Default, Tax Hikes Equally Unacceptable
Within the next week, the Congress of the United States (both houses) and President Barack Obama will have to come up with some sort of compromise to raise the government’s borrowing limit. The federal government has 80 million bills—that’s 80 million in bills, not currency, but those notices we all receive that say “balance due; please pay by”—due in August, and whatever the choices that are made, about 40 to 45 percent of them will go unpaid unless more borrowing is authorized.
Congress, which has been wrangling for weeks over how to address this problem, needs to come up with a solution, and fast. At the very least, it must come across with the $29 billion in interest due on the $500 billion in loans the government has incurred. Interest on outstanding debt would take priority to avoid default and damage to America’s credit rating.
This country cannot default on its debt payments. Defaulting will wreak havoc in the economy’s credit sector, eventually reaching anyone who needs to borrow money or uses a credit card–meaning just about every one of us. Defaulting will also raise the question of which entitlement program —Social Security benefits, the salaries of servicemen and servicewomen on active duty, Medicare and Medicaid payments, federal workers’ salaries and benefits, to cite some examples —should take a cut, and by how much. We can think of no one who would not be affected in some way.
The other issue on the table here is tax increases. We in New York City would agree that we are stretched to the limit on what comes out of our paychecks or is added in taxes to the cost of everything we purchase, be that purchase a loaf of bread at a corner store or a car or house. On July 19, a bipartisan group of six senators, referred to as “the Gang of Six”, released a plan calling for at least $1 trillion in new tax revenues by eliminating and reducing tax breaks and deductions. Some of the tax breaks that promote health insurance, home ownership, charitable giving and retirement savings would be eliminated in exchange for lowering overall tax rates for everyone. On the flip side, many taxpayers would face higher taxes over the next decade.
While eliminating a tax deduction may constitute a thinly veiled tax increase, and while the Gang of Six plan is long on vague suggestions and short on details, it at least provides a starting point for discussions. One former Treasury official pointed out that the plan is an attempt to find a middle ground on taxes that emphasizes keeping rates low and broadening the tax base as much as possible. Its supporters say it provides a framework to simplify the tax code, which is already far more complicated than it needs to be.
Whatever path Congress and the president decide to take, this question must be settled and soon in order to maintain this country’s economic standing with the rest of the world and protect its taxpaying citizens from even more onerous tax increases. Default is unthinkable. Tax hikes are unacceptable. Now is the time for the Congressmembers and Senators whom we elected to safeguard our interests and maintain our economic and social wellbeing to step up to the plate and do their jobs.