How will the debt ceiling/deficit/debt talks pan out?
Asked by
tedd (
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)
July 14th, 2011
Summary: The US debt ceiling will be officially reached on August 2nd. On that day no paperwork finagling will be able to save us and we will default on whatever payment we owe that are due. Although some in Republican circles are trying to argue that us defaulting would not be a bad thing, economists worldwide are basically saying it would almost certainly bring down the US credit rating (which has been a perfect score for over 50 years) and could go as far as pushing the planet into another recession, or worse.
The talks between congress and the president are held up on this… Before increasing the debt limit both parties want to make substantial cuts/plans/etc to the budget to bring down future deficits (note that no plan on the table right now would eliminate the deficit and start taking away from the debt, they would simply lower the annual deficit). Republicans have long fought for cuts to social spending, discretionary spending, social security, medicare/medicaid, etc…. cut spending has long been their mantra. Democrats agree that cuts need to take place, but don’t want to place all the burden on the poor and elderly and middle class that the programs being cut support, so they’ve suggested meeting in the middle and raising taxes on the richest, and closing tax loop holes that allow corporations like GE to pay $0 in taxes.
President Obama put on the table last week a plan to cut 4 trillion dollars from the national budget over the next 10 years. For some scope on that, the Healthcare bill that conservatives railed against as being a huge waste of money (nevermind that it was 100 billion cheaper than the plan we had in place) was also a 10 year plan, costing roughly 700 billion. So the cuts Obama proposed would be the equivalent of 5.71 healthcare bills (monetarily speaking). The plan includes huge cuts to discretionary and social spending, smaller cuts to SS and medicare/medicaid (which is also expected to motivate much needed reforms in those programs), and the closing of various tax loop holes and an increase to those making over $250k a year (~5% of the population). It should be noted that the tax increases would take us pretty much back to Clinton era levels (the difference being they’d be slightly higher on the top 5%, and slightly lower for the middle class) Roughly 2.5 trillion would be spending cuts, and roughly 1.5 trillion would be tax fixes/increases.
As it stands, Democrats are upset about even having Social Security and Medicare/Medicaid put on the table (but seem to be willing to go along), and Republicans are outright refusing any tax increases, and adamantly opposing the closing of tax loop holes.
What do you think of Obama’s plan? What would be your plan? How do you want it to play out? How do you expect it to play out?
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20 Answers
It seems McConnell plan now is to let Obama take all responsibility for the raising of the debt ceiling while the Repubs wash their hands. I could be wrong. Also, I just heard that Obama was piqued by Eric “Posturer” Cantor in their last meeting who kept interrupting and insisting on a short term measure. Cantor wants to “kick the can down the road” now knowing fully what consequences lie if the debt ceiling is not raised on time.
Do you have any reference for this plan you describe?
@tedd
The reason I ask about the plan is that the last I heard it was not exactly the way you describe. The $4 trillion was over 12 years and $1.5 trillion of it was in the last two years. The tax hikes would be effective in 2012 but almost all the spending cuts occurred after Obama leaves office (even if he gets a second term). If that is the plan you’re talking about it is a bit disingenuous and understandably not what Republicans were looking for.
@tedd Excellent question. Wall Strreet seems confident that some deal will be reached. THey own enough Republican Senators and Representatives to get it done with Democratic help. THe Tea Party doesn’t have the votes to stop it if big business and the National Chamber of Commerce call up the legislators they finance and tell them to cut the crap and raise the debt limit.
Will theire be a grand deal or will they just kick the can down the road. It seems the likelihood is the later, but in that may be the best course of action in the current economy. Any major spending cuts right now would have a disastrous impact on GDP and unemployment.
I believe that @Jaxk is right that Obama’s 4 trillion proposal cuts that amount in 12 years, not 10. That ;s not a terrible plan. Pushing the heavy cutting out is the only sensible thing to do in the current economic condition. We don’t want to repeat the mistake of 1837 and cut spending during a slow recovery. When we tried that then, it tanked the GDP which had been growing steadily since its bottom in 1933, and it srive unemployment back to nearly as bad as it had been in the depth of the Depressin in 1932–33.
@ETpro
That’s exactly why we have no deal. Democrats idea of compromise is to do the tax hikes now and push any cuts out far enough that someone else has to deal with them (with twice as big a deficit of course). I also find it interesting that your more than willing to repeat the tax hikes of 1937 but of course you don’t believe that taxes have any impact on the economy.
@Jaxk We raised taxes 7 times during the Great Depression and WWII. We cut spending once in 1937. The only time any of that impacted the recovery was the spending cut of 1937. The GOP mantra that you can’t raise taxes on the rich is a Big Lie. It’s fascist propaganda in support of a corporatocracy. It isn’t borne out by facts.
Can you raise taxes too far? Certainly the answer is yes. Are we anywhere near doing that? Certainly the answer is no. Some of deficit reduction needs to be in revenue increase. Pushing it all to the poor, the elderly and education is wrong, cruel, and will damage the US economy in the long haul.
I favor eliminating loopholes, subsidies, selective corporate welfare and such as a first step. It would increase revenue significantly and make for a much simpler tax code. If that puts a few tax accountants and tax attorneys into job search mode, it’s a price I’m willing to pay. If we could clean up the corporate tax code so companies can’t reap huge profits and pay no taxes year after year, I would be strongly in favor of dropping the top corporate income tax rate. Our corporate income tax should leave our companies competitive with other major industrialized nations in the world.
@Jaxk No “official plan” has come out because its all fluid and in negotiation.
The presidents plan as I heard it, actually put off increasing taxes until 2013, and implemented cuts immediately (though they would be admittedly heavier in the years to come as they don’t want to hurt the very fragile recovery).
I think its disingenuous to say the Democrats idea of a compromise is to raise taxes too. The presidents plan is a compromise for everyone, and its a bitter pill for everyone to swallow. Look at it like this, no less than half the population in the US (in fact recently I’d heard as much as 67%) want to fix this by increasing taxes on the rich, as well as spending cuts and leaving SS and M+M alone. No less than half the country wants to fix this by keeping taxes current or cutting them, cutting spending drastically and making cuts/reforms to SS and M+M. The presidents plan meets in the middle, we do all of it. Spending cuts to the tune of 2.5 trillion, including cuts/reforms to SS and M+M, and close tax loopholes and raise taxes back to their 90’s levels on the rich.
That sounds like a pretty reasonable compromise to me.
What we need to realize here is no one is going to go home happy. But if we don’t compromise and send everyone home just a bit less unhappy, we’re all going to be super pissed in a few weeks when sh*t hits the fan.
Here’s an interesting article explaining that the US is really not in the debt disaster that the common political trope has it in.
Oops. Meant to say political tripe. Please forgive. :-)
@ETpro
We just went through a housing bust where people spent way more than they could afford based on sub prime interest rates. When the rates adjusted to normal (hell, even after they adjusted they were fairly low compared to historical rates), they went bankrupt. Now you want to tell us not to worry about the debt because our rates are so low. Didn’t we learn anything from the housing bust?
We are printing money like crazy which is an inflationary action. We know inflation is accelerating as we speak. How long do you suppose the Fed will be able to hold the rates at this level? If we just go back to an average rate, our payment doubles. If we go to the rates under Carter our payment more than quadruples. This is beginning to sound like Alfred E. Nueman, “What me Worry”. Most of our debt is short term debt meaning it will have to be refinanced in the next three years. Even you guy acknowledges interests rates will increase and what is his solution? He says higher rates will “trigger the need for new sources of revenue”. Of course, the liberal mantra, don’t worry about the debt, just raise taxes.
@Jaxk You’re ignoring the fact that along with those increased taxes (which would only be setting them back to the levels they were for most of the 90’s), they’re going to cut trillions of dollars out of the budget.
Let me ask you something. Lets say for the sake of argument that you are in charge of deciding the Republican stance on the debt ceiling/deficit/debt debate. The Democrats come and offer you the deal I spoke of earlier….. They’re going to cut 2.5 trillion from spending across the board (defense, discretionary, healthcare, state aid, foreign aid, etc, everything). In addition they’re going to make limited cuts and reforms to Social Security, and Medicare/Medicaid, probably less than 1 trillion dollars worth, but easily hundreds of billions. In return for all of these cuts the Democrats ask that you agree to raise taxes, to the tune of 1 to 1.5 trillion dollars. Around half of the increases would be in simply closing tax loop holes and subsidies that support industries that are already profiting billions (like GE paying 0 taxes last year or oil subsidies), the other half would come from raising taxes on the top 5% of the country back to Clinton era levels.
In total the plan would save the country 4 trillion dollars from the budget over the next 10 years. It would literally be like taking an entire year off of the budget, or cutting the equivalent of 5.71 Obamacare’s from the budget.
Would you, in charge of making the decision for all Republicans, accept that deal?
@tedd
My answer would have to be NO! Unless your doing something different than what is being discussed. First, I won’t go along with any Rate Increase. If you want to close loopholes, I have no problem there. If you want to get rid of all subsidies, I have no problem there. If you want to raise rates, I won’t go there.
Also, I won’t go along with raising taxes near term and cutting spending in the out years. I understand you don’t believe that tax hikes will hurt the economy but I do. and pushing spending cuts out 6–12 years doesn’t address the problem. The SS cuts are trivial and not really worth arguing. But we have raised spending by almost a $trillion/yr. In 2008 the budget was $2.8 Trillion. Now it is $3.7. OK the TARP was almost a trillion but it has been mostly repaid. It was loans and didn’t hurt us and isn’t ongoing spending. Stimulus I hated but it’s done. It wasn’t supposed to be ongoing spending. So how in hell did we manage to increase ongoing spending by more than 30%? And now that you’ve increased the budget by 30% you want to say well, we’ll decrease our spending sometime in the future or maybe we’ll just grow at something less than a 30% rate. It is disingenuous and no compromise what-so-ever.
It’s time to stop playing games and get serious about this. I don’t believe that most of America is so stupid they can’t see through this. But maybe they are.
If you want to look back at the Clinton era for example try looking at the spending. Clinton increased spending by a mere 2.9% per year. If we want that example our budget should be less than $3.1 Trillion. You get the budget down to that number and I’ll entertain the Clinton era tax rates as well. Otherwise we need to stop selecting numbers we like and ignoring those we don’t.
If you’d read my post youd know the plan I offered wouldn’t raise any taxes for two tears, and would begin spending cuts immediately, but weight them towards the end of the decade planned. If you weren’t making numbers up or simply misinformed, you’d know the 2008 budget under bush was 3.5 trillion, not 2.8.. and that’s not counting either war,which they somehow didn’t count.
Simply put, you just turned down an offer to save 4 trillion dollars because it had something in it I want and you don’t want. Even though I gave you something you want and I don’t…. and monitarily speaking I was offering you a 2–1 deal in who gave up what…
That’s the same deal Obama gave republicans, and they had the same response…. who’s not compromising now?
@tedd
I have no idea how you got a $3.5 trillion budget. I think you need to go back and take another look. I have to assume you made that number up since it has nothing what-so-ever to do with the 2008 budget. Even the most creative liberal can’t stretch the numbers that far.
Frankly your offer had nothing I want and everything you want. That’s your idea of compromise and it why it won’t work. Your 10 yr deal isn’t on the table it’s a 12 year deal. And anytime you want to give up something that is ‘Down the Road’, it really isn’t giving up anything. Try telling me what the 2012 budget would be so I can see if any spending has been cut.
I was one year off on the budget, my apologies. but the number is still 2.9 trillion, roughly half a trillion more than you said… http://en.m.wikipedia.org/wiki/2008_United_States_federal_budget. And that’s not counting the Iraq or Afghanistan wars .. which would get you in the 3.2–3.3 trillion range.
and I’ve never heard that the offer was a 12 year plan, anywhere except from you. Even fox news has said over a decade. And no duh it doesn’t make all the guys this year… the entire budget won’t even be 4 trillion.. and were in the midst of a super fragile economy… cutting spending it raising taxes right now would be stupid.
And seriously? Show me the budget this year so I can see if moneys been cut? .. well I assume obamacare didn’t bother you the last few years since virtually none of it was implemented yet. ITS 4 TRILLION DOLLARS and you’re saying no to save the richest 5% a bit more of their millions upon millions of dollars. 2.5 trillion in spending cuts is something you DON’T want??????? I’ll keep that in mind
@tedd
What I’m saying is, stop playing games. If you are willing to cut don’t try and make those cuts 6–12 years out. Our budget problem is now. You and I both know that any proposal to cut spending for the next administration is not a cut. Not to mention that he has offered no plan to do any of this but only vague generalities. Raising taxes is a bad idea in a recession. We want the economy to recover but we have to get spending under control. Spending is what has changed and it’s changed dramatically. If spending were the answer to either the economy or the debt we would have it solved with the massive spending that has been going on. It hasn’t worked. The spending spree has got to stop.
You’re idea that we can keep spending and just raise taxes and oh by the way, we may cut some spending growth down the road, doesn’t provide much help. So yes, If you want to remember that I have thrown away you $4 trillion in smoking mirrors, I have. I like real numbers.
And just for the sake of clarity, the war supplemental for 2008 was $189 billion not the $300—$400 billion you cite. Reason would tell us that, as the war winds down this should be getting smaller not bigger. Of course it was easy to see when it was off budget but since it is now and integral part of the budget, it’s harder to find. So much for transparency.
@Jaxk I made an observation that the rate on treasurey bonds shows that investors buying them do not think we are in a debt crisis. That’s all. Don;‘t amplify that into some grand claim of perfection to then slay your straw man. My meaning, I believe was quite clear. YUou just want things to come out a way the facts don’t support, so you have to find some way to twist every statement so you can then claim that fact cannot be looked at. Only facts that support more tax cuts for the rich, and shifting more burden to the poor, are unassailable,n no matter how flawed they may be.
@ETpro
I’m not trying to shift anything and in fact I’m looking for some stability. However to ignore the mounting debt seems a bit naive. I’m reminder of the story of a guy that jumped off the Empire State building. Halfway down he commented, ‘So far not bad at all’. It’s hard to ignore the inevitable landing.
Every estimate I’ve seen show the debt doubling in the next decade. It would be unrealistic to assume interest rates will continue at thier current level. China is already reducing the bonds they are buying. It doesn’t take a psychic to figure out where this is all going. I believe you are one of those that has remarked that we should have seen the housing bubble before it collapsed. Why would we ignore the debt crisis while we can still avoid it.
@Jaxk You;‘re off fighting your straw men again. I never suggested we should simply ignore the debt. All of the walls of words I posted was about how to interpret its threat level versus the threat of precipitous spending cuts. I am certainly not an advocate for the status quo.
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