On what issue do Democrats in Congress, the President, most economists, investors, and business leaders agree? They agree that the debt ceiling, which we have already crashed into, must be raised.

So why hasn’t legislation been passed to increase the limit beyond the ceiling of $14.3 trillion? Because Republicans in the House and Senate are holding the nation hostage by insisting on deep deficit-reducing cuts before they will discuss the debt limit.

The fact is that both of the issues, raising the debt ceiling and cutting the deficit, must be dealt with. The solvency of Medicare must also be addressed (and it is discussed in another post on this page). But these are three interrelated but separate issues, and Congress should focus on each of them individually.

Debt Ceiling

There is no question that the debt ceiling needs to be raised. Federal Reserve Chairman Ben Bernanke, first appointed by President George W. Bush and reappointed by President Barrack Obama, said raising the ceiling was crucial, and “I think using the debt limit as a bargaining chip is quite risky.”

A report from the Government Accountability Office stated “Failure to raise the debt limit in a timely manner could have serious negative consequences for the Treasury market and increase borrowing costs.”

In a letter to Senate Majority Leader Howard Baker, then President Ronald Reagan wrote asking “for your help and support and that of your colleagues in the passage of an increase in the limit of public debt.”  The letter to Baker continued with the statement that “the United States could be forced to default on its obligations for the first time in history. The risks, the cost, the disruption, and the incalculable damage lead me to but one conclusion: The Senate must pass this legislation before Congress adjourns.”

However, Mitch McConnell, today’s Republican leader in the Senate, told Capitol reporters on May 27 that unless Medicare cuts are agreed to by Democrats he will not support increasing the debt limit.

“To get my vote, for me, Medicare will be part of the solution” he said. A reporter asked McConnell if he was saying that even if the Biden group came up with trillions of dollars worth of cuts, but without slashing Medicare, he would oppose raising the ceiling? “Correct” he responded.

If action on the dept ceiling (which has been raised 100 times since it was established in 1917) is not taken by early August the United States will begin to default on its debts and our economy will spiral into a catastrophic tailspin.

Moody’s Investors Service, an international credit rating agency, has warned that failing to increase the limit  “in the coming weeks” could lead to a downgrade of U.S. bonds. The Moody’s report stated that they expected political posturing on the issue, but “the degree of entrenchment into conflicting positions has exceeded expectations… (and) increased odds of a short-lived default.” Standard & Poor’s, another rating agency, lowered its outlook on the U.S. economy from stable to negative.

Yet the Republicans, especially the l87 Republican freshmen, have said that the deadline was not real and breaching it would not cause a significant problem. Rep. Tim Scott, the chair of the Republican freshman caucus, told TalkingPointsMemo.com that the White House was playing “politics with the future of America” and that “breaching the ceiling would not cause significant turmoil in the economy”.

This partisan game of chicken puts the United States in a precarious position that borders on catastrophic. When combined with the fragile economic recovery, the folly of the deficit-limit deniers could plunge the country into a deep recession.

Republican leaders complained to Treasury Secretary Timothy Geithner that “We didn’t create this mess” and shouldn’t have to help fix it. However, according to an article in The New York Times, “Independent analyses have shown that more than half of the $14.3 trillion debt is from policies enacted during the past decade when Republicans controlled both the White House and Congress, and much of the rest is from lost revenues and stimulus spending and tax cuts since Mr. Obama took office at the height of the financial crisis and recession.”

But taking time to point fingers rather than solve problems in a time of crisis is the height of irresponsibility.  The debt ceiling must be raised. About that there is no doubt, so do it now and assess political blame later.

Deficit Reduction

There is also no doubt that the United States’ budget deficit must be reduced. The President and Congressional leaders in both parties agree that addressing the deficit is crucial, and they are close together on the total amount of reduction needed, but they differ on how to achieve it.

Republicans favor slashing arbitrarily on the one hand, and using the need to cut as a vehicle for destroying programs and policies that they disagree with (such as Medicare, environmental protection, and elements of business regulation enacted in response to the irresponsible behavior of financial institutions).

Democrats prefer cuts that are more strategic, and targeted so that they will not put brakes on the slowly improving economy. They want entitlements taken off the table.

The Peter G. Peterson Institute for International Economics states flatly that “government debt will grow to dangerous and unsustainable levels” but that it should be addressed with a long-term view.

In a report written by Joseph Gagnon and Marc Hinterschweiger, the Peterson Institute   suggests phasing in cuts starting in 2013-2015 (or, after the economic recovery is solid). Additional reductions would be slated for later years, and they recommend that agreement should be reached now on long-term Social Security and Medicare changes.

The combination of multi-year budget cuts and a bipartisan commitment to deal with entitlements would, the report said, reassure financial markets.

The bipartisan National Commission in Fiscal Responsibility proposed a detailed road map for reaching fiscal sanity, combining strenuous budget cuts with modest revenue increases (three dollars of budget cuts for every one dollar of revenue increases).

The Commission proposes capping discretionary spending through 2020 by returning to “pre-crisis 2008 levels in real terms in 2013, and limiting future spending growth to half of the expected inflation rate through 2020.”

They also propose capping defense spending, and it would take a non-amendable vote in the House and a 60-vote point of order in the Senate to break the cap. The report addresses changes in the disaster relief fund, the Transportation Trust Fund, and entitlement programs. The bottom line is a reduction of $4 trillion from debt over the next decade.

It offers 50  “specific ways to cut outdated programs and strengthen competitiveness”; reduces taxes on both individuals and corporations, but increases revenue by abolishing or limiting deductions and loopholes; it stabilizes the debt by 2014, reduces it to 60% of GDP by 2024 and 40% by 2037.

While I disagree with some of the specific suggestions, I applaud the work they did. My biggest objection is with how Social Security, Medicare and Medicaid are dealt with, but acceptable compromises that protect vulnerable recipients and achieve acceptable budget reductions can be reached if political gamesmanship is put aside. Then, turn the report into legislative language and require an up or down (with no amendments) vote.

The title of the Commission’s report says it all: “The Moment of Truth”.  All of us— liberals and conservatives alike— must leave our sacred cows behind and put the good of the nation in the forefront.

I believe that the deficit can be cut to a sustainable level without destroying the programs that help make this a great nation, but not if we break into competing factions shouting bumper-sticker slogans at each other: “no new taxes” or “leave my social programs alone.” This is a national crisis and we have reached the moment of truth. It will take sacrifices and principled compromises all around to climb out of the hole we have dug ourselves into.