The national debt (currently $14 trillion and growing) is about to reach its ceiling of $14.3 trillion, probably by March 31 of this year. Some, like the President, say we must raise the debt ceiling or risk defaulting, the latter of which would be catastrophic. Others, like many Republicans, say that we should not raise the ceiling, thus forcing the government to cut spending. Still others believe America is doomed either way. So what's the truth?
Well, first of all, not raising the ceiling is not the same thing as defaulting, and such a choice is a false dichotomy. Not raising the ceiling simply means we can't increase our rate of borrowing. If we hit the ceiling on March 31, the government will still have several more months before we actually run the risk of default. The Feral Reserve has many weapons in its arsenal to stave off a crisis temporarily. That will buy some time for further debate in Congress on what to ultimately do. However, we must never default--it is simply not an option. On the other hand, our current practice of continually increasing the debt is unsustainable.
It is interesting how the Republicans have suddenly become so hawkish about the debt, considering how they have been running up massive deficits since Reagan, and thus how most of the debt (including interest, which we simply borrow even more to pay) can be traced to Reagan and both Bushes. You know, the same borrow-and-spend "conservatives" who cut taxes on the rich while increasing "defense" (read: war) spending as well as general government waste. And today's Republicans are the same ones who held unemployment benefits hostage to force the Democrats to extend the tax cuts on the rich, further worsening our debt problem. The current brinksmanship on the debt ceiling is most likely just yet another way to extract more concessions out of the Democrats. The Republicans most likely will accept a ceiling increase in exchange for what they want.
We at the TSAP believe that the best course of action is to not raise the ceiling, and force Congress to raise taxes and cut spending. But it has to be done right. The best way to raise taxes is to end the Bush tax cuts for the top 2% of the population, create a new 50% bracket at $1 million, equalize the dividend tax with the tax on regular income, and close as many tax loopholes as possible ASAP. (No, that will not destroy jobs--we have already debunked that claim.) When the economy improves, taxes on the lower 98% should also be restored to their 2000 levels, and/or be replaced with a VAT. Tariffs on foreign goods need to be raised as well, which will also protect American jobs. Other taxes that should be raised are the gas tax, the alcohol taxes, and the tobacco taxes--and perhaps new excise taxes should be created on other vices. As for spending, the best way to cut that is to cut defense spending by half over the next 5-10 years, close unnecessary foreign bases, accelerate withdrawal from Iraq, and completely pull out of Afghanistan no later than 2012. Waste should be eliminated, the line-item veto should be restored, and the Read the Bills Act must be passed. No more bailouts, ever. In the longer term, Social Security and Medicare do indeed need to be reformed, but not jettisoned or privatized like in the Republican fantasy world. And raiding the Social Security Trust Fund should be banned entirely.
So if the Republicans want to not raise the ceiling, fine. But the Democrats should not concede, but rather call their bluff and demand that the Republicans agree to higher taxes on the wealthy and cuts to "defense" spending and Republican waste, or else the ceiling will be raised to $15 trillion (but no higher). Turnabout is fair play--after all, the Republicans were the ones who demanded the tax cut extensions by holding unemployment benefits hostage.
Failing all that, if the ceiling is eventually raised, any such raise should be conditional on passage of a balanced-budget amendment to the Constitution. You know, the very same amendment that Bush II claimed to support when he first ran for President in 2000. In other words, from 2012 onward, no more deficits, only surpluses. Then maybe we can actually start paying down our ludicrously high national debt.