WASHINGTON (AP) — The political fight that took the nation to the verge of defaulting on its debts last year is back, overshadowed by “fiscal cliff” disputes but with consequences far graver than looming tax hikes and steep spending cuts.
The government is on track to hit its $16.4 trillion borrowing limit later this month. And while the Treasury can keep the government functioning through early next year, President Barack Obama is bluntly insisting that any deal on the fiscal cliff include an end to brinkmanship on the debt ceiling.
Obama is demanding tax rate hikes on the rich, using the prospect of a worse alternative and the momentum of his re-election as leverage. But the debt ceiling gives Republicans a powerful weapon to extract further deficit reduction too, contributing to the current stalemate.
Both sides have warned that plunging off the fiscal cliff — letting income taxes increase for all and kicking in deep cuts in defense and other programs — could rattle the fragile economic recovery.
But failure to raise the borrowing cap would leave the government unable to pay its debts. That would roil the stock market, result in a likely downgrade in the nation’s credit rating, increase interest rates and threaten another financial crisis. Last year’s fight prompted Standard & Poor’s to reduce the AAA rating for government bonds.
That risk gives Republicans the weight to counter Obama in fiscal cliff talks and demand that the president agree to greater spending reductions or savings from programs such as Medicare, Medicaid and even Social Security.
The GOP needs to be strong and firm on its stance with regard to revenues and for spending cuts. If we don’t get serious NOW regarding REAL reform to the tax code and to entitlements,then When?