The Debt Ceiling Part 1

EDIT: I'm probably not going to do the follow-up to this anymore considering it's all over and the motivation is gone.

Disclaimer: I do not profess to be an expert on the topic of the debt ceiling, however I have been able to spend the time to read quite a bit about it and the debate surrounding it. This is just an attempt to de-mystify some aspects of it.

With all the talk about the debt ceiling these days, it's easy to get confused. The deadline for raising the limit has been changed multiple times and both parties have seemed to swap their positions a couple of times. This is without even mentioning that the debt ceiling is a completely arbitrary limit that is unique to the United States. There has also been a lot of apocalyptic talk about the idea of not raising it, without anyone seeming to go too much into specifics. I'm going to try to sort all these out, and make this as simple as I can.

Until 1917 Congress had to approve each specific increase to the debt individually. At that point, because of the US involvement in WWI, Congress created 'caps' to different types of debt to make it easier to fund the war. Starting in 1939 Congress eliminated the need for separate caps, creating the debt ceiling we have today. The limit was originally only $45 billion dollars, however over the years it has been raised over 100 times, including 7 times during President Bush's time in office. The current ceiling is set at $14.25 trillion dollars. This is a completely arbitrary limit which is why we have been able to raise it so many times, and can still in the future.

The current deadline for raising the limit has changed multiple times essentially because of procrastination by congress and credit rating companies giving the US the benefit of the doubt. The original deadline was calculated to be the end of March. It was then moved because we hadn't hit the ceiling yet. We actually hit the ceiling in May, though the Treasury was able to cease certain 'low priority' spending to make room for paying other bills. It was around this time that the deadline of August 2^nd was made, and they have kept to that deadline since. The 2^nd is the day when the Treasury will start having to play triage with our spending, deciding which of our interest payments, social security, medicare/medicaid, and defense spending to stop paying. Ceasing payment on any one of these things will have immediate and possibly devastating effects that I will get to in a moment. Recognizing the implications of passing that day without having a deal, the credit rating agencies have made it known that if we don't have a deal by then, they will lower the credit rating of US debt.

If the credit rating of US debt is lowered the effects will likely be intense and far spread. This is because of the current rating the US debt holds, and the historic attitudes surrounding the debt. The US has never before defaulted on its debt, leading to it being considered the most secure investment there is. It's considered so secure that it is often referred to as the 'risk-less rate of return'. Because of this almost all other forms of debt are tied to the US debt. When the interest rate on the US debt rises, so do interest rates on almost everything else. This has the potential to severely effect the ability to borrow for everyone. It also has global implications. Brazilian loans are tied to US debt, and a default here would negatively impact those loans. China, who holds $1.5 trillion of US debt would be catastrophically impacted should the US default, potentially losing the entire value of that debt.

All of that isn't even mentioning that the entire cause of the latest recession was the realization that sub-prime mortgage backed securities were not as safe as had been assumed. This lead to a reassessment of portfolios that took the economy in a downward spiral. A downgrade in the rating of US debt could lead to the same type of reassessment that was around the sub-prime mortgage backed securities. Given the ubiquity of US debt, due to its image as completely secure, the subsequent upheaval in the market could lead to not only a recession, but potentially a full fledged depression.

Let's recap at this point. The debt limit is an arbitrary limit currently set at $14.25 trillion. It has been raised over 100 times without much incident. August 2^nd is a real deadline that has real consequences if it is not met. Up through this point US debt has been considered the safest investment, leading to it's widespread use. Almost all interest rates are tied to US debt. If the US defaults, its interest rate will rise, causing all interest rates to rise, reducing the ability to borrow. There are global consequences as most countries own US debt that could potentially become worthless if we default. Taking into account similarities in the sub-prime mortgage caused recession and the current crisis, it is not unreasonable to assume that a default would cause another recession or possibly even a depression.

I'll leave it at this for now and will try to follow up with an analysis of the political aspects of the debt limit debate in the next couple of days. Hopefully I won't have to if a deal is reached, though I remain pessimistic at this point. If you have any questions/corrections at this point I'd be glad to respond.

For more reading:

Wikipedia - United States Debt

Washington Post - Beyond a Default: Catastrophic Calculations

Why Can't We Raise Taxes Again?

There is a large emphasis on the federal budget and debt this year due to the budget debate for last year's budget and the looming debt ceiling. A lot of discussion has gone around that we need to cut spending (LOTS!) to get some control on it. There are definitely things that could be cut, especially in our bloated defense budget. Subsidies to big businesses that are making record profits are another place to look. There are two main problems, however, with the way the discussion is happening .

The first major problem is the complete refusal of too many politicians to even consider raising any taxes at all. This is a very flawed position. In the 2010 federal budget there was only about $660 billion in discretionary spending. As of May 6^th this year the public debt was $14.32 trillion.^[1] Even if we cut all discretionary spending, the debt would continue to rise, as we're running a deficit of over a trillion dollars. Nothing short of a near-complete gutting of the services the federal government provides would be able to solve the deficit and eliminate the federal debt. This is not only unlikely to the point of impossibility, it is also contrary to the interests of us as a nation. Any serious plan to tackle the debt and deficit problem MUST include tax increases. There is no other way around it.

The top marginal tax rate in the US is currently at 35% for someone making $200k or a couple making $250k a year. This is historically very low. Except for a brief period during Bush Sr.'s presidency where the top tax rate dipped to 28% (of course the cutoff point on income was lowered greatly to around $30k per year) the last time the top rate was lower was at the start of the 1930's. ^[2] One argument going around against raising taxes talks about an ever increasing tax burden which as we can see from the above just isn't true. It is hard to measure exactly how much a tax increase or decrease will affect government revenue, so I'll just give the example of how much it was estimated the 'Bush Tax Cuts'(a lowering of the top marginal tax rate from 39% to 35%) cost the federal government in revenue. The high end estimate (the only estimate that was done) of how much they cost over 10 years is 2.1 trillion dollars.^[3] Assuming this trend would hold, (Which again is hard to predict exactly due to the finicky nature of finance.) repealing the Bush tax cuts would raise roughly 200 billion dollars a year, or around 6 times the amount that Congress actually agreed to cut in April.

Another place to look at in raising taxes is the capital gains tax. Capital gains have always been lower than traditional income taxes, due to the idea that investors need incentives to invest in entrepreneurial activity. Capital gains taxes are split into two categories, short term and long term. Long term applies to any assets held for over a year. Short term are taxed at the traditional income rate, for the rest of this post when I talk about capital gains I will be referring to long term. Capital gains taxes however are significantly below income taxes, with the bottom two brackets at 0% and the top 3 brackets at 15% (brackets based on traditional income). The difference between income and capital gains taxes for the top bracket is more than double(15% for capital gains 35% for traditional income). I would imagine that gap could be narrowed quite a bit and still provide enough incentive for investment.

The last one I will mention is corporate taxes. If you've been paying attention to news in recent months you'll have noticed that there are several large corporations that not only paid nothing in taxes, but got sizable refunds from the government. GE a company that made $5.1 billion in US profits, $14.2 billion worldwide profits not only paid nothing in taxes, but received $3.2 billion from the federal government.^[4] Currently the top corporate tax rate is 35%, however there are a myriad of loopholes and most corporations do not pay anywhere close to that. If we took the corporate tax code, and cut out most if not all of the loopholes, I could even see lowering the tax rate. For example I would rather see the effective tax rate(what is actually paid in taxes) go from 10% to 15% by eliminating loopholes and lowering the tax rate to 15% than I would in seeing the effective rate changing the same amount just by raising the tax rate to 40%. The numbers in the last example were chosen randomly, I'm not sure what the actual effective tax rate is for corporations. Also while only tenuously related to corporate taxes, subsidies for corporations is somewhere else to look. I don't think companies such as oil companies that are making record profits year after year need the subsidies they receive from the US.

The second major problem is who and what are getting blamed for our economic problems and who and what are being asked to sacrifice to fix them. It doesn't take an economist to tell you what has caused the federal debt to skyrocket and the deficit to rise over the last decade. It all boils down to three things, not that any one of these is a sole cause, but combined together were disastrous. The first is the Bush tax cuts, again while it may have been fine without the other two, combined helped cause the problems we're seeing. The second one is the wars in Afghanistan and Iraq. This isn't saying anything as to the justifications or validity of those wars, however wars cost money, and you don't pay for wars by cutting taxes. The third is the economic collapse and subsequent bailout of large corporations and banks. Without the two previous reasons, or even if we had financed the wars with tax increases, perhaps we would have been able to handle the bailouts without going broke. Or maybe we didn't have to do as much bailing out as we did? Those are the three reasons the federal debt is so high and deficits have been rising. To be fair, there are more reasons, as economics is fairly complicated, and have tendrils in all aspects of life, however, these three are the main causes.

Following the above I find it ridiculous that people have attempted to put the blame on public sector unions. Disregarding whether you think they are more trouble than they worth, are worth every penny, or not worth a rusty nickel, the idea that they are to be blamed for any economic insecurities would be laughable if it wasn't being taken so seriously. In Wisconsin, the governor and most of the legislature went after not only public union worker's wages and benefits, (on which the workers were willing to accept cuts) but also after the existence of the unions themselves; all in the name of balancing the budget. This may have been more believable if it wasn't for tax cuts for corporations passed just a month earlier. ^[5] This is a case of someone taking the crisis and using it to push an unrelated ideological agenda (in this case fighting against unions).

There are cases of cities attempting to end or get around nonprofit's tax exempt status.^[6] In no way are nonprofit's related to budget shortfalls and there is no reason to go after them. Nonprofits provide valuable services to the communities they are in, which traditionally have been recognized in the form of a tax exempt status. The idea being that they provide as much if not more benefit than they would if they were paying taxes. I doubt there's any less value being produced by these nonprofits, so why do they need to start paying up now? Also why is it okay to talk about raising taxes on nonprofits, but you can't talk about raising them on millionaires, billionaires, and corporations making billions of dollars in profits?

This whole dilemma is ridiculous. When did we become so afraid of raising taxes? To have an effective, adult conversation about the budget, raising taxes has to be a potential option. There are no two ways about it. You cannot have a workable, realistic solution to the budget and debt problems without increased taxes being part of that solution. Given the way sentiments are on Capitol Hill, our congresspeople need to hear from us that we are okay with raising taxes, and that they need to represent us all, not just the big money interests.

¹ Wikipedia: United States federal budget
² Truth and Politics: Top US Marginal Income Tax Rates, 1913--2003
³ Tax Foundation: How Much Did the Bush Tax Cuts Cost In Forgone Revenue?
⁴ MSN Money: GE's corporate tax bill: Zero
⁵ Daily Reporter: Wisconsin Legislature passes tax cut
⁶ NPR: Cash-Strapped Cities Put The Squeeze on Nonprofits

Justice Department's Decision to Not Defend DOMA

This post is intended to be a simple explanation of the recent announcement by the Department of Justice(DOJ) and what it means. I will attempt to present only facts and keep from expressing opinion in the main body of the post. That being said, for the sake of openness I will say that I am opposed to Defense of Marriage Act(DOMA) personally, though as stated before I will attempt to keep this post only to the facts so that you can understand what exactly this decision means.


On February 23^rd this year the DOJ sent a letter to Congress informing them of their intentions regarding current litigation involving DOMA. (The full text of this letter is available here, I will be taking most of my information from within that letter.) This letter informed Congress that in a couple specific cases the DOJ would not be defending the constitutionality of DOMA. This is due to these new lawsuits which are to be heard in Circuits where there is not an established precedent regarding the standard of review when it comes to cases involving sexual orientation.

There are three levels of scrutiny when dealing with cases involving issues related to the 5^th and 14^th amendments. The lowest level of scrutiny, referred to as rational basis is the current standard used in cases with DOMA so far. Under this standard all that is needed to defend a statute is to show that it serves a rational, legitimate interest of the government. The second level, intermediate scrutiny or sometimes heightened scrutiny though there are some differences between the two. With intermediate scrutiny the law must further a rational legitimate interest of the government, in a way that is 'substantially related to that interest.'¹ With heightened scrutiny any intrusion caused by the law must be necessary to further the interest. The final is strict scrutiny and applies in cases that involve fundamental rights, such as free speech and racial discrimination.

As stated before, so far the DOJ has only had to defend DOMA in Circuit courts where there is an established precedent to use rational basis as the level of scrutiny in these cases. The cases that prompted this change from the DOJ are occurring in Circuits where there is no established precedent, which require the DOJ to express which level of scrutiny they believe should be applied to the case. In these cases DOJ has chosen to use heightened scrutiny as the basis for these cases.

The DOJ has come to this choice by following guidelines set forth by the Supreme Court through other cases to help determine if heightened scrutiny is necessary. These guidelines are as follows:

"(1) whether the group in question has suffered a history of discrimination; (2) whether individuals 'exhibit obvious, immutable, or distinguishing characteristics that define them as a discrete group'; (3) whether the group is a minority or is politically powerless; and (4) whether the characteristics distinguishing the group have little relation to legitimate policy objectives or to an individual’s 'ability to perform or contribute to society' " ²

The DOJ expressed in the letter that it feels sexual orientation falls under all of those, leading to their choice to use heightened scrutiny. Following this level of scrutiny the DOJ has determined in at least one of the cases that they cannot defend the constitutionality of DOMA.

In the letter the DOJ specifically says DOMA will continue to be enforced until such a time that it is overruled by the courts or overturned by the legislature. They will also continue to defend DOMA as they have before in Circuits where rational basis is the precedent.

There is also precedent for the DOJ to refuse to defend laws as they are currently in the specific case mentioned above. Between 2004 and 2010 the DOJ has informed Congress that they will not be defending a statue 13 times. These have varied from election campaign finance laws to pornography laws. ³

¹ Wikipedia: Intermediate Scrutiny

² Justice.gov: Letter from the Attorney General to Congress on Litigation Involving the Defense of Marriage Act

³ Law.com: Government's 'Duty to Defend' Not a Given

Rant on Violent and Inflammatory Rhetoric

Disclaimer: This post is a rant, and as such will likely be very long and angry. I will also make generalizations and am not going to mince my words by adding a disclaimer every paragraph saying that there are generalizations. It's also going to come across very partisan. Basically, if any of that doesn't sound fun, don't bother reading, I pretty much just need to rant.

The recent shooting in Arizona of Rep. Giffords and bystanders brought about a lot of discussion about the violent rhetoric coming from the Right. The motives of the shooter haven't been revealed yet, but either way it brought this up, and it's about time it gets talked about. Hopefully it keeps getting talked about, and something changes, although I fully expect it to be ignored within a week or so. Cynical, yes, but that's the way things seem to go.

There has been a marked increase in the amount of violent and inflammatory rhetoric coming from the right ever since Obama got elected, or maybe it was around the time of the health care debate, I'm not sure. I've watched as this rhetoric combined with lies is being leading to a dangerous idea. The idea being that the democrats are dangerous to America and must be stopped by any means possible. I'm not saying it's intentional, as I have no way to know for sure, but it sure as hell isn't responsible.

It all pretty much starts with Obama the secret Muslim from Kenya. Both of which are ridiculous pieces of non-news. Yet, they were covered incessantly by essentially all major news networks. The only thing those two lies served was to show Obama as 'other' and to make it seem that he is some kind of Manchurian candidate that's going to ruin our country. Now as far as I can remember, no high ups spread those rumors and the news mostly just discredited it. The fact it was covered so much, when it was such a ridiculous piece of news just lent it credence however, and as recently as last August at least 20% of the country seemed to believe that Obama's a Muslim.

Flash forward to the health care debate, which I just have to say, for what it is (an attempt to ensure everyone has access to affordable health care) there was a surprisingly extreme reaction to it from the Right. The largest 'controversy' over the health care debate early on was the absurd notion of the 'death panels'. In the bill it was an optional consultation on creating a living will. It was blown up into the absolutely absurd notion that there was going to be a panel of government bureaucrats that would decide on whether to 'terminate' older people and even babies with severe disabilities. This idea was spread from the highest echelons of the Right, from House Minority Leader(at the time) John Boehner to Sarah Palin.

Matters only got worse once the Tea Party got started. I have never seen such a hateful group be given so much credence. The biggest lie about the Tea Party is that it is not partisan. I've never heard of a single democrat agreeing with anything they say, and I've never heard once the Tea Party endorse any but a republican candidate. One of the big memes of the Tea Party is that of 'taking our country back', which inherently implies that someone took the country away to begin with. It seems that they just can't get over the fact that the American people elected the democrats in such a large margin in 2008.

After that things just kind of seemed to snowball. You have a guy showing up to a presidential event with a fully loaded semi automatic rifle. You've got the signs 'We left our guns at home.. this time'. There's the 'Second Amendment Remedies' of Sharon Angle, the map with gun sights on the districts of democratic representatives with the phrase 'Take them out'. You've got Rep. Giffords' challenger in the last election with his event with the description: 'Get on Target for Victory in November Help remove
Gabrielle Giffords from office Shoot a fully automatic M16 with Jesse Kelly'.

When you take all of these things, which I've only gone for the major indisputable ones, there are many many more, it forms a very dangerous picture. You start with the idea that the president is not an American, and that he is a Muslim, which as has been shown from the protests over the so called 'Ground Zero Mosque' that many Americans can't make the difference between Muslim and terrorist. So you have a non-American possibly terrorist president, who is pushing health care which you're told will involve the government saying it can kill your grandparents. You've got the 'take our country back' meme showing that shows the previous idea is given some merit. Then you have all the talk of 'Second Amendment Remedies' and gun talk. Honestly, I'm surprised there hasn't been more violence.

There is proof this kind of rhetoric can provide the violent response. All you have to do is look at abortion. You take one side that says the other is killing babies. A truly horrific idea that would make anyone want to stop it. Then you get the activists making wanted posters for abortion doctors. Then you get the death of Dr. Tiller. It's a formula for violence that always works.

There isn't much we can do either. It is incredibly difficult to target this speech without risking free speech. The best thing to do is to see this rhetoric, call it out. Say, 'This is not ok, there is a way to say this without the violent imagery'. It makes me sad that I have only come across one republican that can see that this isn't alright. Every other response seems to be some variant of 'Yes, this is a tragedy. There is no way that our rhetoric had anything to do with it, and we will NOT tone it down.'

I think I'm done with the rant now, and I'd like to apologize if I offended any of you who read this, but this is the way I see what's going on.