which undercut global trust in the country’s economy and foreign investment in it. Markets plummeted, deflating the value of investment portfolios. (Roughly half the nation’s populace holds such investments.) The country’s borrowing costs shot up by $1.3 billion, which meant the government had to pay more for loans, which meant fewer dollars to spend on public investments, safety net programs and the military.
And that was all because we came far too close to defaulting on the debt, not a default itself. So, an actual default would be considerably worse, especially at such a fragile moment for the financial system and at a point where the economy might avoid a recession thanks to the efforts of the Federal Reserve.
A default would be particularly harmful to the general public: millions of job losses, higher interest rates and a major hit to the country’s GDP ― a recession likely to last two quarters. You’ll see a rise in mortgage rates. Your credit card debt will cost more, loans will cost more for things like your car, and it will stall growth for businesses, which also means less job growth. Dogs and cats living together. Mass hysteria!
Yet here we are, like Hollywood, dealing with a foolish sequel, completely avoidable.
The debt limit back then: $16.4 billion.
Today, nearly double that: $31.38 trillion.
A default could come as early as June.
Former President Barack Obama learned a lesson back then. So did Joe Biden, then the vice president, who was right in the middle of those contentious negotiations, and he’s taken that lesson with him now: Don’t negotiate. Nothing good came of it then, and with the Republican mentality far more Neanderthal today than that of their Tea Party roots, it’s even less likely anything good will come of it now.
We’ve heardthismanytimes: You can’t hold the debt ceiling hostage. Increase the debt without any trade-offs, then negotiate on spending cuts for the next budget (the fiscal year for which begins in October). Democrats argue that Republicans are holding the debt limit hostage, much like a terrorist might, and we all know what Republicans love to say: We don’t negotiate with terrorists.
As we’ve also heardmany times, House Speaker Kevin McCarthy is refusing to raise the debt ceiling unless his demands are met, whatever those are. (The House bill calls for a cap on all discretionary spending, supposedly saving $3 trillion.)
Sadly, McCarthy probably knows you can’t hold the debt ceiling hostage. But he has to showboat in front of all those rancorous House members who hold his Speakership in their hands. Talk about a hostage situation. But there’s Kevin: “See? Look what I’m doing!”
McCarthy is like that toddler who wants to show everybody he finally figured out how to poop in the toilet. Some in his caucus will go look at it and congratulate him. Others will act like he created a piece of art. Ain’t it great that they’re in office?
It’s also beensaidmultipletimes: Under President Donald Trump, Republicans were fine raising the debt limit without preconditions. Three times, no less — in 2017, 2018 and 2019 — with no histrionic threats about budget cuts. Biden and the Democrats are simply seeking to do what Republicans had no problem doing under their lord and master: resolve the debt limit issue in a bipartisan fashion.
Republicans, however, in their simple-minded way, always try to make this a kitchen table debate. Some are probably too stupid to distinguish between a family’s budget obligations and those of the government. But others know better and are banking on their voters being too stupid to understand the difference.
Conservative voters might want to consider that the next time they enter the voting booth.
It’s funny how Republicans only threaten to blow up the economy when Democrats are in charge. Apparently, they assume voters will blame the Democrats. (Remember: Republicans think voters are stupid.)
At this point, all Republicans want to be able to tell you is that they got something out of this mess, even if they get nothing.
Again, Republicans love to talk about the debt and deficits as if they’re kitchen table issues. “When you don’t have the money,” they say, “you have to cut back.” They compare America to a family that borrowed too much money to buy a house and will now have a hard time making monthly mortgage payments.
They also love to make it sound as if the budget can be fixed merely by trimming food stamps, Medicaid or other entitlement programs.
These arguments are lunacy. You can’t hold the debt limit hostage. An increase in the debt is needed to pay for the spending both parties approved when they passed the previous budget. The Republican position is tantamount to reneging on that promise. Not that breaking promises was ever a problem for Republicans before, or for most lawmakers, for that matter.
Think about it as if you were ordering a meal at a restaurant.
There’s an understanding here: with your order, you’ve given your word that you’ll pay for the meal. That’s the promise you make. But what happens if, after you’ve placed the order and the kitchen staff begins preparing it, you get up and walk out?
This is precisely where we are with the debt ceiling. Either we keep that promise or we follow the House Republicans’ lead: place the order for the meal, then get up and walk out, stiffing the entire restaurant staff. Either the government keeps its word and pays everyone it has promised to pay, or it stiffs everyone and pays nobody.
That’s the difference between raising the debt ceiling — paying the restaurant staff — and insisting on spending cuts first — walking out of the restaurant without paying.
This is what is meant by a term you hear all the time: “the full faith and credit of the United States government,” which you’ll find referenced in Article IV, Section I of the Constitution (you know, that document Republicans always claim to love). It means there’s an understanding, a faith, in the restaurant patron who put in the order that he will pay the tab when he gets the check.
House Republicans are threatening to stiff a bunch of people that the government has already promised to pay.
Raising the debt ceiling was once a fairly routine vote, but the debate has turned particularly acrimonious in recent years amid the growing partisan divide in Congress.
Congress created the modern debt limit in 1939. Before that, Congress used different instruments to fund various efforts, from the Civil War to the Panama Canal.
The difference between the number of times the debt ceiling was raised before 1960 and after 1960 is stark.
Before 1960, only once was there any real flap over funding involving the debt limit. Congress was concerned that President Dwight Eisenhower’s goal of building a national highway system would add to the debt accumulated during World War II. The matter was resolved with little fanfare and certainly with no threat of default.
Since 1960, Congress has raised the ceiling 78 times — 49 times under Republican presidents and 29 times under Democratic presidents.
Something else also began happening after 1960: tax cuts, a steady stream of them, all of them substantial.
From 1944 through 1963, top taxpayers paid a tax rate above 90% (94% at its peak in 1944). Inconceivable today. In 1964, the top marginal tax rate for individuals began to fall. It was lowered to 77%, then to 70% for the tax years 1965 through 1981. From 1982 to 1986, the top marginal tax rate was lowered to 50%, eventually falling to 31% in 1991. It currently sits at 37%.
In 1960, the corporate tax rate was 50%. It fell to 35% by 1993. The Trump tax cuts of 2017 dropped it to 21%.
But the amount corporations actually pay — the effective tax rate — fell from 16% in 2014 to 9% in 2018, according to the Government Accounting Office, and half of all large corporations paid no federal income taxes at all.
These are general figures, mind you. There is plenty of minutiae one can dig through, but the point should be clear: As the population grew from 179 million in 1960, tax rates and their resultant revenues declined. If we accept that taxes are nothing more than monies paid for public services we say we want, we have a problem: Our top tax rate is more than half of what it was in 1960 while the population today is nearly twice what it was then.
This inverse ratio is a broad overview, to be sure, but it would be hard to dispute that the correlation to repeated crises over the debt ceiling may also be one of its causations.
Is it reasonable to consider cuts in the budget? Of course. Should there be cuts? Absolutely. But how can we pay our bills if we continue to cut the nation’s largest revenue stream? (Taxes.)
Republicans can’t seem to do the math when they babble on about kitchen table economics.
Families with debt obligations owe money to someone else. Government debt is largely money it owes to itself. It pays its bills primarily by generating revenue through federal taxes. When you reduce the amount of taxes it can collect, you have less revenue to pay your bills.
Almost every year, the government spends more than it collects in taxes — that’s the deficit. To make up the difference, it borrows money, which accumulates over time, like a credit card. That’s the debt.
Every tax cut takes a big bite out of federal revenue and increases the federal debt. The Trump tax cuts, for example, which included the reduction in the corporate tax rate from 35% to 21%, caused a 25% increase in the federal debt ― “the third-biggest increase, relative to the size of the economy, of any U.S. presidential administration.” Those who laud Donald Trump for his 2017 tax cuts have it backward; his most enduring legacy just might be the historic rise in the national debt due to those tax cuts.
A study by the Center for American Progress argues that the Bush tax cuts of 2001 and the Trump tax cuts of 2017 have caused a 57% increase in the debt ratio (debt as a percentage of the economy).
“Without the Bush and Trump tax cuts, debt as a percentage of the economy would be declining permanently,” the report said.
You cannot tell me that an increase in population, which would necessitate an increase in services, coupled with a decrease in revenues, won’t result in a budget deficit.
Do you think that might be the kind of kitchen table logic Republicans would understand?
If you drop the corporate tax rate from 50% in 1960 to 21% today and if you drop the top tier tax rate of 90% in 1960 to 37% today, you can’t tell me that’s not going to create a problem with your revenue stream, resulting in an increasingly paralyzing debt.
And in a truly absurd irony, one of the things Republicans want to cut is the money that has already been budgeted for an increase in the IRS’s ability to collect taxes.
Think about that. Republicans say we have to cut services because we have a debt, yet they want to cut the budget of an agency that would help reduce that debt by collecting taxes to pay for it.
Do you think that might be the kind of kitchen table logic Republicans would understand?
Billions of dollars go unaccounted for because the IRS hasn’t the manpower to audit the complicated tax returns of wealthy people. Why would we allow that?
Oh, I know why! So the super wealthy can take Supreme Court justices on lavish vacations, pay a child’s tuition for private schools, and buy homes to allow a friend’s mother to live rent-free. Goodness, what was I thinking?
I’m not suggesting a draconian increase in tax rates. I wouldn’t dream of raising tax rates on the wealthy to 90%, let alone 70%. But is the current rate of 37% enough, especially when, after loopholes and tax breaks, the effective rate is probably far lower? And the corporate tax rate going from 35% to 21%? What, was 28% already taken?
When the corporate tax rate has decreased over the last few generations from 90% to less than half that, and when the individual tax rate has dropped from 90% to 37%, how can those who have benefited from these decreased rates complain? They’ve had it too easy for far too long, and Republicans played a sizable role in making that possible while the rest of the nation has had to bear the consequences.
We need a fair and balanced tax system that strikes a compromise between the excessively high rates of 1960 and the overly generous rates of 2023. It’s hard to believe that a middle ground cannot be found.
We have had reductions in taxes for 70 years. Seventy. Republicans love to talk about the debt and deficits like it’s a kitchen table issue. “When you don’t have the money,” they say, “you have to cut back.”
OK, how’s this for kitchen table logic? If you have to take a pay cut at work, what happens? The same thing applies to taxes. Taxes are America’s salary. So when you cut taxes, you are giving America a pay cut.
Nobody likes a pay cut, and while nobody likes paying higher taxes, compared to 70 years ago, Americans are paying taxes at bargain rates.
We are looking at this problem through the wrong end of the telescope. Instead of a debate over cuts in services, this should be a debate over cuts in pay. The bottom line is simple: You can go a long way toward reducing the nation’s debt by paying America the salary she deserves. That would be increased taxes. Do we, as Americans, feel that the country deserves to be paid what it is worth?