GalesburgPlanet.com

Repub­lican Speaker of the House John Boehner announced Tuesday that he will refuse to approve any increase in the federal debt ceiling without matching spending cuts — essen­tially threat­ening to cause the U.S. to default on its debt oblig­a­tions. During the same speech, he also announced that he would advance a bill to extend all the Bush tax cuts — which would increase the national debt by hundreds of billions of dollars each year.

The announcement came two months after the Congres­sional Budget Office (CBO) deter­mined that the federal budget deficit would fall to around $250 billion a year or lower for most of this coming decade if Congress enacts no new laws that increase it. CBO also found that the most signif­icant step that Congress could take to increase the deficit would be extending the Bush tax cuts, which would add about $450 billion to $600 billion to the deficit each year.

This is exactly what Boehner called for on Tuesday, saying Congress should extend the Bush tax cuts for all taxpayers. Under Boehner’s proposal, this would be followed next year by an overhaul of the tax code that elim­i­nates some tax loop­holes and tax subsidies, but he made it clear that the tax code should raise no more revenue than it would if the Bush tax cuts were simply made permanent. This would lead to the deficit increase illus­trated by the light blue bars in the graph above from CBO’s report.

Bush Tax Cuts Among the Least Effective Ways to Stim­ulate the Economy

In a sane world, lawmakers would focus on increasing employment until the economy has improved enough for the U.S. to tackle deficit reduction, and many econ­o­mists agree that almost any measure would do more to stim­ulate job creation than making the Bush tax cuts permanent.

For example, the noted econ­omist (and former adviser to John McCain) Mark Zandi has concluded that for every dollar of revenue the federal government would lose from making permanent the Bush income tax cuts, U.S. economic output would increase by only 35 cents. On the other hand, he finds that for every dollar the federal government spends on increased food stamps, work share programs, or unem­ployment benefits, U.S. economic output would increase by $1.71, $1.64, and $1.55 respectively.

Debt Ceiling Needs to Be Raised Because Tax Cuts Increased the Debt

The statutory debt ceiling, first enacted in 1917, was an attempt by Congress to make borrowing easier because lawmakers decided their previous process of approving each bond issued was unwieldy. Little did they know that future Congresses would not increase the ceiling when necessary. Remember, the national debt rises only because Congress already enacted spending increases or tax cuts that could not be paid for, so it’s pretty illogical for the same Congress to then refuse to borrow the money necessary to meet those oblig­a­tions or even pay holders of existing U.S. debt. This would cause the much-feared default that would send markets into chaos.

The debt ceiling is like a limit on your credit card – if you could set that limit yourself. What makes the Repub­lican position so bizarre is that it would be as if you spent a thousand dollars on such a credit card and then decided to set your own credit limit at less than $1,000!

Boehner and his allies on the Hill have consis­tently refused to acknowledge this. For example, they demanded in 2010 that the Bush tax cuts be extended for two years for even the wealthiest taxpayers, increasing the national debt by over half a trillion dollars, along with other tax cuts. (Two thirds of the tax cuts in that “compromise” went to the richest fifth of Amer­icans and a fourth went to the richest one percent.)

Then, in 2011, House Repub­licans decried the size of the national debt and threatened to reject a needed increase in the debt ceiling unless federal spending was cut by an equal amount.

2011 Debt Ceiling Deal Worse than Useless

After months of nego­ti­a­tions, Pres­ident Obama largely capit­u­lated by agreeing to a deal that would cut spending by around $2 trillion but raise no revenue. That 2011 deal allowed the needed increase in the debt ceiling and put in place auto­matic across-the-board spending cuts on defense and non-defense spending that, it was believed, would encourage Congress to find a more well-thought-out alter­native to reduce the deficit.

Boehner’s House Repub­licans have already tried to undo that deal. The budget plan developed by Repub­lican budget chairman Paul Ryan and passed by the House would cut safety-net programs for the poor while further cutting taxes for the very rich.

Now Speaker Boehner calls for a repeat of the battles over extending the Bush tax cuts and increasing the debt ceiling.

Obama Would Extend “Only” 78 Percent of Bush Tax Cuts

The strange thing is that Pres­ident Obama’s approach to the Bush tax cuts is not that far off from the GOP approach. While Boehner and other Congres­sional Repub­licans demand that all the Bush tax cuts be extended, the Pres­ident and his allies in Congress propose to extend the Bush tax cuts for the first $250,000 a married couple makes, and the first $200,000 an unmarried taxpayer makes. This comes to about 78 percent of the cost of extending the tax cuts entirely. If anything, Pres­ident Obama’s proposal would extend far too many of the Bush tax cuts.