Tuesday, August 2, 2011

U.S. lawmakers one step closer to averting financial calamity

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.


© Russell G. Campbell, 2011.
All rights reserved.
The views I express on this blog are my own and do not necessarily represent the views or positions of political parties, institutions or organizations with which I am associated.


  1. Is this piece supposed to be satire?

    Tea Party members of Congress are radical?

    Too much time reading the Globe and NYT me thinks.

  2. No satire intended, Ward. And, by the way, neither the Globe or the NYT are regular reads of mine, though I don't shun them. As to "Tea Party members of Congress are radical?", those are your words not mine. I wrote no such thing.

    Some, I suppose, are radicals, just as there are radicals like Nancy Pelosi on the left.

    I wish, though, that you'd criticize me for what I write, not what you think or hope I've written.

  3. Armageddon has not been canceled just postponed. The US debt increase just buys more time to make things worse. You don't cure a drunk with more booze and you don't cure a debt problem with more debt.

  4. While it is difficult to understand, luxury taxes and different treatment of some sectors compared to others will, over the long haul, serve as a disincentive to investment and growth in those sectors. The unfortunate reality is that by the time the government realizes that those evil profit-rich oil companies CAN'T afford to invest without those "tax breaks" which some actually call "costs of doing business", it will be already too late to make a change to save that industry that is left.

    To be quite frank, the United States needs to remove barriers to drill, not take away the deductibility of legitimate expenses. If they do that, then the United States would pop out of recession in months, and it would stay on a growth pattern for decades.

  5. I have to agree with Ward.

    You're blaming the wrong people Russ.

    The "stubborn zealots" are not the ones who have put the US in the dire position they are now in. Not by a long shot.