US debt crisis heads into critical stage

Lawmakers have less than a month to set aside the political rhetoric and finally work out a deal.

By Kim Peterson Jul 5, 2011 2:03PM
We're less than a month from the point where the U.S. government risks defaulting on its debt. Can Congress put aside the hot air and actually hammer out a solution before then?

At this point, negotiations stand pretty much exactly where they were two weeks ago, when House Republicans pulled out, The Washington Post reports. And we've heard plenty of bluster from both sides of the aisle since then.

Congress is in full debate over whether to lift the country's $14.3 trillion debt ceiling by Aug. 2. If the impasse continues after that point, we could very well see a plunge back into recession, a crumbling stock market and a financial ripple effect across the globe.

Check out the following analysis of the debt ceiling drama from CNBC.

Post continues below:
But really, the two sides aren't that far apart. Already negotiators have agreed to cut discretionary spending by between $900 billion and $1.7 trillion over 10 years, CNBC reports. Negotiators also reportedly agreed to lop an additional $200 billion from benefit programs, including farm subsidies, student aid and federal employee retirement plans.

CNBC estimates that the agreed-upon spending cuts would bring down the government's interest payments by $400 billion. In all, everything reportedly agreed upon so far adds up to at least $2 trillion.

It all comes down to tax increases now, CNBC reports. Republicans don't want them at all, and Democrats want to close some tax breaks to produce $400 billion more. Most of those are aimed at the wealthy by reducing the deductions that group can claim.

David Brooks has an excellent column in The New York Times this week urging Republicans to take the deal. Senate Majority Leader Harry Reid said he could support reducing the debt by as much as $4 trillion if the Republicans meet him partway, Brooks writes. President Barack Obama is even willing to cut tens of billions of dollars from Medicare and Medicaid if the Republicans can give a little on taxes.

"If the Republican Party were a normal party, it would take advantage of this amazing moment," Brooks writes. "It is being offered the deal of the century: trillions of dollars in spending cuts in exchange for a few hundred million dollars of revenue increases."

Republicans are being asked to close loopholes and cut distortionary tax expenditures, Brooks adds. "This, as I say, is the mother of all no-brainers."

The Atlantic's Megan McArdle says the best budget deals have generally had bipartisan support. Why? "If one party tries to do things all their own way, well, the other party will promptly be elected to undo some of those changes."

We're starting to see hints of a compromise. Two Republican senators -- John McCain of Arizona and John Cornyn of Texas -- said over the weekend they could support closing some tax breaks under certain conditions, NPR reports. Another Republican, Ron Johnson of Wisconsin, said there seems to be increasing support within the party to raise the debt ceiling.

Conservatives say Democrats would have to agree to cut and cap spending as well as support a balanced-budget amendment, NPR reports.

And with the 2012 elections just around the corner, it's in just about every lawmaker's best interest to finalize a deal as quickly as possible and move on. The American people are getting awfully tired of political bluster from both sides. Congress has an 83% disapproval rating -- the worst Gallup has seen in three decades of polling.

4Comments
Jul 5, 2011 8:43PM
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As usual, the Donkeys WANT to continue SPENDING. So much so that they refuse to cut spending.  We now have a 1.45 Trillion dollar deficit as of now, most likely 1.6 Trillion before the year is over.

 

The Donkeys have come up 1 trillion ion cuts over 12 years...or just under 4% of the current deficit!

 

Come back when you have cut 1 Trillion THIS year.

 

The Rupublicans are 100% right to say NO NEW TAXES, and NO CREDIT CARD LIMIT INCREASE.

 

End the madness...get RID of another 3000+ Donkeys in Nov 2012, including "57 states"...

 

Jul 5, 2011 5:43PM
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Looks like everyone's about to get screwed over. What's ticking me off is that congress doesn't really give a crap. The "Presidential Candidates" are too busy flaunting themselves to even care about what's really going on. All they're interested is getting Obama out of office.

Sounds like we need a freakin' wake up call before the crap really hits the fan and the true sh*tstorm aftermath engulfs us all.

I actually have 4 words to the congress, senate, and the Candidates... GROW THE F**K UP!! My 4 year old could probably run the country better than you guys.
Jul 5, 2011 4:57PM
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Is this Country suppose to be like Greece, borrow without limit to satisfy the markets then collapse?  We borrow and then send that money out of the country within the same year due to the trade deficit that we cannot fix.

So every year the government is to hand out a trillion or two so that people have spending money?

Fix the economy the correct way by making laws against the trade deficit. We will eventually get back on even playing field. Taking more and more from those who work hard and take risks is not how you fix the economy.

We allow countries that suppress their work force with low wages to benefit and grow, while we keep pointing fingers in the wrong direction as far as what caused the economical collapse. The housing loan market does not collapse the world economy, but outsourcing jobs for cheaper products does.

Fix the trade deficit and the tax base will return, also I support a flat tax for everyone. This way everyone will pay the same percentage, and people will not get Punished for making few bucks more with higher tax!

Why are we not doing this blows my mind. We have more tax laws than anyone can comprehend, then we have those who want to add on to it. Get a grip!

A.S.

Jul 14, 2011 3:31PM
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The President says he is willing to cut spending..............so cut the spending.  Once you stop the spending, cut your unconstitutional beaurocracies and you will never have to increase the debt limit again.......in fact, you can lower it as you pay off the debt.

 

Government should have to run their departments just as private business and households do.  If you are unable to meet your budget, even if it is reduced each year, you get fired and/or are held accountable.

 

No party should keep raising the debt ceiling and not pay down the debt.  These 10 year plans are bs and everyone knows the debt will never be addressed.

 

Grow up and do the right thing for the country for a change.  Also, let every "put skin in the game" by being involved with  paying taxes.  Simplify the system and let everyone be involved in paying into the system; I expect you would hear a lot of complaining from the 47% of those who pay nothing at the end of the year.

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