The debt limit should be eliminated by law. It was created during the first world war to manage the issuance of bonds to fund the war effort when the nation was on the gold standard and thus had a finite amount of money available in circulation.
The Fed's collection of the data in 1969 was relevant at the time since we were on the gold standard then. Nixon abandoned the gold standard in August 1971.
The debt ceiling does not technically get raised so we can spend more. It gets raised to authorize the payment of goods and services (and labor) of things already approved. If they chose, Congress could both raise the ceiling AND cut spending.
On a personal level, yes, if we have more debt and money going out than we have coming in we do go broke- bankrupt or default on our debts. But federal spending and budget is NOT a household budget- to use that as an analogy is the most pernicious concept which keeps us from arguing about proper priorities of the federal budget!
The member nations of the European Union have to keep their spending in certain limits due to the use of the Euro which is, effectively, a virtual gold standard for those nations. The individual nations which use the Euro have no power to issue more currency or devalue the currency.
The problem with the debate is that it is all about debt and nothing about OUTCOMES. I am a believer in Modern Monetary Theory (as presented in The Deficit Myth by Stephanie Kelton [1] ). Frankly, it is literally impossible to eliminate deficits and the debt now unless we cut necessary and often popular programs.
Half of spending is mandatory spending by law: Social Security, Medicare, veterans benefits, and other programs as well as interest on the debt. The interest is only 11% of spending [2]and the government doesn't need to pay off the debt because it can simply refinance and as long as we don't default, the USA will always be able to refinance.
We spend about $830billion on defense, much of which is discretionary, but defense spending is also a jobs program paying not only active duty personnel but all the workers in the defense military-industrial complex. Hence the inability of the US military to cancel the failed F35 joint strike figher program! Even liberal congresspeople wouldn't cancel it due to industries in their districts.
So, from a $6.16 trillion dollar spending budget, we can't cut mandatory spending, must pay the interest and likely can't cut any military spending. So what is left?
1. Assistance to individuals: food stamps etc, disability via SSI, EITC and the like at $496.4billion
2. Transfer spending to the states: Medicaid and CHIP, transportation subsidies (road repairs, etc), Education, other child services and social services, and miscellaneous totalling $1.09trillion.
3. other spending: Health, banking and finance, transportation $591.6b
So we are left with discretionary spending at about 1.5 trillion- about 24% of the spending budgeted. But many of the programs are either popular or necessary. Are we really going to let children go hungry by cancelling SNAP program spending?
We can return to higher marginal individual tax rates which will garner some revenue from the wealthy but a better mechanism would be to figure out how to tax net worth rather than income because most billionaires don't actually have much income in the way you and I do.[3] We could also raise the corporate tax rates which have been lowered under successive Republican Congresses and administrations. None of this closes the gap really. A national sales tax (VAT) is regressive and most liberals would oppose it. I certainly do.
I would get creative. One of the wild cards on the US economy is Wall Street. We see how often these financial vultures yank the chain of the entire nation throwing us into recessions and other crisis. We could rein this in if we implemented a high dollar tax on short term financial gains and capital gains. It may not close the deficit gap but would impact it somewhat while also disciplining the market. Right now, gamblers on WS play with rise and fall of stock prices. This dalliance is NOT investing in a company- in fact it is the opposite and too often these gamblers bet that stock prices will actually fall! So, tax at 50% the gains from any stock sold within a year of its original purchase. Tax dividends paid to stockholders at normal income rates. We can also increase the capital gains tax in general as well as tax pass-through income which some finance firms consider
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