Update on the Debt Limit-Deficit Debate

As August 2 gets closer and closer, Republicans and Democrats do not appear to be closing the gap in their ideas on how to reduce the deficit, which at the moment is an integral part of a deal to raise the debt limit. The President held another press conference at 11:00 am EDT today to bring the issue to the American public.

To recap: The U.S. Government has debt –the amount of money it owes creditors, and a deficit — the difference between the amount of money it collects and how much it spends. The bigger the deficit, the more money needs to be borrowed, increasing the amount of debt.

Congress must pass a law allowing the debt limit to increase above its current $14.3 trillion level. If the debt limit is not raised by August 2, most economists, including the Secretary of the Treasury and the Chairman of the Federal Reserve, assert that it will be catastrophic for the United States. The government will not be able to pay all of its bills and will have to choose between paying creditors, like China, or paying for current operations, like salaries for government workers — including those who work on space programs. It would also affect the govenrment’s ability to pay for everything it buys from office supplies to spacecraft.

Republicans are using the need to raise the debt limit as a lever to force Democrats to accept deep spending cuts to reduce the deficit. They will not approve a debt limit increase unless the defict is dealt with at the same time. Democrats agree that the deficit must be reduced, but they want a combination of spending cuts and tax increases. To date, Republicans have not been willing to compromise and accept any tax increases. Democrats insist that both sides must compromise, it cannot be one-sided deal.

Talks have been going on for months, but recently have suffered setbacks. No talks are currently scheduled.

The President reiterated in his press conference today that all the congressional leaders — Republicans and Democrats — agree that the United States cannot default on its obligations. He said he wants to “seize the moment” and cut a deal that, over the next 10 years, would take government spending down to the lowest level since Dwight Eisenhower was President in the 1950s. That will require tax increases as well as spending cuts, he said, adding that even a majority of Republicans agree that this “balanced approach” is needed. However, an influential and vocal group of Tea Party Republicans in the House do not. They want only spending cuts.

The President called on Republicans to come to him with a “serious plan” for deficit reduction. For their part, today’s news is that House Republicans are pushing a “cut, cap, and balance” plan that would cut spending, put a cap on future spending, and pass a balanced budget amendment to the Constitution. The latter would require ratification by three-quarters of the 50 states. Senate Republican Leader Mitch McConnell (R-KY) is proposing a different plan that would essentially let the President raise the debt limit himself for the next year so he would shoulder the blame in the eyes of American voters. Although House Speaker John Boehner (R-OH) did not reject the idea, many House Republicans reportedly are strongly opposed to it.