walrus51

Hanging their hats on false equivalence

The underlying logic Speaker Kevin McCarthy and his crew lean on in their arguments relative to the federal debt ceiling rely on false equivalencies.

The gist of their message seems to be, “Just as families and businesses balance their checkbooks every month, we believe the federal government needs to make balancing the nation’s checkbook a top priority. Raising the debt ceiling is a short-term solution to a long- term problem.  Before we consider raising the debt ceiling, our federal government needs to focus on reducing spending and living within its means to ensure a healthy economy for future generations”.

Sounds pretty good, right?

Yet, that explanation illuminates one of the greatest obstacles we face as a nation: A void of economic and financial understanding among most American adults.

The ‘checkbook’ is the equivalent of an annual budget.  Current revenues flow in, and current expenses flow out. If revenues exceed expenses, there is a surplus. When revenues exactly equal expenses, it is ‘break even’. When expenses exceed revenues, there is a current-year deficit.

Staying with the household theme, the federal debt is most equivalent to a home mortgage, and the balance due is an accumulation of debt over time.  Remember that new roof? That new kitchen? That fabulous backyard pool? Those were capital expenses, incurred in one year, but with an expected useful life of 10, 15, even 30 years. You add these expenses to the mortgage so that they get paid off over time.

As a retired professional in the field of finance and economics, when I hear Speaker McCarthy or members of his crew attempting to equate current spending to our overall aggregate debt obligations, I cringe.

Some rather simple adjustments to our tax code, including elimination of the carried interest loophole and raising the top corporate rate from 21% to 28% would make huge revenue contributions to balancing the annual (current FY) federal budget.

And, why is it that low- and moderate-income wage earners are required to make contributions to Social Security on every dollar of their earnings up to the current wage cap [a.k.a. ‘the contribution and benefit base’] of $160,200, yet those who are blessed to earn in excess of that amount are exempt from contributions to Social Security on earnings above that amount?

The wage cap on Medicare contributions was eliminated in the 1990’s, so even higher-income wage earners are required to make the 1.45% contribution to the Medicare tax with no limit on earnings.

We clearly have a revenue gap. Why does the cap on social security earnings continue to this day? And, those who claim their income not as ‘wages’ but as ‘carried interest’ not only receive beneficial income tax treatment, they also are exempt from FICA contributions. What a racket!

Federally guaranteed obligations are debt securities issued by the U.S. government, currently considered risk-free because they are backed by the full faith and credit of the federal government. When the Treasury sells these securities, they help to finance the federal debt outstanding at that time.

Allowing the government to default as an outcome from a false debate linking current revenues and spending to our long-term debt obligations would be a preventable tragedy of immense proportions.

Minority Leader Hakeem Jeffries (if you are listening):  I implore you to be bold and to tear apart Speaker McCarthy’s logic map, and to take this opportunity to focus in on one of the greatest obstacles we face as a nation: A void of economic and financial understanding among most American adults. Until the American people awake from their deprivation of economic and financial principles, they will continue to be vulnerable to Alternative Facts such as those presented by Speaker McCarthy and his crew.

The Big Lebowski must have learned of McCarthy’s foolish and destructive crusade to equate and combine the federal debt ceiling with the current (2024) federal budget when he so eloquently said, “This will not stand, you know. This aggression will not stand, man”.