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Roque Vitanza

Caps 4362

April 14, 2013

Should the US Increase the Debt Ceiling to Shield the Nation from

Financial Harm?

Many Americans are concerned about the state of the American

economy, especially due to the increasing size of the national

debt. The United States debt has more than doubled in the last

six years (Government). The U.S. can no longer pay for the debt

it has incurred and must raise the debt ceiling to borrow more

money (over the legal limit) or default on the debt. Intense

negotiations are taking place to decide an appropriate

legislative action in congress and the Obama administration in

hopes that they can, “come up with a plan that solves our short-

term debt and deficit problems, avoids default, stabilizes the

economy, and proves to the American people that we can actually

get things done in this country and in this town.” (Obama).

Former Treasury Secretary Geithner wrote in his 14 Jan. 2013

letter to House Speaker John A. Boehner that the government might

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be “forced to stop, limit, or delay payment on obligations to

which the Nation has already committed—such as military

salaries.” (Geithner). The social problems related to increasing

the debt ceiling include economic instability, national security,

and global economic loss of confidence. Economic responsibility

and economic security for the United States are the issues that

closely surround this debate as different parties have different

perspectives on them. This debate aims at answering, “Should the

U.S. increase the debt ceiling to shield the nation from

financial harm?”, a question that echo’s from the house of

congress to the national media on a daily basis.

The state of the national debt is a socially significant

problem because it impacts not only all Americans but also the

world economy. Secretary of Treasurer Timothy Geithner noted in a

letter to congress, “Social Security and Medicare, tax refunds,

contractual payments to businesses for goods and services, and

payments to our investors” (Geithner) might be defaulted if the

debt is not controlled. In his letter, Geithner also stressed

the uncertainty of the Treasury Department in the government’s

ability to refund overpaid taxes, and he suggested, “Congress

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should act as early as possible to extend normal borrowing

authority.” The National Debt increases by $40 thousand every

second. (Geithner)

The debate over raising the debt ceiling has two sides.

Those who support raising the ceiling to prevent financial crisis

include such general parties as many fiscally liberal Americans,

and Wall Street executives. Specific parties to the supporters

include President Barack Obama, Federal Reserve Chair Ben

Bernanke, Former Treasury Secretary Timothy Geithner, and the US

Senate Banking Committee. The supporters argue the US needs to

maintain its economic integrity, the government cannot radically

cut spending, and the best way to pay the national bills is to

raise the limit on the national debt. The supporters value

solidarity, duty to the American people as their elective

representatives, and cautious economic decisions (where they

rather increase debt than default and risk an unknown economic

ripple effect). Current plans of the supporters include the

threat to use an executive order to raise the debt ceiling, as

well as a compromise to cut spending.

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The opposition includes such general parties as most fiscal

conservatives, many business owners, philanthropists and many

Republicans. Specific parties to the opponents include House

Speaker John Boehner, US Senators Marcos Rubio (R-FL) and Bob

Corker (R-TN). The opponents argue against raising the debt

ceiling because the payment of the national debt is merely

postponed, spending will continue irresponsibly, and that raising

the debt limit has not worked in the past. The oppositions’

current plans include sacrifices in the short term economic

growth in order to reduce the overall debt, and attempts to

balance financial difficulties through a “Dollar-per-Dollar”

legislation.

In order to understand the debate over raising the debt

ceiling certain terms will need to be defined. The most

important of such terms is the national debt. If the U.S.

government spends as much money as it makes in a given year, it

has a balanced budget. If they make more money than was spent,

they have a surplus budget. In contrast, if they spend more than

what they made, the economy is operating in a deficit. The

national debt- or federal debt- is the sum all past deficits

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minus any amounts that have since been paid. There are two

factors that determine the budget deficit: tax collected and

expenses incurred. These two factors are heavily influenced by

the state of the economy and any policies that might tamper with

taxation. (US Department)

To finance this debt, the U.S. Treasury must sell financial

assets – called securities, namely, bonds. Any person or

organization can purchase these bonds, domestically or otherwise

through banks, brokers or the Treasury’s website. These bonds

have a fixed interest rate; in essence, an individual is giving

the government a loan to be repaid in a later time along with a

profit. Bonds are for sell at a value lower than its face value

(what it is actually worth). So an individual would normally buy

a bond that will be worth $1000 in 5 years for $900 today.

There are two kinds of debt, money that was loaned to the

government by private citizens, organizations and foreign

investors (debt held by public), and money that the U.S.

government borrowed from itself (debt held by federal accounts).

The debt held by public is comprised of both foreign and domestic

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“(48% of Public Debt, 52% of Public Debt)” (US Department)

individuals and organizations, both types of debt (by federal

account and public) are considered equally important to be paid

off.

The scope of this research will focus on exploring the

debate over raising the ceiling on the current national debt.

The research will include past incidents of raising the debt

limits as well as discussion of the consequences to shed light on

the significance of the decisions and provide rational for the

decisions lawmakers make today. However, the focus will be on

current times and current financial problems. The report will

only include international data directly relevant to the federal

debt and will not delve too deeply into the economics of foreign

countries in order to control the massive amounts of information

surrounding this controversy. The paper will not talk about the

state or local levels of government, focusing only on the

national level because this is a federal decision made by

congress and the white house. The research will explore the

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governmental as well as the economic impact of the debt ceiling

and what might happen if it is raises.

The United States of America has been increasing the debt

ceiling every couple of years ever since it was enacted in 1917,

but it has rarely been accompanied by a national (or to a point,

global) economic recession. In the early days of the nation,

loans were taken out on a needed basis to undertake specific

projects or events (i.e. building the Panama Canal). More

aggressive endeavors required more aggressive loans, such as that

to finance the 1898 Spanish-American War. For this event Congress

authorized the Office of the Treasury to issue debt with specific

limits on how much the Treasury Department could borrow and a set

time for maturity (the point in time when the debt is repaid with

interest). Major events came in later years, World War I was an

unprecedented event with unprecedented costs, for this matter

Congress approved the Secretary of the Treasury to issue two

billion dollars in bonds, with a five billion dollar loan limit,

this came to be known as the First Liberty Loan Act of 1917

(Accountability). This Act allowed the Treasury to sell bonds in

order to raise money for the nations endeavors; this act is still

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the grounds under which the U.S. Treasury can issue bonds to

raise money today.

A few years later, the limit had been tapped out and more

loans were needed. Congress needed a new law to borrow even more

money. They enacted the Second Liberty Bond Act of 1917, where

the treasury could issue $9.5 billion in debt. Unlike the First

Liberty Loan Act, the treasury could freely choose what type of

securities (bonds, Certificate of Deposits etc) the Treasury

Department could issue, and Congress was given the power to raise

this debt limit if need be. By the end of the war, the treasury

had incurred a $43 billion loan (Austin, Mindy). For the next

decade, which included World War II, all debts were simply added

on to this one. By the end of World War II, Congress simplified

the law by eliminating different categories of debt through

different types of bonds and considered all types of debt a

single aggregated national debt. This altered the role of the

Treasury bond’s “by means of managing federal finances rather

than securities tied to specific projects or wars.” (Austin,

Mindy). This yielded today’s structure where there is a single

national debt portfolio for all government projects.

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After World War II the debt ceiling was raised for all

consecutive years between 1941 and 1945 to $300 billion. (Public

Debt Act of 1941) The end of World War II reduced the limit to

$275 billion, where it would remain until 1962. During the war

periods both Republican and Democratic parties approved the debt

limit in a single vote. The only major expense the U.S. incurred

between said dates was the Korean War, but it was financed

through tax increases rather than debt. Since March of 1962, the

debt limit has been raised 77 times (Accountability). These

gradual increases were small compared to those enacted in times

of war or economic depression. While they were ‘small’ changes in

percentage of total debt however, they do sum to large dollar

amounts. These ‘small’ and gradual increases have been

accumulating for decades and are a central theme in the debt

ceiling debate for parties who believe that this is a slippery

slope and future generations will have to deal with the current

generations’ debt.

In the past decade, during the fiscal years of 1998 to 2001,

the government operated in a surplus, increasing expenditures and

reducing the debt by paying of portions of it with the nations

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retained earnings. After 2001 however, debt has increased

substantially, mostly due to social security where payroll taxes

exceed the beneficiary’s payments (Austin, Mindy). By the end of

2001, it was evident that the economic outlook would soon

deteriorate and debt would have to be acquired as the government

started operating in a deficit. To be able to acquire new debt,

the debt limit would have to be raised as the debt was just below

it. In the last month of 2001 the Republican administration asked

congress to increase the debt limit by $750 billion (from $5,950

billion to $6,700 billion). In April of 2002, when the debt limit

was about to be reached, the Treasury held it below the ceiling

by invoking legislative powers to cease reinvestment of

government securities in the federal employees’ Thrift Saving

Plan fund (a defined contribution towards federal employees

retirement). As a result, the suspension of reinvestment gave way

to the issuance of new debt through bond sales to meet the

nations debt obligations. During the same month of April, the

debt was maintained at $5,949,975 million, $25 million shy of

meeting the debt limit (Accountability). At the end of this same

month, tax revenues were received and as a result, he government

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was able to carry out its obligations so as to not default and

reinstate the investing of the federal employee Thrift Saving

Plan.

The nation would again face trouble with the debt limit for

the second time in 2002. In the month of May, the Treasury

released a statement saying, ““absent extraordinary actions, the

government will exceed the statutory debt ceiling no later than

May 16,” it continued to say that “debt issuance suspension

period will begin no later than May 16 [2002].... [This] allows

the Treasury to suspend or redeem investments in two trust funds,

which will provide flexibility to fund the operations of the

government during this period” (CBO). To resolve the issue at

hand, the Treasury decided to reduce federal accounts held (debt

the government borrowed from itself) by replacing the debt with

non-debt instruments that did not pay interest or any kind of

profit (CBO). They claimed this would solve the current problem

in the short run, but the limit had to be raised soon or it would

again be met in June 2008, at the latest. As a result, the debt

ceiling was not reached and a crisis was avoided with a temporary

solution.

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By June 21 2008, the country was once again on the verge of

reaching the limit and the nation had large bills to pay for June

and the upcoming month of July. During 2002, Congress took

various steps to relieve the debt ceiling dilemma, the

supplemental appropriations bill (H. R. 4775) was passed by the

House on May 24, and it included debt language that paved way for

a debt ceiling change in meetings to come (CBO). However, the

supplemental appropriations bill (S. 2551) that was passed by the

Senate incorporated into H.R. 4775, specifically omitted ‘debt-

ceiling-increasing’ language. Even though the senate was

reluctant to increase the debt ceiling, by June 11, the senate

passed (S. 2578) to increase the debt ceiling by $450 billion

dollars, enough to fund the governments operations through the

fiscal year 2002 and half of fiscal year 2003, and thus the 2002

debt ceiling fiasco ended (CBO). The US was on the verge twice in

one year of reaching the debt limit, the republican party under

the Bush administration pushed hard to pass a debt increase while

the senate which was housed by a strong liberal majority

leadership, imposed it. This is inversely related to the current

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day situation where the parties are on the other side of the

table appropriately.

The debt limit talks would be a big part of the Republican

agenda again in the following year of 2003. The Bush

administration still pushed for a debt limit increase to carry

out the rest of its projects, while Democrat Senate leaders

opposed any further debt increases. By May of 2003 the debt was

held $15 million shy of the limit. “The adoption of the

conference report on the FY2004 budget resolution (H.Con.Res. 95;

H.Rept. 108-71) on April 11, 2003, in the House triggered the

“Gephardt rule” (House Rule XXVII) that deems to have passed

legislation (in this case, H.J.Res. 51) raising the debt limit to

accommodate the spending and revenue levels approved in the

adopted budget resolution” (Heniff). As a result the Senate could

create and carry out a joint legislation unilaterally (upon

approval from congress) without having to then pass the

legislation through the House of Representatives. This causes the

process to be quicker and may prove very beneficial (to a current

administration) in instances where legislation might easily pass

congress but would receive opposition in the House of

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Representatives (due to partisan issues). The Gephardt rule is

limited to debt ceiling legislation due to the urgency and

frequency of the matter. (It occurs with great frequency and when

it does it must be resolved quickly, in which case passing the

vote through another governmental branch might be too tedious and

would lag appropriate action).

Every year, the two parties pushed against each other on the

same agenda, the debt ceiling. The debt limit was always

increased enough to fund government activities for one or two

fiscal years and pay the debts already incurred for the same

amount of time. This meant that every other year the debt limit

was once again about to be breached. This happened in 2004, where

once again the nation was tens of millions of dollars shy of

reaching the limit, the treasury imposed the same legislative

strategies it did in the former two years so as to not default.

The year ended with a ‘debt limit suspension period’ until the

next year. The following three years (2005, 2006 and 2007) were

comprised of less dramatic debt fiascos, as republican president

bush took a more ‘liberal’ approach to the debt ceiling than in

his first term (ICAP). In May 2007, the house past a joint

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resolution between the two parties that raised the debt limit to

a modest $9.8 Billion. This goes to show the frequency with which

the debt ceiling is dealt with by all presidential

administrations. The modest increase was enough to stay clear of

the debt limit in these years of economic prosperity but would

prove to be insufficient with the financial troubles that were to

come.

The year 2008 brought with it a financial crisis. This year

was no exception to the debt limit increase; the limit was raised

as a clause in the Housing and Recovery Act of 2008 to $10.6

billion. The fall of Fanny Mae and Freddy Mac caused millions of

Americans to lose their life savings, homes and businesses their

credit lines. This brought even more emphases to the importance

of the treasury and their ability to operate. By October the

Senate passed a bipartisan Emergency Economic Stabilization Act

of 2008 (H.R. 1424) and included a debt limit increase to $11.32

billion. The debt limit was increased with two major bills that

were to come, including: the American Investment and Recovery Act

(to $12 billion, the 2009 H.J. Res. 45 (to $13 billion) (Austin,

Mindy). These bills were not specifically designed to tackle the

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nations debt problems, it was meant to rescue large corporations

whose demise would cripple the U.S. economy and many Americans

and to provide stimulate the economy to promote growth and limit

inflation. In order to carry out these very expensive ventures

though, the U.S. government found it necessary to increase the

debt limit again.

With a change in administration, the Democratic

administration of President Obama now too strongly supported the

debt limit increase, and the republicans, who fought for 8 years

to increase the debt limit now took a strong stance against it.

The 2011 debt-ceiling crisis was at hand and after scrutiny

concluded, with H.R. 1954, a bill that raised the limit to

$16,700 billion in the Balance Act of 2011 and Budget Control Act

of 2011, limit that is now once again being met and with great

debate.

This chronology emphasized on specific points for the

following reason. The first part entails the creation of the debt

limit and is followed by the greatest changes in it. In more

recent history, the Bush administration’s debt-ceiling agenda was

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covered with great detail because even though it was the

Republicans Party that was pushing the agenda before, it is now

the one opposing it. The 2002 debt ceiling is the greatest

example that depicts where both sides get their arguments from,

to either support or oppose the 2013 debt ceiling crisis.

Republicans now say they have learned that increasing the debt

ceiling will only postpone the inevitable and will continue to

come back every other year. Democrats on the other hand, say that

the stakes are too high to gamble, bringing the backbone of this

reports focus, should congress increase the debt limit [2013] to

shield the nation from economic harm?

The controversy over changing the ceiling for the national

debt has two sides. Those who support raising the ceiling to

prevent financial crisis include such general parties as many

fiscally liberal Americans and Wall Street executives. Specific

parties to the supporters include President Barack Obama, Federal

Reserve Chair Ben Bernanke, Former Treasury Secretary Timothy

Geithner, and the US Senate Banking Committee.

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Wall Street executives are general stakeholders in this

polarized dispute and have not stood idle in the sidelines.

Jaimie Dimon, Chief Executive of JPMorgan Chase publicly

supported former secretary Geithner with his concerns about the

debt ceiling. He states he is worried how the negative outcome of

this dispute (namely, not raising the debt ceiling) could disrupt

the process that JPMorgan and most other big banks use to

disburse federal payments. A non-partisan joint letter was made

by more than a dozen Wall Street executives, including the

presidents and CEOs of: Allstate Insurance Company, Bank of

America, BNY Mellon, Citi Group, JPMorgan & Chase, MetLife Inc.,

Morgan Stanley, Prudential Financial Inc., State Street

Corporation, US Bancorp, Wells Fargo & Company and Financial

Services Forum. In this letter sent directly to President Obama

they state “We write to you today to urge you to act this week to

reach an agreement that will ensure that our Nation continues to

meet all of its financial obligations, that will entail

meaningful and concrete steps to put our Nation on a sound fiscal

footing” (Financial Services Forum). These reputable executives

represent the business community whose interest lies not in

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politics but in the negative effects that not raising the debt

ceiling could have for private firms.

The most influential among the specific stakeholders is

President Barack Obama, who strongly stood against increasing the

debt limit in 2006. The then democratic senator stated, “The fact

that we are here today to debate raising America’s debt limit is

a sign of leadership failure. It is a sign that the U.S.

government can’t pay its own bills. ... I therefore intend to

oppose the effort to increase America’s debt limit.”

(Stephanopoulos). But has since drastically changed his position,

he defended his change of stance saying, “Nobody likes to be

tagged as having increased the debt limit for the United States

by a trillion dollars. As president, you start realizing, you

know what, we can't play around with this stuff. . . . [Raising

the limit is] important for the country.” (Stephanopoulos). He

stressed the importance of raising the debt limit in his address

to the nation through a press conference noting, “...the issue

here is whether or not America pays its bills. We are not a

deadbeat nation” (Kesler). The president who formerly voted

against the idea of increasing the debt ceiling while in the U.S.

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senate now sees it incumbent that the limit is raised so he can

fund the projects that his administration has been trying to

accomplish (e.g. Obama care) without risking a default on the

national debt.

Former Secretary of Treasury Timothy Geithner held his

office from 2009 to the first month of 2013. He also served as

the President of the Federal Reserve Bank of New York from 2003

to 2009. Secretary Geithner was Obama’s lead negotiator for the

2011 debt ceiling crisis and was the one who officially sent a

letter to Congress on December of 2012, noting that the

Government was about to reach the debt limit once more. He sent

the letter to Republican Speaker of the House John A. Boehner,

urging him that not raising the limit would cause “irrevocable”

damage. He also wrote, “It must be understood that the nation's

creditworthiness is not a bargaining chip or a hostage that can

be taken to advance any political agenda” (Geithner). Geithner’s

letter was the spark that initiated the debate over the debt

ceiling and while he is no longer the current Secretary of

Treasurer for the U.S. he is still as influential and reputable

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and is always present in the debate as one of the Presidents

financial consultants.

The supporters have three major arguments to support their

stance on the issues of economic integrity, economic security and

economic responsibility. On the issue of economic integrity,

supporters argue the US needs to maintain its economic integrity

by not defaulting on its debts. As president Obama noted in his

press release “America pays its bills. We are not a deadbeat

nation” (Kesler). Supporters (namely Democrats and Wall Street

Executives among many other citizens) argue that this goes beyond

reputation, as America holds a AAA credit rating (meaning they

are highly dependable and always pay you back). (Melvin,

Schlagenhauf and Talu) Wall street executives wrote on a letter

to the president, “a downgrade of America’s credit rating, would

be a tremendous blow to business and investor confidence- raising

interest rates for everyone who borrows, undermining the value of

the dollar and roiling stock and bond markets- and, therefore,

dramatically worsening our Nation’s already difficult economic

circumstances” (Financial). This is the main force for why

business executives have deemed it necessary to be active

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throughout this debate. It also summarizes the most plausible

effects that would affect the nation should the nation default on

its debt from a financial stand point.

Second, on the issue of economic security, the supporters

argue that the government cannot radically cut spending as

Republicans are asking them to do because it will cripple the

nations programs (e.g. TARF, Social Security, Medicare etc.).

Supporters don’t see the need to cut spending dramatically as

they are only paying for costs that have already been incurred.

They believe that if they do make a deal with the opposing side

right now, the drastic spending cuts would take a negative toll

on the nation especially with social security, which would be

failing their responsibility to fulfill the nations obligation to

the American people (Ruffing). Beyond the formerly mentioned

effects of defaulting which would decrease investor confidence

that would cripple the financial markets and value of the dollar,

Republicans strongly hold their ground stating that they will not

agree to a limit increase with out reciprocal spending cuts.

Supporters argue that, “The debt ceiling is not a question of

authorizing more spending. Raising the debt ceiling does not

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authorize more spending. It simply allows the country to pay for

spending that Congress has already committed to.” (Kesler). In

essence, they argue that the money that will be borrowed will

only be used to pay bills that congress (through the actions of

both Democrats and Republicans) has already incurred. They

emphasize this argument to show that their aim is not to continue

spending more (‘irresponsibly’ as Republicans argue) but to

handle expenditures previously incurred.

Third, supporters argue that the best way to pay the

national bills is to raise the limit on the national debt in

order to resolve both issues of economic integrity and

responsibility because the bills and their follow-through are the

nations financial responsibility. Supports argue that there are

only a limited number of options, and the lesser evil must be

undertaken which is simply to once again raise the debt limit.

Dr. Sahar Bahmani, the Director of the Center for Economic

Education Department reporter that the President commented in a

weekly press release, “We’re going to have to make sure that

people are looking at this in a responsible way, rather than just

through the lens of politics” (Bahmani), to urge Republicans to

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yield to the limit raise. Dr. Bahmani conducted a study after the

2011 debt crisis to pin point what would have happened should the

Democrats and Republicans not come to a compromise while raising

the limit. Her study concluded, “The value of the U.S. dollar

will most certainly decline, which comes with a set of other

problems. The depreciation of the U.S. dollar will cause U.S.

consumers to face higher prices on foreign goods, which is a

major burden for a country that is heavily dependent on foreign

imports and is a debtor nation with an extremely large trade

deficit” (Bahmani). This is a central argument that Democrats use

to support their stance in increasing the debt ceiling. They (the

supporters, namely, democrats) feel that even though raising the

debt ceiling is not a permanent solution to the debt dilemma, the

effects that are avoided (Bahmani’s concluding report) far

outweigh the unknown effect of raising the debt ceiling once more

for the time being.

Current plans of the supporters include the threat to use an

executive order to raise the debt ceiling, as well as a

compromise to cut spending. Many experts have studied the

unprecedented alternative of unilaterally issue new bonds by

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executive order, which would be usurping Congress’s borrowing

power. (Kinnander, Ola, and Sanchez) They concluded that the

President has the ability to sign an executive order based on

‘emergency’ or ‘extreme measures for extreme circumstances. While

a follow up would find the president and his administration

guilty of usurping congress’ power to borrow, they would have

bought enough time to workup new dealings while fixing the

usurpation of power. This would be feasible if and only if

parties can’t come to an agreement by their final hour. While

conducting this action is not a primary plan (unlike the next one

mentioned), threating to do this by insinuating that it could be

an alternative is a strategy the Obama administration is using.

It gives the opposing side, namely Republicans, additional

pressure to compromise during the negotiations.

The current primary plan is negotiation and sacrifice. The

final goal for the supporters is to avoid defaulting. What they

are willing to do is share sacrifice and create a balanced

budget. For this, “Republicans need to give up some of their tax

breaks… cutting spending is tough and it is a challenge to pick

and choose which areas to cut spending on because one must

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consider the long run repercussions of these decisions that are

being made on the economy.” (Bahmani). President Obama expressed

his willingness to, “construct a package that would be balanced,

would share sacrifice, would involve both parties taking on their

sacred cows, would involve some meaningful changes to Medicare,

Social Security and Medicaid, that would preserve the integrity

of the programs” (Obama). A milestone in the negotiations as the

President commits work together with the GOP, especially speaker

Boehner. This makes an agreement between the two sides more

likely and thus is the primary plan of action.

The opposition includes such general parties as the fiscal

conservatives and many Republicans. Specific parties to the

opponents include House Speaker John Boehner, US Senators Marcos

Rubio (R-FL) and Bob Corker (R-TN). Like the supporters, the

opponents also have three main arguments to back their stance on

the issues of economic responsibility and economic security.

First, on the issue of economic responsibility, the opponents

argue against raising the debt ceiling because the payment of the

national debt is merely postponed. Second, also on the issue of

economic responsibility, the opponents argue spending will

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continue irresponsibly. Third, on the issue of economic security,

the opponents argue that raising the debt limit has not worked in

the past. The opposition does not want the US government to

default; their primary objective is to get the congress to accept

the GOP’s deal to include bills including the ‘dollar-for-dollar’

spending cuts and tax increases (Croker), but they do believe

that if this cannot be achieved, a default is well underway. This

creates intense pressure for the Obama administration because

even though it is the Republicans who consider the default as an

ultimatum it is under Obama’s administration that it would occur

therefor Democrats would bare the blame for any negative outcomes

in retrospect.

Many academics consider unprecedented experimental

alternatives. Even though defaulting or dramatically tampering

the debt limit through unconventional means will probably have a

negative blow out, they maintain the notion that picking amongst

lesser evils is necessary. Conservative academics seem to favor

spending cuts, like Speaker Boehner and Senator Bob Corker, who

recently released his “Dollar-for-Dollar” Bill. A new approach

was pioneered by David Malpass, an economist who ran for the New

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York Senate in 2010 and served as Deputy Assistant Treasury

Secretary under President Ronald Reagan, Deputy Assistant

Secretary of State under President George H. W. Bush, and as

Chief Economist at Bear Stearns. Malpass introduced a very

popular notion to simply replace the debt limit with a new law

that “restrains future obligations but doesn’t threaten

nonpayment of past obligations.” (Malpass). Dr. Biggs, resident

scholar at the American Enterprise Institute, a public policy

research think tank comprised of over 50 scholars and experts,

opposes the increase arguing that, ““a large body of research

analyzing historical data indicates that” addressing our debt

crisis by cutting spending is “far more likely to reduce debt and

enhance the economy than raising taxes on American families and

job creators” (Biggs). This is a central theme for opposing tax

increases and favoring spending cuts to deal with the debt

crisis, which the opposition, namely Republicans, use as grounds

for their spending cut demands in the negotiations.

One of the main stakeholders for the opposition is John A.

Boehner who is the current speaker of the House of

Representatives, a member of the Republican Party and a U.S.

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representative from Ohio’s 8th Congressional District. He used to

be the House Majority Leader from 2006-2007 and the House

Minority leader from 2007-2011. As Speaker of the House, he is

second in the line of succession to the U.S. presidency after the

vice-president. Boehner summarized main argument in a press

conference where he stated, “The American people will not

tolerate our increasing the debt limit without significant

reductions in spending,"  (van de Water). He has held this idea

closely during the negotiations. Boehner’s main goal is to

introduce spending cuts in the Congressional bill if the

Republicans are to vote in favor of increasing the debt limit.

Another influential stakeholder is another member of the

Republican Party, Marco A. Rubio, a United States Senator from

Florida. He served as speaker of the Florida House of

Representatives from 2007-2008. He is a Cuban American native of

Miami and is very active in immigration reform. Unlike speaker

Boehner, Senator Marco Rubio is not influential because of his

power. Paul N. Van de Water, a Senior Fellow at the Center on

Budget and Policy Priorities, where he specializes in Medicare,

Social Security, and health coverage issues analyzed, “the

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American people listen to him and respect him, especially the

because of his Latin roots and conservative American values and

especially in the Latin demographics” (Van de Water). Senator

Rubio made a press release where he noted, “Our generation's

greatest challenge is an economy that isn't growing, alongside a

national debt that is. If we fail to confront this, our children

will be the first Americans ever to inherit a country worse off

than the one their parents were given.” (Rubio). His main concern

is that by viewing the past debt increases, it can be inferred

that there will always be more and more raises needed and

therefore the inevitable is just being postponed to later

generations, Responsibility is the backbone of his reasoning.

The first major issue that the opposition considers

paramount is economic responsibility. The opposition’s beliefs

were summarized by Sen. Rubio in a press release stating, “Our

generation's greatest challenge is an economy that isn't growing,

alongside a national debt that is. If we fail to confront this,

our children will be the first Americans ever to inherit a

country worse off than the one their parents were given.”

(Rubio). They believe that simply raising the debt limit any time

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new money is needed puts future generations at risk because this

money will need to be paid eventually. Even though the increase

needed to raise the debt ceiling is not great, the debt gradually

becomes greater making the problem harder to resolve for future

generations.

Another issue that the opposition considers of great

importance is economic security. The former issue relates to

responsibility, which holds as the bottom line that the nation

cannot defer its debt to generations that are yet to come. On the

other hand the opposition, mainly Republicans also value this

issue of economic security greatly because they know that a

default would result in a ‘recovery-ending event.’ For this, they

stand strong in their stance of spending cuts. Van de Water

summarized the negatives toll taxes would have stating, “Current

federal policies make it harder for job creators to start and

grow businesses. Taxes on individuals are complicated and set to

rise in less than two years. Corporate taxes will soon be the

highest in the industrialized world.” and goes to conclude,

“ Under this plan, public debt will equal 87% of our economy in

less than 10 years. This will scare away job creators and lead to

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higher taxes, higher interest rates and greater inflation.” (Van

de Water). Republicans use this argument to prove that spending

cuts are the correct choice over higher taxation because of the

domino effect that higher taxes could have on the economy and job

creation.

For the opposition, compromise is also a grave issue.

Republicans do believe that they should do the utmost to not let

the nation default on its loans, but not if they do not make the

democrats compromise with spending cuts. Kathy Ruffing, a Senior

Fellow at the Center on Budget and Policy Priorities,

specializing in federal budget issues pinpoints that the GOP’s

aim is to “defeat an increase in the debt limit unless it is the

last one we ever authorize and is accompanied by a plan for

fundamental tax reform, an overhaul of our regulatory structure,

a cut to discretionary spending, a balanced-budget amendment, and

reforms to save Social Security, Medicare and Medicaid.”

(Ruffing). It is hard to accomplish this not only because there

is intense opposition to all these reforms, especially by the

democrats, but also because there is very little time to act. In

the case that congress fails to meet their demands they believe,

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“ automatic across-the-board spending reductions should be

triggered to close the gap. These public debt caps could go in

tandem with a Constitutional balanced budget amendment.” (Rubio).

These spending cuts are meant not as a solution but rather to

create pressure for both Democrats and Republicans to come to an

agreement. The spending cuts would be experienced across the

board meaning that it affects all projects and therefore the

interest of both parties.

The opposition’s current plans include sacrifices in the

short term in order to reduce the overall debt, and attempts to

balance financial difficulties through a “Dollar-per-Dollar”

legislation. The “Dollar-per-Dollar” is its primary plan which it

hopes to attach to the act that those in support of raising the

debt limit will issue, if they hope to get the oppositions vote

on it. This bill was introduced by Senator Bob Corker who noted,

“I’ve introduced dollar-for-dollar legislation that will raise

the debt ceiling by roughly $1 trillion in exchange for roughly

$1 trillion in reforms to Social Security, Medicare and Medicaid.

This bill incorporates many of the recommendations made in the

bipartisan Simpson-Bowles and Domenici-Rivlin proposals. These

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proposals were commissioned by the bipartisan policy center, who

alter bills to include balanced legislations, which incorporates

the Republicans spending cuts into both health and defense funds.

Corker, who was one of the main authors of the bill includes in

the bills abstract, “This bill meets our obligations to older and

younger Americans. Young Americans expect us to solve our fiscal

issues so they aren’t saddled with debt and robbed of their

opportunity for the American dream. And seniors expect us to

honor the commitments we have made to them.” (Corker). It

provides a solution where congress would allow the debt limit to

be raised, and inversely cut spending to the same amount so that

the nation does not default and the debt does not increase. Its

goal is to allow congress to fix the debt crisis temporarily

without increasing the debt for other generations to deal with.

In essence the bulk of the bill’s discretionary funds would

be derived from the reformation of Medicare. Republicans want to

keep it free-for-service but let it compete side by side against

private organizations, giving the private citizens (namely,

seniors) the right to choose their preferred service. This in

turn would reduce the costs without sacrificing the spending cap

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on the program. It would also charge higher premiums for Medicare

and increase the age of eligibility to 67, thereby charging more

to less people. The bill also includes a social security reform

clause that does not go into detail on how it will be reformed

but does say that it will “enhance the progressivity of the

benefit calculations” and “slowly raise the retirement age and

benefit computation period to reflect longevity increases and

strengthen the solvency of the disability insurance program”

(Corker). This new computations come mainly form the fact that

people are dying at an older age so the government is paying more

and more per individual every generation. These alternations

would reflect this increased life longevity and make these funds

give out less money accounting for a major portion of savings

that are needed for the debt payment funding.

On the issue of economic integrity, supporters for raising the

debt ceiling hold the idea that the U.S. cannot default on the

debt that it has already incurred with its citizens and other

nations and organizations because people must have confidence and

faith in the consistency of the government’s actions and values,

namely, keeping its word. The strongest argument for the

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supporters of raising the debt ceiling is that defaulting on the

loan would hurt the United States credit rating. Supporters have

shown through statements made by economists that the US credit

rating is crucially important for an economy to grow because

people must conduct business within that nation. If the U.S. gets

downgraded, foreign investors would relocate their investments

somewhere else. The United States currently has an AAA rating; it

is the highest possible rating and it means that the obligator

has extremely high capacity to meet its financial commitments. A

single downgrade to AA+ signifies it has a strong capacity

(versus very strong. That single word will cause investors to

put their money elsewhere because there are many other easily

available AAA investments. This is important because foreign

investment accounts for 2% of the nation’s GDP, and to put that

in perspective, the nation’s GDP is currently growing at 0.4%

(Foreign), so a drop in two percent is catastrophic. These are

inferred speculations based on the following historical

occurrences.

Apart from the factual numbers, dropping in credit ratings has

many side effects. This has already happened before on August

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2011. The global market declined after the announcement, all

three major U.S. stock markets fell about 7% in one day (AAA).

This affected the United States market domestically and globally

and hurt the US dollar in relation to world currencies. This also

had a severe impact in other countries that are heavily dependent

on the United States financial health. Such a financial crisis

in 2008 set a global domino effect of economic hardship that lead

to a global recession. The supporters arguments, which stems from

the debt crisis of 2011 appeals to historical occurrences rather

than speculation and is therefor strong.

A great weakness that this argument presents is that while it

avoids negative consequences it does not address the underlying

problem of the debt. The United States could be downgraded for

not paying its bills on time and defaulting on some payments or

others, but if the debt increases again and again protecting the

integrity of the United States will be much costlier in the

future. Negative consequences will increase as the debt grows

and the government is knowingly accumulating more debt. Integrity

is regarded as the truthfulness and honesty of ones actions and

while this argument does make the United States remain truthful

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to those who it owes money to, it is not being consistent in the

sense that to pay for those debts it will tax individuals and cut

spending in some projects. So it is paying the nations debt by

taking money away from the citizen’s pockets; meanwhile, the

underlying debt problem still remains because the debt will still

be larger than the domestic income next year, creating another

deficit like this one (as shown in Exhibit B).

The opposition (namely, Republicans) has a strong argument for

why the United States should not just continue to raise the debt

ceiling when need be. The opposite of integrity is regarded as

hypocrisy. Those who oppose raising the debt ceiling believe that

the U.S. is not really showing integrity but rather postponing

the unavoidable default. The Republicans argue that it is

hypocritical for Democrats to want to raise the debt ceiling on

the grounds of integrity when in all honesty they are fixing the

problem for the current Obama administration, but worsening it

for the nation as a whole, especially for those who will have to

face this issue in the future when the debt is much greater. In

this sense, the opposition argues that true integrity would be to

take a hit now, and solve the real problem, be it by defaulting

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(highly unlikely) or by agreeing to conduct sever spending cuts

(so as to not spend more money). This inference is backed up by

historical reference. The United States debt is increasing at

higher rates than the GDP (Exhibit B), and the debt limit has

been raised in the past five administrations, over ten times in

the last decade alone (Exhibit C), meaning that simply increasing

the limit does not fix the debt problem but rather it postpones

it.

The weakness of the opposition arises due to the impossibility

of finding ways to implement spending cuts that go deeply enough

to maintain the government operational without it having to

sacrifice programs that are crucial to the nation (i.e. U.S.

Navy, Homeland Security, Medicare, Social Security etc.). The

Republicans lack evidence as they cannot prove that in the

future, the government will be unable to pay its debts, either

through innovative financial vehicles or through great fiscal

surpluses. In this case, they could raise the limit now and pay

off debt at some point in the future, where the economy is bound

to boom once more (due to the basic macro economic ‘business

cycle model’ that depict the economy as uprising waves (Appendix

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A)). The notion that a default will generate an unprecedented

wave of negative outcomes such as an increase in inflation and

unemployment and a decrease in the value of the dollar and

investment is now widely accepted (by both proponents and

opponents) as was reported by the former secretary of the

Treasury, Timothy Geithenr in his address to congress (Geithner)

who is now a reputable source due to his experience in the

nations economic affairs. Thus for most republicans, a default

was never a viable solution. While the opposition raises

valuable objections to raising the debt ceiling, there are no

viable alternative solutions that solve the root problems of the

debt-ceiling crisis and keep the nation from defaulting.

The supporters (Democrats) win this argument. The best way to

preserve the integrity of the United States and its financial

obligations is to raise the debt ceiling. The risk that this

problem will come back in a way that is even harder to tackle is

far outweighed by the negative effects of tackling it right now.

This is because even though the root of the problem is not

addressed by increasing the debt limit, the nation will not go

through economic harm, as it has been done dozens of times over

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the past decade. This gives the nation and politicians time to

come up with other alternatives and there is always the chance

that the U.S. might be able to pay this debt in the future

through economic surpluses or other innovations.

Economic security is another major argument central to this

debate. The supporters for raising the debt ceiling argue that

the limit must be raised without radically cutting government

expenditures as the opposing side would have it because it will

cripple many crucial programs that the U.S. Government funds. The

opposition argues that increasing the debt ceiling without

cutting spending is avoiding the real problem. Furthermore

opponents argue that the government would have to raise

individual and corporation taxes, and this will lead to increased

interest rates, which would cause greater inflation and stagnate

job creations crippling the economy.

The supporters (Democrats) have a strong case for raising the

debt ceiling without enacting spending cuts. Cutting funds from

discretionary programs is not enough money to meet the amount

needed to control the debt. The biggest cuts are aimed for health

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services like Obama Care and Social Security, other cuts proposed

by the Republicans would include 30% less to the Development and

Assistance Account (funds basic education and agricultural

programs), 41% less to the emergency food relief program, 67%

reduction to the international Disaster Assistance Account (funds

for clean water, emergency shelters, health services etc.), 52%

cut to donations of U.S. agricultural commodities to school

feeding programs among many others (Forsberg). It is evident that

these cuts undermine the U.S. foreign relation policy and

interest, which the U.S. has been working for a long time to

maintain. It would make the U.S. less influential in world

markets and foreign nation. The U.S. needs its influence across

the world to combat terrorism, conduct business operations and

massive financial projects, to plant military bases and conduct

joint military and scientific operations, all these crucial to

national defense and the notion of the U.S. being a role model

and beacon of prosperity to the rest of the world. Government

employees would also see less retirement funds and decreased

salaries. These effects are based on the professional opinion

made in a statement prepared by Douglas Holtz-Eakin in a

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statement on a hearing before the Committee on the Budget House

of Representatives, first session of the one hundred and twelfth

congress (United). Holtz-Eakin is a reputable source as he is an

American Economist and former Director of the Congressional

Budget Office, meaning he has a long-standing experience in

United States economic policy.

The supporters’ arguments also have many weaknesses. For one,

this argument is about maintaining economic security, and even

though the nation’s projects are very important to a high

percentage people, who, however noble, are expendable in the face

of an economic crisis that will have worse short and long-term

repercussions. It can be logically inferred that when any

organization, individual or nation is facing a debt problem, they

are having a spending problem. This means that the government

must not only figure out how to pay what is already owed, but

also figure out how to stop spending so that the problem does not

become bigger or happen again, which will surely happen if we

keep spending at a pace with which the US obviously cannot keep

up (as shown in Exhibit B). Their argument only states how to

overcome the effect of the debt crisis but not how to fix the

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cause. In this way, their argument is weak because it does not

address the core root of the problem (which would be spending

less to avoid this much debt), it only addresses how to contain

the negative effects temporarily (namely, increasing taxes to pay

for debts already incurred without regard to expenses that are to

come).

The opposition (namely, the GOP) believes that the correct

path to complement a raise in the debt ceiling is to cut

government spending across many programs (mentioned above). This

is a logical step for two reasons. First, simply raising the debt

ceiling alone and not cutting spending will inevitably lead to

another debt crisis in the near future. This is a strong argument

because there is strong evidence in the form of historical

precedence to back it up as the nation’s GDP is growing at a much

slower rate than the national debt (Exhibit B). Furthermore, from

an economic viewpoint, the only other option besides spending

cuts is tax increases to generate revenue. The opposition is

against raising taxes because, as Van de Water summarized, an

increase in taxes will be enough to stagnate job creation (Van de

Water). It will be harder for companies to grow and hire people,

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and it will be harder for business owners to start a new business

therefore hurting the growth of the economy.

A major weakness for the opposition who are pushing for major

cuts is that it is very transparent that they are pushing an

agenda that attacks social programs. The American people

sympathize with government employees who would get laid off or

get their wages decreased, especially soldiers. This creates a

weakness for their argument because they (as a political party)

lose credibility, which casts doubts and undermines their

evidence and intentions. Another flaw is that the domino effect

Van de Water relies on may be considered a stretch. If taxes are

increased firms may or may not lay off people (Van De Water). If

they do, it is hard to say how many people would be laid off. It

is hard to quantify this on pure speculation, and therefore the

argument becomes unstable due to lack of evidence. Furthermore,

spending cuts are just as likely to have the same effect (as tax

increases which are favored by the proponents) through different

means. If the government spends less, people will lose their jobs

across many programs because the biggest employer in the United

States is the U.S. Government. Apart from people who will

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directly lose their jobs, the U.S. will have less ‘stimulus’

money. This money is used to contract companies and workers for

jobs like highways, damns, etc., this alone would hurt employment

at a federal, state and local level.

On the matter of economic security, it is very hard to

establish dominance or a superior argument. The arguments the

opposition made for why tax breaks harm the economy through

unemployment and investment losses can also be made for why

spending cuts are harmful to social and educational programs.

Both of these are based on valid economic assumptions, but

assumptions non-the less. An increase in taxes would not make the

U.S. spend less money, but it would give it more money to be able

to pay the debts. Inversely, spending cuts do not give the U.S.

more money to pay its debt, but it makes the debt increase at

lower rates making it easier to pay. Both arguments provide

different means that have the same end. In essence, the

opposition’s plan would benefit the individual by not having the

government take money from citizens’ pockets but rather just have

the government spend less (and affecting government employees but

not all U.S. citizens). In this sense, the opposition’s plan

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makes a very strong case, but because the matter in dispute is

the economic security of the nation (as a whole), the supporters’

argument would be the superior one as it more beneficial to the

United States as a nation (not just citizens who do not work for

the government).

A third and equally crucial argument surrounds economic

responsibility. Supporters for raising the debt ceiling argue

that raising the limit is the responsible thing to do, seeing as

the nation has already incurred the bills, and it is the nation’s

financial responsibility to pay what it owes. The opposition

argues that to be economically responsible, the government cannot

keep increasing the limit every time it is reached because this

causes irresponsible spending and gradually increases the debt

without cessation building up a time bomb that future generations

will have to deal with. The arguments come down to the

interpretation of responsibility.

The biggest strength that the supporters (Democrats) have for

this argument is that it is simple and concise. This is because

responsibility is defined by moral, legal or mental

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accountability and that is exactly what the supporters are doing

in the following ways: First the United States has a legal

responsibility to pay the money it owes (because the government

is a legal entity). Secondly, it also has the moral

responsibility to be accountable for the debts that is has

already incurred in the past, like Obama said, ‘we are not a dead

beat nation’, so now it must be true to its word and pay

individuals and organizations their money back.

The biggest weakness for the supporter’s argument on economic

responsibility is that the argument is built on the premise of

‘what is responsibility’ and this can be inferred in different

ways. In one hand it can be argued that the responsible thing is

paying back the money that has been borrowed (meaning the

government is being accountable towards its lenders). On the

other hand, the opposition also builds their very different

argument on the same premise (being responsible). Both sides are

doing what they feel is the responsible thing to do yet both

arguments are logically valid. Therefore there is no way of

knowing whose idea of ‘responsibility’ is more valid.

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The strength for the opposition’s arguments yields from a

shared premise, their interpretation of responsibility. The

opposition (GOP) believes that moral accountability is saying

‘the buck stops here,’ meaning that the nation should change

course not just evade the obstacle (debt) because it will have to

be inherited by future generations. The opposition considers it

irresponsible to amount debt and leave it to future generations

that did not incur the debt but must anyhow pay it. This scenario

can be backed up through the evidence demonstrated in both

Exhibit B and Exhibit C. There is a clear upward trend showing

debt outpacing the nations GDP, if the government continues to

simply increase the debt limit, future generations are going to

be facing a debt exponentially greater than that of today (the

one incurred by this generation amounted by the one incurred by

future generations). This is why the course of action must be

altered and today’s debt must be paid in the present, however

unconventional.

The opposition’s argument’s major flaw, not unlike the

proponents, is that all argumentation stems from the

interpretation of responsibility and what is the government’s

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real responsibility. It is ambiguous and cannot be quantified;

therefor is a matter of values and hard to define. This presents

a weakness because when choosing between the opposition’s and the

proponent’s plan, which both aim at doing the responsible thing

in different ways, it seems only logical that it is better to

pick the lesser of evils (because the proponents postpone a

problem to an undefined future and the opponents will have it

settled today, while the nation is in a delicate economic

‘recovering’ situation).

I believe that the proponents’ best argue this issue. While

none of the arguments are wrong, and both the proponents and

opponents want to do what is easily considered ‘responsible’ (in

both cases), the proponents win this argument. I believe that

the proponents’ argument is stronger simply because the

oppositions’ argument is based on moral accountability for the

future, which is unpredictable and uncertain, while the

proponents’ idea of legal accountability is a clear and present

danger today.

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To evaluate this debate more thoroughly, this paper will now

present and analyze the moral reasoning behind opponents and

proponents through their obligations, values, consequences and

normative principles that are the foundation of their stance and

arguments. President Barrack Obama, the main supporter for the

pro side, aims to increase the debt ceiling and generate revenues

through tax increases to offset the debt his primary obligation

being to the United States government. This obligation is a

formal and legal one, as it is the duty of the President of the

United States to defend the nation from all threats to the best

of their ability (as they solemnly swear to do so in the

inauguration). Other proponents, like Secretary of the Treasury

Timothy Geithner are obligated to safeguard the financial

wellbeing of the U.S. economy and other supporters also believe

in shielding the nation from financial harm.

Aside from these obligations, proponents value security. They

believe that security serves as the root to the obligations they

have undertaken. Proponents also value reputation. They favor

the debt increase so that the nation does not default on its

loans in order to avoid a ripple effect of negative financial

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effects, which might damage the image of the US. Finally, the

supporters value duty. They perceive that the country has a duty

to both the people and to maintain financial balance.

The supporters believe that unless the debt ceiling is raised,

the economy and the US economic relationships worldwide will be

damaged. They perceive that raising the debt ceiling is the only

way for the government to maintain its obligation to protect the

country from default and economic ruin. These consequences were

characterized “irrevocable” damage by the former secretary of

treasury Timothy Geithner who explains, “It must be understood

that the nation's creditworthiness is not a bargaining chip or a

hostage that can be taken to advance any political agenda”

(Geithner). The creditworthiness, as previously mentioned, is

considered important by the proponents because “a downgrade of

America’s credit rating, would be a tremendous blow to business

and investor confidence- raising interest rates for everyone who

borrows, undermining the value of the dollar and roiling stock

and bond markets- and, therefore, dramatically worsening our

Nation’s already difficult economic circumstances” (Financial).

Proponents argue that this would be a very bad scenario

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especially nowadays, while the nation is recovering form a world

wide recession and is very susceptible to investor confidence and

speculation.

The supporters base their position and values on the normative

Principle of Consequences. The supporters believe that while

assessing consequences, the only thing that matters is the amount

of good or bad that results. They foresee the consequence of

raising the ceiling as generating the most good for the country.

By raising the debt ceiling, the supporters foresee a steady rate

for employment and continued confidence in the US economy by

investors, both foreign and domestic. Since the government would

not be forced to default, the country would also be able to

continue running and have an opportunity to reconfigure the

budget in the future. They also believe in the normative

Principle of Least Harm. This principle stresses than when there

are choices, the government and people need to select the choice

that will result in the least amount of damage. In this case,

raising the debt ceiling results in the lower amount of harm,

than that which would result from the government defaulting. This

is because if the government raises the debt ceiling, the problem

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will be temporarily solved, giving more time to come up with

solutions and innovations. The government will be able to borrow

more money and keep funding all its programs and pay for expenses

that have already been incurred. If the government defaulted on

the other hand, many people would loose their jobs seeing as how

the government, which is the biggest employer in the nation, must

fire employees because it cannot pay them, and this in turn slows

down the economy because it has less stimulus and money in

circulation to conduct businesses as investors will stop creating

business opportunities for fear of the economic environment as

previously mentioned. When weighing these two scenarios, the

first one, as proposed by the proponents will be less harmful to

the nation thus being in accordance with the principle of least

harm.

The opponents value responsibility. They are willing to

seek other ways of dealing with the debt ceiling because they

want the US government to act in a responsible way by not

spending more than the tax money brings into governmental

coffers. The opponents also value accountability. They see

raising the debt ceiling as a failure to be accountable for the

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debt and the inability to maintain a workable budget. Finally,

the opponents value courage. They believe that by taking a firm

position on the debt, the country will be forced to tighten its

“belt” in order to regain economic balance.

The opponents see the government as having an obligation to

the US citizens to regulate the economy in a way that allows for

social programs but not overspending the amount of money given by

the American people. The opponents would like the government to

cut back spending on certain programs in order to decrease the

amount of the debt and to maintain a higher value for US currency

around the world. With the increasing debt, the opposition

perceives that international markets will see the dollar as worth

less than it has in the past.

The opposition sees the raising of the debt ceiling without

decreasing spending as a pathway to further economic instability.

They also believe that if the debt ceiling is raised this time in

order to avert disaster, the government will continue to raise

the ceiling rather than address the overspending, which is the

fundamental problem. The opponents also believe that some of the

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programs continued due to the raised debt ceiling need to be

reduced because these programs are nonessential.

The opponents base their values and beliefs on the normative

Principle of Beneficence, which states that people have a moral

obligation to help or do “good” towards others. The opponents

believe that they should be guiding the government in ways that

will help the next generation, in this sense they are acting in

the best interest of others (namely, future generations) not only

themselves. If the government cannot control the budget so that

the nation does not default on the debt, then the government is

not meeting its obligation to assist and protect the people of

the US. They perceive the government as having a responsibility

to look out for the future. The opponents also base their stance

on the normative Principle of Categorical Imperative as described

by Kant. The opponents worry that if raising the debt ceiling is

a universal law, then it would always hold true such that every

time there is an economic crisis for default, the ceiling would

and should be raised. Historical precedence has been that

administrations simply raise the debt limit when it is met,

paving the way for future generations to do the same. If this

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administration simply raises the debt ceiling right now to avoid

the negative consequences, then why would any other not do the

same? In this sense, the proponents base their stance on the

normative principle of Categorical Imperative.

The interviews I conducted helped open my mind to new

perspectives and deepened the knowledge for analyzing the

implications that different solutions entailed. My first

interview was with the Honorable Richard Raymond, a democratic

United States Representative of Texas who has been in office

since 2009. Rep. Raymond favors an increase in the debt ceiling,

as most democrats do, but also explained his vision for a Federal

Balanced Budget Amendment, a notion that heavily influenced my

paper and altered my tentative solution completely. Rep. Raymond

believes priorities must always be made and these are very hard

decisions to make, he ended the interview saying, “You have hard

choices but my feeling is, if you don’t want to make hard choices

and hard decision you don’t have to run for office, nobody makes

you, its not mandatory” (Raymond). This inspired me to analyze

what really needs to be done for the greater and long-term good,

and follow through, because there are no perfect decisions, there

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are always counter arguments to be made but we have to follow

through.

My second Interview was with Councilwoman Chan, a Republican

from District 9 in San Antonio, Texas who has held office since

2009. Unlike Rep. Raymond, Councilwoman Chan does not support a

raise in the debt ceiling, but does not believe that a default

should be an option either. Like most Republicans she does not

favor tax increases but rather deep spending cuts; unlike most

Republicans however, councilwoman Chan supports the idea of a

Federal Budget Balance Amendment. The biggest influence

Councilwoman Chan had on my solution was the idea that

politicians need to be ‘pushed’ in order to get things done,

yielding the introduction of a ‘No Budget- No Pay’ clause in my

solution. She also made me decide that comprehensive across the

board cuts are fairer and more effective that prioritizing a few

programs and deeply cutting others.

After a thorough analysis of the arguments and related

evidence presented by both sides regarding an increase in the

federal debt ceiling, a final solution to this controversy has

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arisen. I believe that a two-part solution is needed; one

addresses the present day debt-ceiling crisis and fixes this

problem in the short term, the second part, in the long term.

First off, to solve the debt crisis in the short run, the

United States government should vote to increase the debt ceiling

in order to avoid default. Secondly, once the threat of a default

is gone, the government should, to solve this problem in the

long-run, pass a Balance Budget Amendment requiring congress to

balance the federal budget to the extent that expenditures do not

exceed revenues. Because the United States has a very large debt

(sixteen trillion USD (Government)) and has a very large and

complex financial structure, time is needed. To address this, the

government should create a special committee charged with the

responsibilities of seeing this through. In addition, a clause

is to be implemented within this amendment giving the executive

power (the president) or congress upon a majority 4/5th vote and

a signoff from the Supreme Court to borrow additional funds

(quantity and allocation disclosed before hand) under special

circumstances (wars, economic recessions, natural disasters,

etc.)

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The special committee created to oversee this solution

should be made up of: honorable judges (such as those appointed

in the United States Supreme Court), Macro Economic experts (such

as the chairman of the Federal Bank Ben Bernanke, and current or

former Secretaries of Treasury) and politicians serving in the

United States Senate from both major parties (seeing as how,

unlike members of the House of Representatives, these politicians

are elected for longer terms and serve larger geographical and

demographical areas avoiding special interests and the rapid

turnover that would be experienced by a member that must run for

election every two years instead of six). This committee should

analyze an acceptable implementation time, somewhere between the

years 2015-2020, at which point the government should have no

deficit.

Between the present time and the target date by which the

Balance Budget Amendment would be in effect, the government needs

to be running in, or near, a balanced budget. To address this,

the special committee alongside Congress should take the

following two actions to increase the wealth of the government:

First, enact a temporary strategic tax reform (to raise taxes in

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areas that do not threat job and business growth) to generate

revenue for the nation. Secondly, conduct comprehensive across

the board spending cuts to save the government money by

diminishing expenses as this debt accumulation is in most part

due to excessive government spending as seen in Exhibit ‘D’.

Finally, to assure the smooth and timely cooperation of congress,

a no-pay clause should be enacted whereby members of congress

will have their salaries frozen every time they fail to make a

decision by a deadline established by the special committee, and

reinstated when they make one.

This decision is tailored to address solve the problem while

addressing the needs and concerns of both the supporters and the

proponents. The decision to increase the debt ceiling is stems

from my belief that the United States cannot default on it’s deb

simply because the consequences of doing so are far too great.

Some possible and likely consequences included a downgrade in

credit rating and the partial or complete deletion of critical

government programs. This would create investor insecurity

causing the investment levels to decrease eliminating the growth

of the economy. This would also cause tens of millions of people

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their jobs, and in an economy that is not growing, no new jobs

are likely to be found. The lack of programs, money, jobs,

welfare and security that would result form cutbacks will

severely hurt the American standard of living. Many reputable

economist and politicians back this conclusion. First off, former

Secretary of Treasury, Timothy Geithner, who ensured this would

scenario, would be a “recovery-ending event” (Geithner). The

effects of a downgrade are evident by historical precedence, as

they have already occurred in the 2011 debt crisis.

A counter argument that this decision will face is that this

only solves the problem in the short run. This is evident in

historical precedence as shown in Exhibit ‘C’. Congresswoman

Chan, my second interviewee argued this point saying, “simply

raising the debt limit does not solve our debt problem, we just

get a little more time to spend more money and surely, a year

later, we will be having this debate, again and again as we have

been doing for the past decade” (Chan), and I agree. For this

reason, my solution then implements a Balanced Budget Amendment

for the United States at a federal level. A balanced budget is no

innovation; it is already employed in all U.S. states but Vermont

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(State). Texas, a state that is known for operating in surplus,

has the following balanced budget amendment in it’s constitution,

“Except in the case of emergency and imperative public necessity

and with a four-fifths vote of the total membership of each

House, no appropriation in excess of the cash and anticipated

revenue of the funds from which such appropriation is to be made

shall be valid”(Texas). Following these basic guidelines, the

government will only spend what the money they have or plan to

receive (through taxes or otherwise). This in turn creates a

strict allocation of resources that yield the following favorable

outcomes: Restricts the capabilities for politicians to add ‘Pork

Barrel’ legislations (legislations attached to bills to favor

personal benefit and/or favoring localized areas) into bills.

Creates Accountability for the money that is being spend, as

money in a very constricted budget is scrutinized, which in turn

makes sure that money is being invested where it will have the

greatest value. Because new spending is hard to enact (because it

must be proved to be more valuable than other expenditures and

the voted upon), politicians running for office will be less able

to favor and help special minority groups through funding thus

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diminishing incentive for special interest groups to heavily fund

campaigns creating fairer elections more focused on the

candidates merits.

The moral reasoning on which I base my position to increase

the debt ceiling accompanied by a Balanced Budget Amendment to

the United States Constitution and a combination of comprehensive

spending cuts and tax increases is, for one, the normative

principle of consequences. The principle of consequences, part of

Utilitarian Ethics, states that the only thing that matters is

the total amount of good or bad that is caused and the best

actions are those that produce the greatest amount of good over

the greatest amount of bad in the long-term (Normative). This

applies to my decision in various ways; for one, it avoids

defaulting, which is the other option that causes a lot of bad to

the nation and its citizens. Furthermore, even though spending

cuts and increased taxes are not favorable (as they don’t

directly benefit people in the short run), it does cause the most

amount of good in the long run. This is true seeing as how it

solves the roots of the debt crisis in the long run and reduces,

if not eliminates, the risk of the a default in the future or

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more debt-ceiling crisis that may come in less ideal times (in

more economically troubled or politically unstable times).

The Principle of Need is another reasoning on which I base

my decision. This principle states that “Each person is

guaranteed the primary social goods that are necessary to meet

the normal costs of satisfying one's basic needs in the society

in which one lives, assuming there are sufficient social and

economic resources in his society to maintain the guaranteed

minimum” (Normative). This decision abides by these grounds in at

least two ways. For one, it ensures that the government does not

default, in which case American citizens would lose their jobs in

a shrinking economy where finding a new one would be extremely

challenging. Furthermore, it ensures that the government

maintains enough resources to fund the most crucial social

programs. These programs include: social security, armed forces,

health care and education, to ensure that members of society that

cannot afford medication, security (either by living in safe,

more expensive environments or investing in security measures),

or education (by investing in private schools and college) get

these basic services that are essential to both the individuals

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and the nation alike. Finally, I value economic security. I value

economic security because in a capitalist nation, it provides (in

many ways) the means to shelter, education and most of all, peace

of mind (as people need not sleep worrying how they are going to

pay the next rent or buy their next meal for their children).

Aside from my two interviews I was also part of a civic

engagement. This civic engagement took place in the Texas Capitol

Building at Austin. Texas Rangers gathered in the capitol

building to express their complaints on the recently enacted

budget cuts to their representatives. These Texas Rangers varied

in rank and duties, some were law enforcers across the state, and

others concentrated in environmental progress in single counties.

Among the many stories told, one of these rangers expressed how

over half of his fellow rangers from Webb County (in Laredo,

Texas) lost their post due to cuts, after working together for

decades. He went on to say that the remaining ones were working

much harder and for a decreased wage. This in turn caused delays

in many programs, which in one case caused a small diary farm to

close, as their livestock ran away through what previously was a

‘county-maintained’ fence line that ranged through dozens of

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fields. The owner of the diary farm had to pull his eldest son

from college to help sell the remaining livestock. His fellow

rangers that were laid off still can’t find a job and struggle to

feed their families, most are currently freelancers working in

ranches. This was crucially influential to me because I was used

to seeing these macro decision from the top down without really

considering how they cause a domino effect that change peoples

lives forever. It shed light on how some projects that seem

insignificant to most, mean the world to others and made me be

more conscious and careful when deciding where to draw the line.

This ultimately led me to favor across the board ‘comprehensive’

spending cuts instead of ‘prioritized’ spending cuts, where

heavily funded programs like the Army or Medicare are barely

divested at the expense of the complete obliteration of other

lesser known programs, and what better example than the many

smaller divisions of the Texas Rangers. This scenario embodied

the effects of financial decisions that affect the nation. In

this context, this civic engagement reminded me to keep in mind

that this is a government of the people, for the people, and to

the people – a notion that should never perish. For this notion,

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and the many reasons formerly stated, I believe that the United

States should increase the Federal Debt Ceiling, and follow

through with my proposed solution- without delay.

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Exhibits

Exhibit A

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Exhibit B

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Exhibit C

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Appendix

Appendix A: (POLICY): Second Liberty Bond Act

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Appendix B: Interview Questions

Questionnaire on the US Debt

By: Roque G. Vitanza

-Do you support an increase in the debt ceiling (versus a default)?

-How do you believe the government should raise the funds needed to pay off debt (raise taxes, cut spending or both)?

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-How can we hold our politicians accountable for letting the nation come this close to the debt limit? Is there any party that deserves more blame than others?

-How would you think we could prevent the nation from coming this close to the debt ceiling in the future (A tentative solution per se)?

Appendix C: (Engagement Pictures)

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Appendix D

D(a) Midterm Oral Presentation Slide

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D(b) Final Oral Presentation Slides

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