No, the negotiations are not friendly
Like you, I’m spending some of my time watching the arguments – sometimes heated, often theatrical – between the White House and the Republicans over budget cuts that must precede the raising of the country’s debt limit.
I say “sometimes theatrical” because both parties are not only concerned with the content of the negotiations, but with the form. The way the negotiations take place is important to both their constituencies, in regard to the 2012 elections and in regard to who takes the blame if the catastrophe of default happens.
Make no mistake, default by the US government will be catastrophic, regardless of what some Republican politicians are saying about “prioritizing payments”. We will have our credit rating adjusted downwards most likely, we’ll see a jump in interest payments on future debt, and will see a seismic shift of countries’ external reserves into other currencies.
Since we depend on the kindness of strangers to the tune of $4 billion a day, we would do well to heed the warnings of the ratings agencies. Steve Cochrane of Moody’s Analytics noted in his 53-page report. “Financial markets are calm now because investors do not believe policymakers will go down this path; turmoil would erupt quickly if lawmakers actually do.”
Tim Geithner, the Treasury Secretary has made similar warnings as have noted economists. A group of 235 prominent economists, including six Nobel Prize winners and a former top White House economics adviser, last week called on congressional leaders to raise the ceiling, and to do it “without attaching drastic and potentially dangerous reductions in federal spending.”
Personally, if the United States defaults because of ideological rigidity and/or pettiness, then it would make one wonder whether the Chinese command economy is superior to Western democracies, at least, in terms of economic agility and decisiveness.
Why Taxes Will Go Up
What many in the discussion – mostly on the Republican side – do not understand, is that taxes will and must go up. If they do not go up at the Federal level, they will go up at the state and local levels. Just ask California.
Actually, just ask my state and county. The state tax went up a point “temporarily”, my property taxes went up, services have been cut, local hospitals have longer waiting times, my healthcare has higher deductibles and co-pays, and on and on.
Er, those seem like taxes to me. Just not at the Federal level. What some folks in Congress are talking about really is tax shifting, not a tax freeze. The truth is that with deep tax cuts of the last 10 years, the wars in Iraq, Afghanistan, and now Libya – not forgetting a good deal of corporate welfare in the “great” TARP bailout, we are broke.
Our debts will soon surpass our GDP, that’s how bad it is.The only difference between visions is not whether we will have additional taxes, but how these taxes will be distributed. Will it be progressive, with rich taking a proportionally greater share or largely borne by the middle and lower economic classes?
The additional question will be whether it is done by the Federal government or by state and local governments. But happen it will and you’d better be ready.
What do you see in your neck of the woods? Are your state and local taxes the same, reduced, or like me – all risen in the past 5 years?
