Three Myths about Government Default

NCPATwo good ones from the NCPA:

In order for clarity to emerge on the debt ceiling debate, three false claims must be addressed, say David Rivkin, Jr., and Lee Casey, both former members of the Reagan and Bush senior administrations.

Myth one: If Congress refuses to raise the debt ceiling limit, it will trigger a default.

  • Section 4 of the 14th Amendment states that Congress cannot question the validity of public debt.
  • Originally intended to guarantee debts incurred by the federal government after the Civil War, the Supreme Court affirmed Section 4’s modern meaning in 1935.
  • Even if the debt ceiling isn’t raised, the government must pay its creditors.
  • With more than $200 billion in tax revenue per month, the government can easily cover its bills and should be able to stave off any negative consequences for our credit rating.

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Low-Income Workers Suffer High Effective Marginal Tax Rates

A recent report by the Congressional Budget Office (CBO) reveals that effective marginal tax rates have unintended consequences for low-income workers, says Salim Furth, a senior policy analyst at the Heritage Foundation.

  • A poverty trap created by benefits such as Section 8 housing and food stamps discourages low-income workers from earning more.
  • Each additional dollar low-income workers earn between $5,000 and $20,000 brings only an additional $0.15 in disposable income, which amounts to a marginal tax rate of 85 percent.
  • Low-income earners in the $10,000 to $23,000 range keep a smaller portion of their new earnings.

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