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WHILE all eyes have been on Greece's fiscal problems, little attention has been focused on the US where lawmakers are trying to hammer out their own deficit reduction plan. If this plan isn't passed by Congress by August 2, the world will be plunged into yet another financial crisis.
At issue is the US debt ceiling, or the total amount of borrowings of the US government. This currently stands at $14.3 trillion and if it isn't raised, the US Treasury will run out of money to pay the country's bills on August 2.
The Republican Party, which has the majority, and the Democratic Party have made reaching an agreement on cutting the deficit – the shortfall between spending and revenue – a prerequisite for increasing the debt ceiling.
The US needs to cut its defict, which stands at around 10% of gross domestic product (GDP), or face the possibility of losing its AAA-rated credit rating. If it were no longer AAA, global markets would be plunged into turmoil, as US treasury bonds might no longer remain the safe haven they have always been seen as.
The dollar might plunge as well, and stock markets would plummet. It wouldn't be a pretty sight and one would think that the US lawmakers would do everything in their power to avoid it.
Reuters reports that, even if a deal is reached soon, lawmakers will need time to turn the proposal into legislative language, sell it to their constituents, and pass it through the House of Representatives and the Senate – a process which is likely to take weeks. So time is of the essence.
According to the Reuters report, the Senate's top Republican said the two sides won't make progress on a deal to extend the US borrowing authority as long as Democrats continue to push for tax increases.
"The path forward... seems to be blocked by the insistence on raising taxes in the middle of an economic slowdown," Senate Republican leader Mitch McConnell said at a news conference, one day after meeting President Barack Obama.
Democrats accused Republicans of protecting perks for the wealthy at the expense of efforts that would allow the country to avoid a catastrophic default.
"Republicans walked away from the negotiating table to save tax breaks for corporate jets," Senate Democratic leader Harry Reid said on the senate floor.
"The last thing anyone wants is to have some kind of agreement down at the White House behind closed doors parachuted in and say: 'Well, representatives and senators, you've got three days to think this over and vote on it.' That's wrong and we're not going to allow that," said Republican Senator Jon Kyl, a participant in discussions that collapsed over tax increases.
A deal doesn't appear likely any time soon. Obama has met separately with McConnell and House Speaker John Boehner, the top Republican in Washington, but no follow-up meetings have been set.
Boehner said he had told Obama that tax increases wouldn't pass through Congress.
"No tax increases. Zero," Boehner said in an interview with Fox News Channel. "There are no votes in the Congress – in the House or the Senate – there's not a majority to raise taxes on anyone. So tax increases are off the table."
Playing to the gallery
Boehner said the Democrats weren't "dealing with reality" on taxes. Democrats say the $1.5 trillion to $2 trillion in spending cuts that the two sides have tentatively identified must be augmented by $400bn in new tax revenue over the coming 10 years. That money would come by closing a range of tax breaks for hedge fund managers, private jets and specific business sectors.
The two sides have also struggled to find mutually agreeable ways to slow the growth of health costs, which are projected to nearly double over the coming decade. Republican Tom Coburn and independent Senator Joe Lieberman proposed gradually raising the eligibility age for the government's Medicare programme to 67 from 65, and paring benefits for wealthy retirees.
That plan would save more than $600bn over 10 years, but it was flatly rejected by Democratic leaders.
The trouble with the system is that both Democrats and Republicans are playing to the gallery – their political constituents. Democrats rightly want to raise taxes on the wealthy, but their motives are anything but altruistic. It's all about the voters.
That also explains their reluctance to agree to Medicare reform. Similarly, Republicans are protecting the interests of their rich benefactors by not agreeing to tax cuts.
The clock is ticking. The Republicans' "no tax increase" stance is surprisingly firm, given that most deficit reduction plans include tax increases and spending cuts. The Republicans are going to have to wake up to reality on this one, as some pain will be necessary when cutting the deficit and that means tax increases too.
The US can no longer afford to run deficits of the size that it has been, and a credible plan to cut the deficit needs to be put on the table soon. Otherwise the world economy will face another meltdown.
- Fin24
At issue is the US debt ceiling, or the total amount of borrowings of the US government. This currently stands at $14.3 trillion and if it isn't raised, the US Treasury will run out of money to pay the country's bills on August 2.
The Republican Party, which has the majority, and the Democratic Party have made reaching an agreement on cutting the deficit – the shortfall between spending and revenue – a prerequisite for increasing the debt ceiling.
The US needs to cut its defict, which stands at around 10% of gross domestic product (GDP), or face the possibility of losing its AAA-rated credit rating. If it were no longer AAA, global markets would be plunged into turmoil, as US treasury bonds might no longer remain the safe haven they have always been seen as.
The dollar might plunge as well, and stock markets would plummet. It wouldn't be a pretty sight and one would think that the US lawmakers would do everything in their power to avoid it.
Reuters reports that, even if a deal is reached soon, lawmakers will need time to turn the proposal into legislative language, sell it to their constituents, and pass it through the House of Representatives and the Senate – a process which is likely to take weeks. So time is of the essence.
According to the Reuters report, the Senate's top Republican said the two sides won't make progress on a deal to extend the US borrowing authority as long as Democrats continue to push for tax increases.
"The path forward... seems to be blocked by the insistence on raising taxes in the middle of an economic slowdown," Senate Republican leader Mitch McConnell said at a news conference, one day after meeting President Barack Obama.
Democrats accused Republicans of protecting perks for the wealthy at the expense of efforts that would allow the country to avoid a catastrophic default.
"Republicans walked away from the negotiating table to save tax breaks for corporate jets," Senate Democratic leader Harry Reid said on the senate floor.
"The last thing anyone wants is to have some kind of agreement down at the White House behind closed doors parachuted in and say: 'Well, representatives and senators, you've got three days to think this over and vote on it.' That's wrong and we're not going to allow that," said Republican Senator Jon Kyl, a participant in discussions that collapsed over tax increases.
A deal doesn't appear likely any time soon. Obama has met separately with McConnell and House Speaker John Boehner, the top Republican in Washington, but no follow-up meetings have been set.
Boehner said he had told Obama that tax increases wouldn't pass through Congress.
"No tax increases. Zero," Boehner said in an interview with Fox News Channel. "There are no votes in the Congress – in the House or the Senate – there's not a majority to raise taxes on anyone. So tax increases are off the table."
Playing to the gallery
Boehner said the Democrats weren't "dealing with reality" on taxes. Democrats say the $1.5 trillion to $2 trillion in spending cuts that the two sides have tentatively identified must be augmented by $400bn in new tax revenue over the coming 10 years. That money would come by closing a range of tax breaks for hedge fund managers, private jets and specific business sectors.
The two sides have also struggled to find mutually agreeable ways to slow the growth of health costs, which are projected to nearly double over the coming decade. Republican Tom Coburn and independent Senator Joe Lieberman proposed gradually raising the eligibility age for the government's Medicare programme to 67 from 65, and paring benefits for wealthy retirees.
That plan would save more than $600bn over 10 years, but it was flatly rejected by Democratic leaders.
The trouble with the system is that both Democrats and Republicans are playing to the gallery – their political constituents. Democrats rightly want to raise taxes on the wealthy, but their motives are anything but altruistic. It's all about the voters.
That also explains their reluctance to agree to Medicare reform. Similarly, Republicans are protecting the interests of their rich benefactors by not agreeing to tax cuts.
The clock is ticking. The Republicans' "no tax increase" stance is surprisingly firm, given that most deficit reduction plans include tax increases and spending cuts. The Republicans are going to have to wake up to reality on this one, as some pain will be necessary when cutting the deficit and that means tax increases too.
The US can no longer afford to run deficits of the size that it has been, and a credible plan to cut the deficit needs to be put on the table soon. Otherwise the world economy will face another meltdown.
- Fin24
