Reagan provides chess lesson

In his Twitter Town Hall Wednesday, President Obama described the D.C. debt ceiling debate as “esoteric,” meaning “understood by only an initiated few.” I had to look it up. I did not have to look up the definition of credit card limit.

The debt ceiling is basically the nation’s credit card limit with a major exception: raising the debt ceiling goes to pay expenses already incurred by your government.

“I overspent on my vacation. I better call American Express and raise my credit limit.” It seems backwards, but that’s how it works.

Hence the talk of worldwide financial Armageddon if Congress doesn’t raise the ceiling by August 2, the date on which the U.S. Treasury runs out of funds to pay the government’s bills. Who knows if mass chaos would actually happen? Accountants can do fancy tricks.

We do know that politicians on both sides are using the situation to inspect America’s fiscal future. Some reportedly worked through last holiday weekend (President Obama, House Speaker John Boehner).

For good reason. The debt ceiling has grown more in the last 10 years than it did in the previous 60 years. It is now at $14.3 trillion. Ten years ago it was under $6 trillion.

Republicans have said for months that they will not increase the debt ceiling without corresponding cuts to the federal budget. Democrats have said for years that they want to fleece the rich. Both sides claim they want to revamp entitlements and simplify the tax code. There appear to be enough pawns on the table to fashion a long-lasting solution.

President Reagan faced a similar chess table in 1982. Nation coming out of recession. High unemployment lingering. Spending needing bridled. Budget deficits looming. So, he signed the Tax Equity and Fiscal Responsibility Act, reversing some of the tax breaks he had signed into law the year before.

The law did not raise personal tax rates. It did remove some business deductions and it did raise taxes on employers for unemployment benefits. Reagan signed the bill with a promise from Congress to reduce spending by $3 for every $1 in additional tax revenue received.

Whether Congress stood up to its end of the bargain is debatable. Perhaps Reagan should have followed his own advice: trust but verify. Nevertheless, the episode can be instructive to Republican leaders today.

I’m not saying give in to Mr. Obama’s crusade to tax prosperity and production and redistribute the bounty. You can not multiply wealth by dividing it.

I am saying it is okay to eliminate loopholes and preferences in the tax code in order to level the playing field, and perhaps lower tax rates for all.

Following Reagan’s example, Republicans should not fear new revenue. Revenue is what we need to pay down debt. But only if it comes with a disproportionate share of spending reduction and entitlement reform. Lower spending and fewer entitlements are the ultimate checkmate.

2 Responses to “Reagan provides chess lesson”

  1. 1 Jacob Smith July 12, 2011 at 04:41

    That is great philosophy, but what if the goal is to NOT pay down the debt. You have already layed out that the thinking of the current government is to not to get out of debt.

    What would happen if we really got out of debt? Would the world allow us to actually pay them back?

    I do not think so. I am concerned that we are going to see a currency “change/shift” too soon to equalize all debt across the nations and the US Dollar will no longer be available. I do not think we are headed to Zimbabwe inflation, but I believe the debt increasing is deliberate.


  2. 2 chuck July 12, 2011 at 23:52

    In the US free market system revenue is increased (especially) tax revenue when those producing the most in the private sector pays the least income taxes and the government becomes smaller. Kennedy, Reagan, and W. proved this…however this only reduces deficits when government spending is cut compensatorately!

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