While Americans gladly embrace a long Fourth of July weekend, there is good reason for the Senate to remain at work over the holiday to resolve the controversy over increasing the nation’s debt limit. The federal Treasury is already working on borrowed time, and Treasury officials believe the effective deadline for getting a bipartisan deal is now just three weeks away, on July 22.
That new deadline is short of the Aug. 2 deadline that marks the day Treasury will run out of both accounting tricks and access to funds to keep paying the federal government’s bills. But it reflects the two weeks that will be needed to write, pass and implement legislation to operate under a higher debt limit.
Without an agreement by then — and certainly without one by Aug. 2 — the view of most economists is that an effective default by Washington on the national debt would wreck confidence in the U.S. dollar and throw the economy into a bona fide recession, causing broad and needless pain to American families, their jobs and the nation’s businesses.
Republicans, who freely gave George W. Bush five increases in the federal debt ceiling, are now refusing to agree to an increase in the ceiling, currently $14.29 trillion, without a range of cuts to shave several trillion dollars off projected federal spending over the next 10 years.
Democrats have done their share of the work toward that goal. They have agreed on significant cuts in entitlement spending for Medicare, Medicaid and Social Security, the latter through a significant change in the cost-of-living index. They’ve also agreed to painful, destructive cuts in student aid and in a range of valuable federal programs, from weather forecasting work to food safety inspections. In turn, they want Republicans to agree to some revenue enhancements.
Republicans, however, are flatly refusing that. They describe any suggestion of saving on tax expenditures as tax increases, which they claim will cause job losses. That’s wrong, and myopic. The nation got into this debt spiral mainly through a combination of excessive tax cuts and credit card spending for two wars and unfunded Medicare prescription drug bill under George W. Bush. His fiscal malpractice ballooned the federal debt from $5.7 trillion when he took office to more than $12 trillion when he left office — with more than another trillion in the pipeline.
The budget cannot be balanced now without both spending cuts and termination of some of Bush’s corporate tax breaks and high-end tax cuts.
The revenue enhancements that Democrats reasonably seek include an end to gratuitous federal tax breaks for corporations, big oil and gas companies, an end to the extension of Bush-era tax cuts for America’s richest 2 percent of earners — more specifically, the billionaires and millionaires in the top tenth of the top 1 percent — and a symbolic end to tax breaks for corporate jet owners.
They also would apply standard income taxes to the earnings of hedge fund managers, who pay a capital gains “carried interest” tax of 15 percent on their earnings, which can run into hundreds of millions of dollars, while their secretaries and small-business owners making a fraction of hedge fund managers’ earnings pay regular, higher income tax rates on their earnings. If hedge fund managers paid regular income taxes, Treasury would gain an estimate $23.5 billion over the next 10 years.
GOP leaders keep chanting the mantra that ending such egregious tax breaks would kill jobs. That’s baloney. The tax breaks at issue are not creating jobs, and they didn’t under the Bush administration, which had a lousy job record. They simply funnel more money to the nation’s richest 1 percent — whose share of the nation’s wealth is now higher than at any time in the 80 years since the Great Depression — while forcing the government to cut back on the safety net benefits that workers have earned through their payroll deductions.
There’s no equity and no social justice in that. The vast majority of Americans have been getting the shaft — a decade of stagnant wages relative to inflation and reduced benefits — while the nation’s richest 1 percent has gotten phenomenally more wealthy in the same period.
Republicans held extended tax breaks for working families hostage to an extension of the high end tax breaks a year ago, and now they want more of the same for an agreement to keep Treasury from defaulting on the nation’s debt and throwing the economy into another tailspin.
They did more than enough damage in abetting the deregulation that led to the Great Recession of 2008-10. It would be foolish to let them drive the country into another recession because they want to keep tax breaks in place for their wealthy campaign sponsors.