The United States Senate this afternoon passed a bill to raise the debt ceiling, cut federal spending, and set up a special Joint Committee of Congress to enact further spending cuts.
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“Republicans this morning were claiming victory with this debt deal because there would be no tax increases. Do they still think it’s a victory?
“Democrats say the deal allows the special Joint Committee of Congress to demand higher taxes. The president today stridently called for higher taxes on the wealthy – and spent more time talking about where the government needs to spend more, not where the government needs to cut more.
“Obama called for higher taxes on the wealthy and more spending on things ranging from unemployment benefits to the creation of an ‘infrastructure bank’ to fund more highway, bridge and other government construction projects. He also wants more tax cuts on middle-income earners even though approximately half of all households already pay no federal income tax.
“Meanwhile, The Wall Street Journal today quoted Democrat Sen. Kent Conrad of North Dakota saying on MSNBC: ‘It is really very clear that [new] revenue can be part of any solution that the special committee develops.’
“That doesn’t look to me like victory for anyone who cares about improving the economy or controlling government.”
“Congress did the right thing in passing a bill without any new taxes on anyone. But unfortunately, the debt issue is still with us. Here’s why:
“If Congress had decided to raise tax burdens, trend growth in real GDP in the future would have fallen to no more than 2.5 percent annually. This would seem to be a ‘great rate’ today, given the 2008 financial crisis, but it is less than the 3.2 percent trend rate in GDP growth over the second half of the 21st century.
“To return to such a ‘robust’ growth rate of 3-plus percent, Congress would have to actually lower current tax burdens to around 18 percent of GDP. This is unlikely to happen given the 2011-2014 federal spending plans of 22 percent or more of GDP. Our nation still has its work cut out for it.”
“The debt-ceiling debate was really about positioning the two parties for the 2012 elections. The outcome – $2.4 trillion in additional national borrowing – makes the choice clear: more taxes and debt, or unimaginably more taxes and debt.
“This short-term crisis was never going to result in long-term reform. It will take at least one more election to accomplish that – or destroy the economy entirely.”
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