Editorial: Misinformation mars debt-ceiling battle

In a scant few days, the government will be unable to pay all its bills, and instead of solving the problem — which shouldn't really be all that tough — Washington is caught up in an escalating game of chicken over the federal debt limit. Perhaps there will be an 11th-hour deal. It's not unusual. But rarely is a deadline pushed this hard with this much at stake — or with so much confusion and misinformation. As you listen to the fiery rhetoric, here are five leading myths about the debt ceiling to keep in mind:

The debt limit is a blank check. Perhaps the most destructive misinformation about raising the limit is that it would give the president a "blank check" for more wasteful spending.

Raising the debt limit —something that has been done 49 times under Republican presidents and 29 times under Democratic presidents since 1960 — just lets the government pay for spending that Congress has already approved: interest on the national debt, Social Security benefits, paychecks for soldiers in Iraq and Afghanistan, tax refunds, highway construction and so on. Think of it this way: Refusing to raise the debt limit is like going to Best Buy, bringing home a 50-inch flat panel TV — and then arguing that you shouldn't pay the credit card bill.

Not raising the debt limit puts President Obama in the bizarre situation of either not spending money that Congress already told him to spend, or attempting to spend money and exceeding the ceiling. Either way, he fails to execute the law.

The time to get tough about deficits is when the tax and spending decisions are made in the first place, not when the bills are coming due.

'Default' warnings are just a scare tactic. Many of the Republicans who oppose lifting the debt limit have dismissed as phony the administration's warnings that failing to raise the limit will force the nation to default on its debts. Freshman Rep. Joe Walsh, R-Ill., turned himself into a Tea Party hero when he put a videotape of himself on YouTube in which he says, "President Obama, quit lying!"

It's true that the Treasury Department could probably avoid missing any interest payments on the national debt by making those payments the top priority for federal spending. Even with no more borrowing authority, Treasury would continue to collect more than enough tax revenue to cover debt interest and some of the nation's other bills.

But a study by the respected Bipartisan Policy Center concluded that if the debt limit is not raised, Treasury will have to reduce federal spending by about 44%, forcing enormous, rapid cuts. It might be technically possible to keep paying bondholders in Beijing and Brussels while delaying or stopping some payments to American seniors, troops or businesses. But that wouldn't be politically sustainable for long once voters saw what was going on. There would be a default, and those who deny the inevitability are also in denial about the dire consequences, which takes us to our next myth.

Failing to raise the limit is not that big a deal. Sen. Pat Toomey, R-Pa., has said that failure to increase the debt ceiling might cause some "disruption" similar to a "partial government shutdown." If only. The Bipartisan Policy Center study concluded that the 44% cut in federal spending would mean that "handling all payments for important and popular programs (such as) Social Security, Medicare, Medicaid, defense, active duty pay … (would) quickly become impossible."

Economically, forcing such a rapid reduction in spending in the midst of a weak economic recovery would be downright stupid. It would cost hundreds of thousands of people their jobs (in both the public and private sectors). The nation's Triple-A credit rating would be downgraded, increasing borrowing costs on the nation's massive debt. Because state, consumer and business loan rates are tied to the rate the federal government pays, everyone's borrowing costs would go up. That could plunge the nation back into recession — or worse. No wonder Federal Reserve Chairman Ben Bernanke, top bankers and a host of corporate leaders are pleading with Congress not to let this happen.

Aug. 2 isn't a real deadline. The federal government actually hit its $14.3 trillion borrowing limit back on May 16. Ever since, Treasury officials have been shifting money around in federal accounts to sustain a government that has to borrow about 40 cents of every dollar it spends. In May, Treasury forecast that it would run out of options for doing that on Aug. 2. Treasury insists it's a hard deadline, but various analysts have estimated that the government might have enough cash to last as much as another week or so, to Aug. 10.

Who's right? Who knows? The crucial fact here is that Treasury will run out of options very soon. Once it does, the Bipartisan Policy Center says, officials will have "no secret bag of tricks to finance government operations."

If Congress and the White House don't cut a deal, some legal experts say, Obama could assert authority under the 14th Amendment ("the validity of the public debt of the United States… shall not be questioned") without approval from Congress. That would likely provoke more political chaos, a legal confrontation and quite possibly an attempt to impeach the president by the same hard-liners who reject compromise now. An impeachment process amidst extraordinary economic challenges and two wars is about the last distraction the nation needs.

All we have to do is tax the rich. In his speech Monday night, the president again played the class warfare card, railing against tax loopholes for corporate jets and hedge fund managers. Those loopholes deserve to be closed, and they represent the absurd extreme of the Republicans' anti-tax pledges. But the tax loopholes represent a minuscule part of the debt problem. Ending them would raise about $18 billion over 10 years, or 0.2% of the $9.5 trillion in deficits projected by the Congressional Budget Office.

More broadly, Obama continues to insist any tax revenue in a plan to cut the deficit (and raise the debt limit) should come only from those who make more than $250,000 a year. Obama locked himself into this formula when he was running for the White House, but here's one campaign promise he should find a way to drop.

Hiking taxes on the wealthy enough to provide $1 of revenue for every $3 of spending cuts under a balanced plan would mean raising the top tax rate from the current 35% to well more than 50%, according to calculations based on a Tax Policy Center analysis. That's both unfair and politically unrealistic. In the end, real deficit reduction will require some give from just about everyone.

As it is, none of the surviving plans on Capitol Hill calls for tax increases or for significant changes in the benefit programs that are driving future deficits. Both are necessary. This suggests one more myth — that debt-ceiling brinksmanship is a good way to bring about needed change or run a country.