Debt Ceiling Debate by Election Day
The clock is ticking. 2012 is half over. It appears that the $16.39 trillion debt ceiling limit will be reached just three days before the November presidential elections.
Politicians, of course, will try to sweep it under the rug. An inept national media will allow them to.
As if that is not enough of a problem, its just 174 days until Taxmageddon 2013 strikes and we plunge over the fiscal cliff.
Unless Congress acts by January 1st the average American family will see a $4,500 tax increase next year. According to the latest CBO figures released in May, it totals to $607 billion in tax increases in 2012. That is 4% of GDP. It will be, by far, the largest tax increase in U.S. history.
Congress and the President appear disconnected. They preach partisan cosmetic solutions.
Unlike 2008 when Congress took decisive bipartisan action to prevent a depression, politicians this year seem more concerned about saving their own skins than serving the nation.
Debt Ceiling Debate All Over Again
Last summer Standard & Poor’s downgraded the U.S. credit rating for the first time ever. They did so for two main reasons:
- Partisan public bickering over raising the debt ceiling
- Failure by Congress and the President to solve the long-term debt problem
Things have worsened since then.
A so-called “supercommittee” was formed that was supposed to fix part of the problem by last November, but they failed. We are about to reach the debt ceiling again. Now, as then, there still is no long-term debt solution.
We are back to square one. This time, though, we have Taxmageddon 2013 looming like a giant black cloud over our heads.
By the Numbers
So far this year the federal government has been spending $3.44 billion/day more than it has taken in as revenues. As of July 10th the national debt stood at $15.886 trillion. It is $400 billion under the current debt ceiling limit.
The good news is that national debt growth has slowed down since Barack Obama first took office. Earlier this year it looked like the debt ceiling would be reached by mid-October and default would happen before the new Congress took office in January. Not now.
At 2012’s rate of growth, the debt ceiling will be reached again on November 3rd… three days before the election.
Given the economy, debt growth could rise slightly and bring D-day a bit closer.
There is a ‘good news/bad news’ story wrapped within having another debt ceiling debate at the same time as we stand at the edge of the fiscal cliff. Solving one helps solve the other.
The wild card in the mix, however, is the weak economy. Most economists predict little improvement between now and next year.
According to a May 22nd CBO report, the good news is that if we fall over the fiscal cliff then we’d reduce the federal deficit by $607 billion between 2012 and 2013. In one fell swoop it would reduce the federal deficit by half.
The CBO then ominously predicts:
The resulting weakening of the economy will lower taxable incomes and raise unemployment, generating a reduction in tax revenues and an increase in spending on such items as unemployment insurance.
“Economic Effects of Reducing the Fiscal Restraint That is Scheduled to Occur in 2013“
– Douglas Elmendorf, Congressional Budget Office, 5/22/2012
The CBO says that will reduce GDP by 1.3% in the first half of 2013. So, instead of a $607 billion increase in federal revenues there will be only a $560 billion increase realized.
By comparison, national debt growth this year will be about $1.2 trillion. GDP growth dropped to 1.9% in the 1st quarter of this year.
The bad news is that falling over the fiscal cliff likely plunges the nation into recession in 2013.
Worse yet, suffering that still would not solve this nation’s long-term debt problem. And it’ll strangle job creation, too.
So what are politicians doing about it? They are twiddling their thumbs, crafting political attack ads, making speeches and counting votes in various constituency groups.
Keep that clearly in mind when you step into the voting booth on November 6th.