Ceiling's falling: What the debt debate means to us

Posted: July 28, 2011

THE WRANGLING in Washington over raising the nation's debt ceiling was getting heated. The president supported the increase. Certain members of Congress were resisting the change.

It was the 1980s.

Then the 1990s. And here we are again.

Every few years, it seems, the question of raising the federal borrowing level becomes an issue.

But this time, the divide seems even more extreme. The possibility that the current $14.3 trillion debt ceiling won't be increased - and the country won't be able to pay all its bills come next week - seems even more possible.

The Obama administration says that not raising the debt ceiling, the amount the federal government can legally borrow, could lead to financial collapse here and abroad.

Many Republicans insist that Democrats first need to agree to cut spending by the same amount, while some in the GOP say they're against any increase.

While the arguing goes on, the People's Paper is here to break down how it will affect you.

Q: Bottom line, what will it mean for me if the issue isn't resolved by Tuesday's deadline?

A: If you're a government employee, you might not get paid. If you're a vacationer planning a trip to a national park, you might have to change your plans. No one's exactly sure where the government will cut back if it has to.

"It'll have a negative effect on the economy at a time when we don't need that," said Bob Bixby, executive director of the Concord Coalition, a nonpartisan group that advocates fiscal responsibility and supports raising the debt limit.

He said those effects will be gradual, leading us on a slow side back into recession. An even larger issue is what comes next as we keep raising the debt ceiling to keep up with our spending, said Kent Smetters, a professor at the University of Pennsylvania's Wharton School of Business.

Q: The debt ceiling has been raised more than 100 times since 1917, why the big deal now?

A: It's a sign of our highly partisan times, and the influx of tea-party Republicans who have made fiscal issues a top priority.

The issue has traditionally been used by whichever party is in the minority to blame the majority party for the debt. "It's a negotiation chip to control the future growth rate, it's not about the current situation," Smetters said.

Q: What's the difference between the Democratic and Republican plans to reduce the deficit?

A: Both plans include major spending cuts that would reduce the budget deficit by more than $2 trillion over 10 years.

The big difference is timing: The Democrats' proposal would raise the debt ceiling for about 17 months so the issue wouldn't arise again until after the 2012 election.

The Republican plan would extend it for six months, making it a major election issue.

Q: If the debt ceiling isn't raised, would that mean the U.S. would go into default?

A: Not completely, said Gary Witt, assistant professor at Temple University's Fox School of Business. The government won't be bankrupt. It will still be taking in revenues. "Right now, revenues cover about 60 percent of the country's total expenses," Witt said.

"They can prioritize bills and pay their top ones." But even a little default is bad for business, "It would make us look pretty foolish," he said.

"Actually this is a self-imposed crisis," Bixby said. "It's just because of political malfunction. It's not that the U.S. can't pay its bills. It won't pay its bills. I don't know which is worse."

Q: Won't this hurt the U.S.'s credit rating?

A: Probably, and that's never happened before. But some people say that AAA rating is destined to be downgraded anyway. The downgrade would probably be to a still solid AA+. "We'll have to pay more for our borrowing needs. That results in higher spending and makes it more difficult to get the budget under control," Bixby said.

comments powered by Disqus