National Debt Debate: Back Front & Center as GOP Worries Like Never Before (ha ha ha)

 

GOP Congressional Economics 101 

(Prof. Mitch McConnell, et al)

Short Intro: GOP is now (again) worried about DEM spending the National Debt limit cap about to expire (again). GOP hypocrites back in action (again). As usual with poor memories (again).

I remind them of the GOP-only 2017 huge, really huge tax cut that had zero Democratic votes. Seems the GOP has lost its memory (again) on the impact of that massive cut (mostly benefitting the top crust (as usual).

Some history follows with this story cropping up on this subject reported on from The Hill with this headline:

“Congress barrels toward National debt cliff”

Congress is barreling toward a fight as soon as next month over raising the debt ceiling, creating a huge challenge for President Biden and Democratic leaders in Congress.

Under a 2019 deal during the Trump years, Congress agreed to let the government borrow through July 31. The Treasury Department at that point can take what's known as extraordinary measures to keep the government solvent, but it's unclear how long it will be able to do this.

In the Senate, raising the debt ceiling is subject to the filibuster, meaning Democrats will need GOP support. 

But GOP senators say they don't expect their caucus to provide the 10 votes needed to hike the borrowing limit, which would set up a high-profile financial showdown with dramatic implications for the world's economy.

Sen. John Thune (R-SD), the No. 2 Republican: “I'd say it's unlikely.”

Sen. Roy Blunt (R-MO), member of GOP leadership: “Lawmakers typically use the debt ceiling to try to figure out some mechanism to control future debt. Probably the Budget Control Act was the most effective of all of those things but this is the first year in 10 years that we haven't had a spending cap to try to deal with. ... I think we'll have that same kind of debate again.” 

(He was referring to a 2011 law that set top-line spending limits through fiscal 2021).

Blunt concluded: “I would think it's likely to get 10 Republicans you're going to have to do some kind of spending reform to get a debt ceiling increase.”

This is the latest sign from Republicans that they are bracing for an all-out fight over any attempt by Democrats to increase the debt ceiling without making spending cuts or reforms, even after taking a relatively hands-off approach to checking the debt under Trump.

GOP hypocrite part I mentioned above – a well-known GOP DNA trait.

Democrats are brushing off the GOP threats, warning that it would backfire on Republicans politically by threatening to roil the markets and injecting a huge dose of fiscal uncertainty just as the country is coming out of a year-plus pandemic that put the economy on shaky grounds. 

For example: Sen. Chris Murphy (D-CT) warned: “That it would be political suicide if Republicans risked a debt default by refusing to help raise or suspend the debt ceiling.” adding: “I'm not sure Republicans are going to want to risk the catastrophe that would occur. I think we've gotten to a good place where we understand you can't negotiate on the debt ceiling.”

So, when, exactly will Congress will have to deal with the debt ceiling fight is unclear. The debt ceiling will automatically kick back in August 1. 

Where will Congress be??

(Oh, on Summer Recess)

So, it's not an ideal time for Congress, given that it comes amid the summer recess season when lawmakers are itching to get out of town if they haven't dispersed from Washington already. 

The House is scheduled to leave Washington at the end of July and not hold votes again until September 20. 

The Senate is scheduled to leave August 6 and return September 13.

Impact: The Bipartisan Policy Center is estimating that the so-called x-date, or the point at which the U.S. government will be unable to fully meet its financial obligations on time, to arrive at some point in the fall, based on Treasury's announcement about what its cash on hand will be August 1, 2021.

The Treasury Department hasn't yet put a firm timeline on how long it expects that it will be able to use extraordinary measures to delay running up against the country's borrowing limit. 

A bit of history vis-à-vis this sort of fight over the years (re: tax cuts, the deficit, and debt ceiling):

So, how much did that 2017 tax cut cost? Republicans spent $1.9 trillion on tax cuts that primarily benefited the wealthy and corporations and in return the country gets a very meager 0.7% return overall economic growth over the next decade by all economic accounting.

FYI: The biggest failure of “Reaganomics (Trickle Down: tax cuts for the top who in turn help and benefit the bottom) and that the GOP cheers for was its inability to reduce the federal deficit and control spending.

How much did the 2017 tax cut add to the national debt? There were multiple culprits. That tax cut, especially the sharp reduction in the corporate tax rate to 21% from 35% took a big bite out of federal revenue. The CBO estimated in 2018 that the 2017 tax cut would increase deficits (spending/borrowing more than taking in equal deficits) by about $1.9 trillion over 11 years.

Do tax cuts increase national debt? Simply, yes, and bigly: The Tax Cuts and Jobs Act (TCJA) cut taxes substantially from 2018 through 2025. The result: Deficits will add $1 to $2 trillion to the federal debt (official estimates). The national debt increase will be larger if some of TCJA's temporary tax cuts are extended (GOP loves to extend tax cuts. Keep that in mind. It helps them in election years).

What do tax cuts do to the economy? Tax cuts boost the economy by putting more money into circulation. But, they also increase the deficit if they aren't offset by spending cuts. Tax cuts improve the economy in the short-term, but, if they can also lead to an increase in the federal debt, thus depressing the economy in the long-term.

Tax Cuts & Who Benefits? They create jobs when businesses ramp up production to meet the higher demand. CBO found they create 4 jobs for every $1 million in lost tax revenue. Tax cuts for the middle class and poor do much better, since they tend to spend the tax cuts.

My 2 cents: I hope the info above is worthwhile. More on this later I am sure. 

Now we sit back and watch the forthcoming big fight – with an impact or not on the 2022 midterm election, too. A humdinger as they say on the way.

Bookmark FYI: U.S. Debt Clock (official CBO site).

Makes your head spin, doesn’t it?

Thanks for stopping by.