Five truths and five myths about the debt ceiling

Post staff writer Neil Irwin lays out some facts about the debt limit, while former government official Bruce Bartlett clears up some falsehoods.

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TRUTH: That gap between revenue and spending? It's the deficit.

Irwin writes, "The U.S. government took in about $7,000 in revenue for every man, woman and child in the United States last year. It spent more than $11,000 per person. The gap between those numbers, about $4,000 per person, is the deficit, and it was covered by borrowing money. Some politicians speak as if high levels of government spending and a large budget deficit are the same thing. This isn’t so. You could have a government that spends $11,000 per person — but with taxes to match it — and no deficit. Or you could have a bare-bones government of a libertarian’s fantasy that spends only $7,000 per person but that runs a large deficit because it raises only $3,000 per person in taxes."

Greg Kreller / AP

TRUTH: How did we get all this debt? From deficits accumulated over 200 years.

Irwin writes that our "debt has been accumulated over two centuries, rising rapidly in times of war and depression, rising slowly most of the time, and occasionally falling in times of prosperity and fiscal restraint. But even if Congress and the Obama administration agreed to a budget for next year with zero deficit, the national debt would still be with us. It would take massive budget surpluses year after year to eliminate it. No one in public office has offered a plausible plan that would do that." Pictured here is the national debt clock, which is displayed on the side of a building near an IRS office in New York.

Scott Eells / Bloomberg

TRUTH: Not all debt is bad. Some debt is good.

"There's no doubt that debt can be dangerous, but used correctly it can be beneficial. For example, a family might borrow to buy a house or for a child’s education. So long as the family is careful about the amount of debt it takes on, it could pay off handsomely — giving them a comfortable place to live for many years and ensuring their child has higher future earnings. But if the same family used borrowed money to pay for lavish vacations, a new boat or even just routine day-to-day expenses, then it would probably lead to trouble. The analogy is straightforward: If the government borrows money to pay for things that have a long-term payoff, such as a highway between two major cities or education for its citizens, deficit financing can make a lot of sense. When the government borrows money just to pay its year-in, year-out expenses, it’s really just a tax increase by another name," Irwin writes. Pictured here is a library at Harvard University.

Kelvin Ma / Bloomberg

TRUTH: The stronger the economy, the less debt we’ll have and the more we can handle.

Irwin writes, "When the economy is stronger — when there is more economic activity, fewer unemployed and higher incomes — income taxes are higher. Simultaneously, there is less need for unemployment insurance, Medicaid and other social welfare programs. When the economy is stronger — when there is more economic activity, fewer unemployed and higher incomes — income taxes are higher. Simultaneously, there is less need for unemployment insurance, Medicaid and other social welfare programs."

Mark Lennihan / AP

TRUTH: Interest rates matter (a lot).

"A debt level that is completely manageable when interest rates are 3 percent can become burdensome when rates are 6 percent. Every rise in interest rates by a single percentage point increases the annual cost to service that debt by about $140 billion, or $450 for every American. What that means is that with debt levels high relative to the size of the economy, a country loses control of its own destiny in terms of public finances. If global lenders lose faith that the U.S. government is the safest entity on Earth to lend money to, the fiscal situation would go from being a long-term challenge to a near-term crisis," Irwin writes.

Ernesto Benavides / AFP/Getty Images

MYTH: The debt limit is an effective way to control spending and deficits.

Bartlett writes, "Not at all. In 2003, Brian Roseboro, assistant secretary of the Treasury for financial markets, explained it best: 'The plain truth is that the debt limit does not affect the deficits or surpluses. The critical revenue and spending decisions are made during the congressional budget process.' The debt ceiling is a cap on the amount of securities the Treasury can issue, something it does to raise money to pay for government expenses. These expenses, and the deficit they’ve wrought, are a result of past actions by Congress to create entitlement programs, make appropriations and cut taxes. In that sense, raising the debt limit is about paying for past expenses, not controlling future ones. For Congress to refuse to let Treasury raise the cash to pay the bills that Congress itself has run up simply makes no sense." Pictured here is U.S. Treasury Secretary Timothy F. Geithner.

Daniel Acker / Bloomberg

MYTH: Opposition to raising the debt limit is a partisan issue.

"Republicans are doing the squawking now because there is a Democrat in the White House. But back when there was a Republican president, Democrats did the squawking," Bartlett writes. Pictured here are Senate Majority Leader Harry Reid (D-Nev.) and House Speaker John A. Boehner (R-Ohio).

/ Charles Dharapak/AP

MYTH: Financial markets won't care much if interest payments are just a few days late — a "technical default."

Bartlett writes, "This is nothing but wishful thinking. The bond-rating agencies have repeatedly warned that any failure to pay interest or principal on a Treasury security exactly when due could cause the U.S. credit rating to be downgraded, which would push interest rates up as investors demand higher rates to compensate for the increased risk." Pictured here are traders on the floor of the New York Stock Exchange.

Lucas Jackson / Reuters

MYTH: It's worth risking default on the debt to prevent a tax increase, given the weak economy.

"While Republicans' concerns about higher taxes are not unreasonable, most economists believe that any fiscal contraction at this time would be dangerous. They note that a large cut in spending back in 1937 brought on a sharp recession, which undermined the recovery the country was making after the Great Depression," Bartlett writes. Here, taxpayers search through tax forms at the Illinois Department of Revenue.

Seth Perlman / AP

MYTH: Obama must accept GOP budget demands because he needs Republican support to raise the debt limit.

Bartlett writes, "Republicans believe they have the president over a barrel. But their hand may be weaker than they think. A number of legal scholars point to Section 4 of the 14th Amendment, which says, 'The validity of the public debt of the United States...shall not be questioned.' Some scholars, including Michael Abramowicz of George Washington University Law School and Garrett Epps of the University of Baltimore Law School, think this passage may make the debt limit unconstitutional because by definition, the limit calls into question the validity of the public debt. Thus Treasury may be able to just ignore the debt limit. Either way, a failure to raise the debt limit would force the president to break the law. The only question is which one." Pictured here are Boehner and President Obama.

Larry Downing / Reuters

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Business

Five truths and five myths about the debt ceiling

Post staff writer Neil Irwin lays out some facts about the debt limit, while former government official Bruce Bartlett clears up some falsehoods.

Featured Photo Galleries