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Kimberly Amadeo

Consequences of Saying Yes to the Debt Ceiling

By February 11, 2014

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House Speaker Boehner and President ObamaA reader asks: "I have seen report after report on the consequences of not raising the debt ceiling and little or no coverage on the consequences of raising the debt ceiling. What are the consequences and have you written an article on what happens if we continue to raise it?"

Interesting question. Continuing to raise the debt ceiling is how we wound up with a $17 trillion debt. The debt ceiling has become a joke, more like a speed limit sign that is never enforced. Short-term, there are positive consequences to raising the debt ceiling -- the U.S. continues to pay its bills, and we avoid a total debt crisis.

Long-term, the consequences are more dire.

That's because the paper-thin debt ceiling is apparently the only restraint on out-of-control government spending. Even Republicans know that most voters (other than the Tea Party and Libertarians) don't really care about too much government spending. A recent Harris Poll showed that half of all Americans thought it should not be raised, while just over one-quarter thought it should, and the remaining 24% just aren't sure.

"Many people seem to want to cut down the forest but to keep the trees," according to Humphrey Taylor, Chairman of pollster Harris Interactive. The majority of those interviewed don't want to see cuts to health care, Social Security, two of the largest budget items, and education. They do want to see cuts to foreign aid (one of the smallest budget items) and to overseas defense spending, which is the largest budget area.  Basically, they are saying "Cut programs that send my tax dollars overseas, and keep programs that help me personally."

Well, duh. That makes sense.

And it makes sense economically, too. Right now, the government should put every dollar it has into programs that create jobs.  The two best ways are unemployment benefits and building mass transit, both of which create 19 jobs for each $1 million added to the deficit. The next most effective are education (17 jobs/ million) and payroll tax cuts tied to job creation (13 jobs/million).

Less effective ways to create jobs? General tax cuts (10 jobs/million) defense spending (8.6 jobs/million), and extending the Bush tax cuts (4.6 jobs/million).

The debt ceiling is good in that it creates a crisis that focuses national attention on the debt. Raising it is a necessary consequence of management by crisis. Things won't really change until voters understand the budget better, and let their wishes be known.

What It Means to You

Here's links to the research that shows the best way government can create jobs: The True Cost of War and Do Tax Cuts Create Jobs?.  Here's where to find out what your tax dollars are spent on: Where Do Your Tax Dollars Go?.

Once you're informed, contact your elected officials, and tell them what you would and wouldn't like to see cut. Here's how to write an effective letter -- How to Write Your Congressman.

In Depth


(House Speaker John Boehner and President Obama resolving another debt ceiling crisis. Photo Credit: Getty Images)


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