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White House mulls cuts first, tax reforms later
U.S. President Barack Obama holds a news conference at the Brady Press Briefing Room at the White House July 11, 2011 in Washington, D.C.
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Jeremy Hobson: There are now just 11 days to go before the federal government hits its borrowing limit and defaults on its debt if there's no deal to raise the debt limit. And so far, lawmakers and the president have not reached an agreement.
Today the Senate is likely to vote down a Republican cut-cap-and-balance plan, but now there's word of a new plan. That's where we'll start with our Washington bureau chief John Dimsdale who is with us live, good morning.
John Dimsdale: Good morning, Jeremy.
Hobson: What is the latest plan on the table?
Dimsdale: Well, to meet Republican objections to increasing taxes, the President is floating a plan that would make spending cuts first and only later would tax reforms kick in. Those would close loop-holes and raise rates for wealthy individuals. But those kinds of revenue enhancements -- which means tax increases -- would be contingent on successfully trimming spending first. The problem is, the President risks losing support from fellow Democrats in Congress who want to avoid some of the more drastic spending cuts by increasing revenues. So, it's not clear that what the leaders are talking about is going to fly with the rank and file.
Hobson: With all this back and forth in Washington, John, it does seem that markets are taking this uncertainty pretty well, but how are Wall Street's concerns playing into the debate in Washington?
Dimsdale: Yeah, I think they're warning that that's not going to stay the case. Credit rating experts met yesterday with freshmen Republicans -- the Tea Party members who have been standing in the way of a debt ceiling increase -- to warn them of the real financial consequences of forcing the government to default on its bills. Nothing definitive from the meeting, though.
Hobson: Marketplace's Washington bureau chief John Dimsdale. Thanks so much.
Dimsdale: Thanks.
In answer to your question, “Why haven’t we seen this coming†deserves another perspective. I remember reading Economist Lester Thurow’s The Zero Sum Game back in about ’87, in which he pointed out that, during the Reagan Administration, we engaged “in more deficit spending than any country in history---during peace time---with the exception of France in 1789†Other economists, including John Kenneth Galbraith, expressed concern over the debt, and yet, REPUBLICANS just kept right on clamoring for more tax cuts, and have never said thing one about it, as long as there were corporations to bail out and a massive defense industry to finance. The first time I remember any politician even mention the debt as a potential issue was H.W. Bush during his presidential campaign. It disappeared from the radar screen almost as fast as it appeared. The nineties gave us deregulation on steroids, thanks to a capitulating president who bought into neo-cons’ supply-side ideology, allowing for the sort of financial “innovation†that brought us Enron and a global derivatives market that is bringing down sovereign nations. Enter G.W., two wars waged with massive, worldwide opposition, more tax cuts for the wealthy, complete with an extension last December, and now, suddenly we’re facing national default because of burdensome and excessive entitlement programs? Pure BS. Make no mistake about it, this is starve the beast by another means; namely, feed it toxic assets and blame it for existing.
