Time for America to Pay Off its Credit Cards

For the past few months the two American political parties have been in talks on how to handle America’s growing debt problem, and the ceiling that was initially adopted almost a hundred years ago in order to limit government borrowing and spending.

In 1980 the U.S. federal deficit ceiling was a little less than a trillion dollars, and then America was introduced to Reaganomics; In Reagan’s eight years in office the deficit almost tripled to three trillion. Unfortunately the next two Republican Presidents followed the Reagan doctrine and the debt ceiling was forced to climb to five trillion in the four year term of George Bush Sr. Not to be outdone, his son did much worse allowing the debt to rise from six to more than twelve trillion in Dubya’s two terms.

Now in the age of Obama, the national debt has gone up another two trillion in three years, the government is still borrowing 40 cents on every dollar it spends and the mercury of the debt thermometer is threatening to break through the top of the glass. Many economists believe that like a thermometer exploding in your mouth, failing to raise the debt ceiling past the current $14.294  trillion would in IMF chief Christine Lagarde’s words have “real nasty consequences”.

Failing to raise the debt ceiling would cause the United States for the first time to default on its loans (and ruin that precious triple A credit rating). Some economists say  that it would cause interest rates to rise and stock markets to fall and land the U.S. right back into a recession. Others believe that a default on the debt would not have severe consequences and that it’s bound to happen eventually anyway.

Economic concerns notwithstanding, the debt ceiling issue this time around seems to have more to do with class warfare between the two parties. Democrats want to raise taxes, Republicans want to cut spending. On the surface these two policies might seem like complete opposites, but in fact they are quite the same, they just target a different class of people.

The Democrats want the rich to pay their fair share, which means for starters the Bush era tax cuts for the wealthy must be repealed. The Republicans on the other hand want to make major cuts to Medicare and Social Security without raising taxes on anyone. Therein lies the real problem, spending cuts to Medicare and Social Security are equivalent to taxes on the poor and elderly, who are forced to get by on less. One can only conclude that democrats want to tax the wealthy while Republicans want to tax the poor.

Even though Barack Obama was ready and willing on Saturday to give in to Republican demands on cutting those same social programs, U.S. House Republican budget negotiators abandoned plans to pursue a massive $4 trillion, 10-year deficit reduction package because they are opposed to any attempt by Democrats to raise taxes. Republicans believe that low taxes on the wealthy creates more jobs, even though Bush’s tax cuts in 2004 created nothing but wealthier rich people and have done nothing to improve unemployment since. For the record, taxes in the United States are at their lowest point since the 1950’s.

In recent years thanks to deregulation, bailouts, industry written laws and tax breaks (even on private jets) the wealthy have gotten away with murder. If the republicans manage to get their way on cutting spending without new taxation on the wealthy, then just as the debt ceiling has kept growing since Reagan, so too will the gap between the rich and poor.

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