Debt Ceiling Talks Reach Impasse Over Taxes

Republicans won’t consider tax hikes. Democrats refuse to reform entitlements.

Lawmakers in the United States continue to negotiate a deal for raising the nation’s debt ceiling but the two major parties are far apart with Republicans insisting on deep spending cuts and Democrats arguing that tax increases should be part of the agreement.

The Treasury Department will exhaust its legal ability to borrow by August 2 by which time Congress should have raised the $14.3 trillion debt limit in order to continue to finance the government. Republicans, who control the lower chamber of Congress, demand budget cuts in return for their votes — at least $1 dollar in cuts for every $1 with which the debt ceiling is raised.

President Barack Obama aimed for an ever larger agreement that would reduce deficit spending by up to $4 trillion over the next ten years with a combination of savings and tax hikes. According to administration officials, the president was willing to reform popular health support programs if Republicans agreed to closing tax loopholes to boost revenue.

House speaker John Boehner, whose conference is adamantly opposed to raising taxes especially during a time of lackluster economic growth, rejected the president’s proposal on Saturday. “I believe the best approach may be to focus on producing a smaller measure,” he said in a statement which would probably amount to $2 trillion in cuts to future spending growth.

On Fox News Sunday, the Republican leader in the Senate, Mitch McConnell, defended Boehner’s decision to refuse to raise taxes. He pointed out the enormous growth in the public sector that has occurred under President Obama and said that Republicans would not “freeze perpetually this much government.”

You see the government running banks, insurance companies, car companies, national housing loan business, taken over health care, trying to take over the Internet, increasing spending, discretionary spending 24 percent, increasing debt 35 percent. How big a government do we want?

With 9.2 percent unemployment, raising taxes would be a “terrible idea,” according to McConnell but Democrats disagree. Congressman Chris Van Hollen, who sits on the House budget committee, lambasted Republicans on CNN’s State of the Union for prioritizing “special interest tax breaks for big corporation” over successfully negotiating a deal.

Treasury Secretary Timothy Geithner deployed similar rhetoric on NBC’s Meet the Press this Sunday to argue for ending tax deductions and loopholes that benefit wealthy Americans. “Why is it fair,” he wondered, “to ask middle-class families to take more of the burden if those savings are going to go to sustain special interest tax breaks, the lowest tax rates for the most fortunate Americans we have seen in fifty years?”

Asked to respond to the necessity of a “balanced approach” or “shared sacrifice,” McConnell said, “Those are nice words. But how do you get the economy growing, which is the biggest way to increase government revenue?” The private sector, he added, isn’t investing nor creating jobs because there is uncertainty about the Obama Administration’s state activism.

If you are in the private sector right now and you’re trying to decide whether to expand, what do you see the government doing? Proposing to raise taxes, borrowing, spending, overregulating. It’s not a very reassuring message if you’re running a business, if you look at the federal government.

The biggest hurdle to mending the deficit is entitlement spending which accounts for nearly two-thirds of the budget. “You can’t have serious deficit reduction program without dealing with those programs in the long term,” according to McConnell.

Spending on Medicaid, Medicare and Social Security is set to skyrocket in years ahead. Medicare, which finances health care for the elderly, is expected to run out of money in 2024 while Medicaid, which subsidizes health care for the poor and is paid for by the states, is increasingly crowding out investment in other areas, including education and infrastructure. The Social Security trust fund is projected to last until 2036 but once it is depleted, the annual payroll taxes that pay for the program will only be sufficient to cover 75 percent of the retirement benefits it is required to pay seniors.

Yet many Democrats won’t cut benefits or raise the eligibility age for these programs, let alone privatize Medicare as Republicans have proposed. Minority Leader Nancy Pelosi promised last week that her party would not “reduce the deficit or subsidize tax cuts for the rich on the backs of America’s seniors and working families.” Senate Majority Leader Harry Reid said in January that Social Security was “not in crisis. This is something that’s perpetuated by people who don’t like government,” he told NBC at the time. “Social Security is fine.”