Agreement in the US debt dispute: A painful deal

by time news

2023-05-28 16:19:39

NAfter President Joe Biden and the leading Republican in Congress, Kevin McCarthy, agreed on a compromise in the dispute over the debt limit, they now have to organize majorities in both houses of Congress in the next few days. It won’t be easy: there is already a lot of resistance in both parties.

The agreement lacks the drastic aspects that can be sold well within the company’s own ranks. It does not provide for the large spending cuts that Republicans have been calling for. The tax increases advocated by the Democrats also failed. From the outset, the negotiators left about two-thirds of the spending blocks untouched, the statutory mandatory transfers for retirees and veterans, statutory health care and spending on the military. The remaining issue block was slightly trimmed. This must not be greater next year than this year and only grow by one percent in the following year. There was agreement that a large part of the unused but approved funds for fighting the pandemic would be saved.

Democrats have to make political concessions

The Democrats have moved away from their maximum position that the statutory debt ceiling should be raised without making any political concessions. They also swallow the toad that food aid recipients have had to work more. The radical wing of the Republicans wanted deep cuts to the Inflation Reduction Act, the repeal of student loan debt relief, and the scrapping of the billion-euro package to modernize the IRS. These demands hit a wall. However, these were maximum demands that many Republican MPs had their problems with.

The deal can be celebrated for bringing together the leading political players in a polarized landscape. That really deserves praise. At the same time, the negotiations and the communications surrounding them in recent weeks have done nothing to bolster confidence in America’s policy-making process, either at home or abroad. In Washington, no one should hide the fact that distrust has its price, which in the medium and long term will be reflected in higher interest rates on American government bonds.

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The deal only buys time

Furthermore, there is no indication that America will find itself on a fiscally sustainable path after the negotiations. The deal aims to buy time until after the next presidential election. Nobody should expect that the meantime will be used to realign America’s spending policy. That would require the slaughter of sacred cows.

The debt limit should be suspended once and for all because, in extreme cases, it puts expenditures approved by Congress up for grabs. At the same time, a major tax reform that, among other things, closes tax loopholes and leads to higher revenues should not be taboo. The defense budget also deserves critical analysis. There is no need to question military aid to Ukraine. But it’s an open secret in Washington that the Pentagon has become a bureaucratic juggernaut with no appreciable cost discipline that knows how to discredit critical analysis as unpatriotic.

The auditors of the American Congress predict an annual deficit of around 6 percent of gross domestic product for the next ten years. The recent deal changes little. He allows the debt to increase from $31 trillion to $35 trillion.

The deal, if passed by Congress, will avert a major financial crisis. That’s no small amount, but not enough for a country whose president took office with a declared will to show the rest of the world that America’s way of making decisions beats all authoritarian temptations.

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