The US Debt-Ceiling Crisis
A couple of months ago, the United States hit its debt ceiling of US$31.4 trillion – leaving the economy hanging in the balance. Undoubtedly, the country needs to start paying off this debt, and urgently. But, as is the case with everything in Washington, it is surrounded by bureaucracy and political red-tape. A duel is emerging between the Democratic Biden administration, and the McCarthy-led Republican House, to determine how the US will reallocate its spending and save itself from the abyss.
Before we get into the specific plans and their individual merits, let’s review a bit of political economic theory: the job of the government in a mixed economy is to implement fiscal policy, which concerns taxes and government spending. Ultimately, these will need to go up and down respectively to make a difference. Alternatively, Congress could pass another bill to raise the debt ceiling, but that seems unlikely in its current, unbelievably dysfunctional state.
As was expected: the Democrat’s liberal policy would entail an increase in taxes, and the Republicans conservative policy would include major cuts in government spending. Biden’s office has proposed a new budget for the fiscal year of 2024 (starting in September 2023), which includes major tax hikes. Altogether, it would reduce the deficit by US$2.9 trillion. This revenue would mostly be produced by large corporations, profits and multinational firms, as well as the increase in tax on individuals earning more than US$400,000 per year. Conversely, the Republicans are expected to take an extreme approach, including major slashes in spending on Medicare, Social Security and Foreign Aid.
What emerges now is a very common political debate: how involved should the government be? I’m, usually, a fiscal conservative: I don’t have an interest in drastically raising income taxes. But the hypocrisy of the Republican’s proposal makes it intolerable. Even though they are willing to trade off the American people’s welfare in the spirit of cutting back government spending to save the economy, they are unwilling to slash the immensely high military budget. While I believe that having a strong military is very important for the US, it certainly doesn’t take precedence over social security protections.
Wikipedia has already got a page titled “The 2023 United States debt-ceiling crisis”, and this will certainly play a role in both campaigns in the 2024 Presidential Election. Might the Democrats’ ability to spend be cut amidst anger from large corporate donors? Or will the Republicans’ cuts to public spending so infuriate voters that they will have shot themselves in the foot before the primary even begins? Whatever the long-term political impact, we must remember the number one priority: solving the potentially disastrous situation the US economy finds itself in.