Washington is embroiled in a massive debate over raising the debt ceiling, the statute that sets a limit on the amount of money the federal government can borrow. If the ceiling is not raised before Aug. 2, the nation could default on its debt, which could create immediate and long-term damage to an economy already beset with problems.

Austerity Budgets are Counterproductive

The debt ceiling debate has spiraled far from where it started, with both parties now focused on using the issue as an opportunity to force deficit reduction plans through Congress. Republicans are demanding trillions of dollars of spending cuts. Democrats are acceding to trillions of dollars of spending cuts and a few hundred billion dollars of revenue increases.

The last thing the nation needs is more budget cuts. Unemployment is at historic highs across the nation, the public sector is shedding jobs, and the private sector is growing at a snail's pace. Cutting federal spending now will exacerbate this trend, adding hundreds of thousands of federal, state, and local employees to unemployment rolls and undermining anemic growth in the private sector. Testifying before the Senate Banking Committee, Federal Reserve Chairman Ben Bernanke warned that "sharp and excessive cuts in the very short term would be potentially damaging to that recovery."

The Wrong Diagnosis Equals the Wrong "Solution"

Insisting that "out of control federal spending" is the source of our budget and economic ills is the wrong diagnosis. The Great Recession that began in 2007 resulted in a loss of 7.5 million jobs and pushed the unemployment rate to over 10 percent. It was the worst economic contraction since the Great Depression. Such mass unemployment causes federal spending to increase through so-called automatic stabilizers. Programs like unemployment insurance and Medicaid see funding levels rise in response to increased utilization during economic downturns. The severity of the Great Recession saw commensurate increases in these programs, which not only provided a vital safety net for struggling families, but also boosted economic activity, somewhat mitigating the depth of the recession.

While the recession technically ended in 2009, only corporations have seen their incomes bounce back. In fact, by the third quarter of 2010, American firms recorded record-breaking profits and continue to see their earnings increase. At the same time, households have seen their incomes virtually stagnate since the beginning of the recession while unemployment remains stuck around nine percent with some 14 million people unable to find work. The result has been a precipitous decline in federal revenue.

The tax cuts enacted in 2001 and 2003 under President George W. Bush have driven revenues even lower. The result of the economic downturn and these tax cuts is that currently, taxes as a share of the nation's gross domestic product (GDP) are at the lowest level in generations. Any "deficit reduction" plan should focus on raising an appropriate amount of revenue to meet responsible levels of federal spending.

Fortunately, the Bush tax cuts, first passed in the early 2000s and extended in December 2010, are set to expire in 2012. Allowing this to happen will do a great deal to close the budget deficit. Over the next ten years, the Congressional Budget Office estimates that the nation will face close to $7 trillion in deficits. Extending the package of cuts agreed to in 2010 would add about $2.5 trillion to that deficit. Extending the cuts again is an exorbitant expenditure, one that we cannot afford to make if we're serious about finding a solution to the deficit issue. The American people understand this fact: faced with a choice between drastic cuts to services or ending the tax cuts for upper income people, Americans have consistently preferred the latter option. Ending all of the tax cuts from the Bush era, of course, would have an even greater impact.

Taking a Balanced, Responsible Approach to Deficit Reduction

As the economy improves in the coming years, Congress can and should begin to balance its books and pay down the debt. Extending the Bush tax cuts, especially those for the super-wealthy, will make it much harder to balance the budget in a responsible, equitable way. However, allowing only the tax cuts for the wealthy to expire will still leave a large funding gap. On the spending side, Congress must turn toward cutting spending in the largest portion of the discretionary budget. At $714 billion, national defense composes over 50 percent of discretionary spending and is replete with opportunities for significant reductions without compromising national security. Additionally, the wars in Iraq and Afghanistan are projected to add $1.7 trillion to the deficit should current funding levels continue over the next decade.

In the end, with respect to both the tax cuts and the budget, Congress should let this opportunity for rushed "reform" pass it by. Congress must resist the urge to immediately "fix" the budget and instead pass a clean debt ceiling bill. Once we've averted default, we can then move on to a robust, systemic discussion about spending, taxes, and the national priorities that are important to the American people.