Currently, the United States has reached the debt ceiling previously set at just over 14 trillion dollars. On May 16, the debt ceiling was reached, sparking a debate over whether or not to raise the debt ceiling. There are two main schools of thought that are being argued right now in Congress – Democrats believe we should raise the debt ceiling, thus buying us time to deal with our problems. Republicans, on the other hand, wish to default on our loans, and instead work on decreasing spending and raising taxes to pay off our debts.
As it stands currently, the government owes $118 billion each month in interest to all of its benefactors (Sahadi, 2011). Members of Congress have until August 2 to find a way to get out of the debt ceiling and allow the government to continue borrowing, or else default on their loans. The economic consequences for this event would be disastrous; the US Treasury would be without the ability to borrow any more money, meaning that it would have no spending power any more.
The August 2 deadline comes as a result of several things that Congress is doing to buy time for the debt ceiling: using a $100 billion bank account it has at the Federal Reserve, as well as stop taking out loans in order to help federal workers and local governments, instead just borrowing for their overall needs. The debt ceiling has risen more than 70 times in the past, making the action of raising the debt ceiling full of precedent (Suarez, 2011).
There are many things that would have to be done to get the budget balanced in order to allow for continued spending. For one, a 40% decrease in spending could provide that wiggle room; alternatively, they could raise taxes quite a bit (in the realm of several hundred billion dollars), or some combination of the two strategies (Goldstein, 2011). Either way, something has to be done.
Currently, the debates rage on in Congress, and things are at a standstill. In these talks, Republicans and Democrats are butting heads; Obama believes the solutions are to raise taxes on the wealthy in order to reduce the public debt, whereas Republicans like John Boehner wish to find a way to pay the debts without raising taxes too much, instead taking out entitlement benefit programs, such as Medicare (Calmes and Hulse, 2011).
Everyone agrees that spending must be cut; where everyone disagrees is where to cut. Republicans, seeking to protect their main constituents (wealthy Americans) do not want to see their wealth threatened, whereas Democrats such as Obama feel the need to raise taxes wherever they feel it equitable (the wealthy having an inordinate percentage of the money in America would provide a great boon on spending). In terms of solutions I would suggest, I would offer a mild increase in the debt ceiling to buy time, provided that a moderate tax on the rich was enacted and that further investigation into which government programs see the most waste was conducted. Of course, some of the biggest waste will never be cut (e.g. executive’s pensions and benefits), as those with the authority to cut it will never sabotage themselves.
Works Cited
CALMES, JACKIE and Carl Hulse. "Debt Ceiling Talks Collapse as Boehner Walks Out." The New York Times. N.p., 22 July 2011. Web. 23 July 2011. <http://www.nytimes.com/2011/07/23/us/politics/23fiscal.html?_r=1>.
Goldstein, Jacob. "The Debt Ceiling, Explained : Planet Money : NPR." NPR : National Public Radio: NPR. N.p., 11 Apr. 2011. Web. 23 July 2011. <http://www.npr.org/blogs/money/2011/04/12/135314575/the-debt-ceiling-explained>.
Sahadi, Jeanne. "U.S. hits debt ceiling: Why it matters - May. 16, 2011." CNNMoney. N.p., 17 May 2011. Web. 23 July 2011. <http://money.cnn.com/2011/05/16/news/economy/debt_ceiling_deadline/index.htm>.
Suarez, Ray. "How Does the U.S. Debt Ceiling Work and Why Does it Matter?" PBS: Public Broadcasting Service. N.p., 16 May 2011. Web. 23 July 2011. <http://www.pbs.org/newshour/bb/politics/jan-june11/debtceiling_05-16.html>.
