UPDATE at 2:30 p.m.: The U.S. Senate today voted 74-26 for a deal to increase the national debt limit.
The weeks of bitter arguing over raising the U.S. debt ceiling has shown the world that influential elements within the U.S. Congress are willing to gamble their economy—and by extension, the world’s—to get their way. And, to make matters even more concerning, the world has learnt those elements seem to be able to get their way—and it’s their way or no way at all.
In a nutshell, the plan—approved by the Republican-led House of Representatives on Monday and heading to the Senate today—would raise the existing US$14.3-trillion debt limit by enough to last past 2012, a presidential election year. It calls for US$2.1-trillion in spending cuts spread over 10 years and creates a congressional committee to recommend a deficit-reduction package by late November.
The deal is being hailed as a victory for Republican conservatives and especially the Tea Party. But, when one considers that the deal is a far cry from a US$4-trillion deficit-reduction pact that President Barack Obama and House Speaker John Boehner appeared close to clinching just over a week ago, how much of a victory can it be?
House conservatives, though, console themselves that this deal contains no “job-killing tax increases.” The president had wanted some concessions in return for spending cuts and apparently had, or was close to, an agreement with John Boehner to reduce some corporate tax breaks on the principle that corporate America could live with that if elderly Americans were expected to live with less money and fewer medical benefits.
The tax breaks considered for the chopping block included the ending of the capital gains rate allowing hedge fund and private equity managers to pay only 15% of their earnings rather than at a higher tax rate. Also, discontinuing subsidies for oil companies and corporate jet owners were on the table.
It is a logic that eludes my simple mind that defines the closing of corporate loopholes and the ending of some corporate tax breaks to owners of corporate jets and profit-rich oil companies as “job-killing tax increases.”
Hardheaded, willfully stubborn zealots who seek simple solutions to complex problems make daunting political foes. If adversaries are prepared to risk the country’s entire economy, and has demonstrated the wherewithal with which to do so, no responsible person will totally prevail against them. Unless, of course, voters wake up and become more circumspect about how they vote in future elections.
This has been a wakeup call to investors across the globe, both nations and wealthy individuals. And America will not soon be considered quite the safe haven it has been for several decades.