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Raising the Debt Ceiling

The difference between a $2 trillion and a $4 trillion deficit cut

Marketplace Staff Jul 11, 2011
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Raising the Debt Ceiling

The difference between a $2 trillion and a $4 trillion deficit cut

Marketplace Staff Jul 11, 2011
HTML EMBED:
COPY

JEREMY HOBSON: President Obama will meet today with lawmakers from both parties in search of a deal to raise the nation’s debt limit in exchange for trillions of dollars in deficit cuts. We are just three weeks away from August 2 which the Treasury Department says is the deadline to avoid a national default.

For more, let’s turn to Mark Zandi. He’s chief economist with Moody’s Analytics and he’s with us live. Good morning.

MARK ZANDI: Good morning.

HOBSON: Well Mark, we’re hearing about different options for deficit cutting — $2 trillion vs. $4 trillion. What’s the difference between that? How would those affect ordinary people?

ZANDI: Well, tax revenue increases. The $2 to $3 trillion that the House Republicans would like to see in the deal are spending cuts, government spending cuts. That would have to include cuts to entitlement programs like Medicare and Social Security. The president wants a bigger deal — $4 trillion. But to get there, you need more tax revenue either through higher tax rates and/or through lower tax expenditures and those are the credits and deductions in the tax code.

HOBSON: And do you think that we’ll end up with a deal that does include tax increases or not?

ZANDI: Ultimately, I mean I think to get to something you might call fiscal sustainability, we’re going to need both the government spending cuts and tax revenue increases. It’s very questionable whether we’ll get that as part of the debt ceiling debates that’s on-going right now. We may not get it this go-around, but eventually we’ll have to get it.

HOBSON: And what about the timing. We’re getting very close now to this August 2 deadline. Do you think that they’ll reach a deal?

ZANDI: I hope so. They need to. I mean, at the very worst I think they’ll raise the debt ceiling just enough to kick the can down the road a couple, three months so the debate can continue through the summer and into the fall. But it would be really nice if they could come to a deal — a $4 trillion deal — that would be very good for the economy and really send us on our way.

HOBSON: Mark Zandi, chief economist with Moody’s Analytics. Thanks so much.

ZANDI: Thank you.

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