United States – National Debt Ceiling, Deficit Reduction and Balancing the Budget

July 24, 2011

By Padmini Arhant

Leaders in Congress and White House held vigorous discussions on national fiscal crisis up until recent standoff disrupting political discourse.

The main focus was clarifications from each side in achieving the goal and winning congressional support for their specific agenda.

The White House request to raise debt ceiling by $2.5 trillion carefully analyzed by Congress.

Cut, cap and balance bill aimed at middle class, senior citizens and veterans from Republican majority in the House rejected in the Democrats controlled Senate.

Meanwhile the Gang of Six from the Senate presented their version highlighting tax reform alongside deep spending cuts creating a political puzzle with the legislative and executive branch struggling to arrive at a consensus urgently required to prevent national default portending serious ramifications upon failure.

Given the current national debt at $14.3 trillion extending credit limit by $2.5 trillion to facilitate borrowing for spending without revenues in the form of tax restructure and other sources exacerbates the debt situation.

Republican House bill targeting essential programs like Medicare, Medicaid, Social Security and Veterans benefits while demanding spending cap at 2008 level in the absence of revenues to accommodate White House $2.5 trillion credit increase is imprudent considering the prevalent economic conditions on unaffordable health care costs and high unemployment.

The Republican members’ mandatory requirement to balance the budget through constitutional amendment is an important strategy to restore fiscal order.

However the milestone cannot be reached on severe austerity alone.

Last year Bush tax cuts extension to the wealthiest individuals and corporations with extraordinary gains was overwhelmingly approved holding the optimistic outlook on job creation and economic revival yet to be realized a year later.

The agreement between Republican members and White House in 2010 on Bush tax cuts extension proved detrimental since the opportunity to rein in deficit then was missed with generous tax breaks to the top 10 percent thereby transferring the debt burden on the remaining 90 percent – the routine targets in fiscal management.

White House stance is claimed to be over trillion dollars in spending cuts i.e. domestic discretionary and defense spending combined in addition to $650 billion from entitlement programs such as Medicare, Medicaid and Social security.

The contention for the White House is revenues not measuring up to spending restraints from the Republican side.

White House determined to obtain debt ceiling increase to a tune of $2.5 trillion beyond 2012 elections.

White House expectation from Republican members is to raise $1.2 trillion income through tax restructuring that would lower tax rates by broadening base and eliminating tax loopholes plus deductions to maintain balance.

Republican House members on their part favor slash spending and no revenues especially tax related options not considered in the equation.

The pragmatic approach to the highly contentious issues – raising debt ceiling and taxes simultaneously with drastic spending constraints not sparing Medicare, Medicaid, Veterans benefits and Social security could be rationalized beginning with two major resolutions.

It would be economically sound to abandon impulsiveness when searching for practical rudiments to complex fiscal conditions.

Following precedence on debt ceiling extension is not suitable in the highly volatile global environment featuring promising gains and precipitous decline in individual and overall growth.

Similarly, compromising entitlement programs such as Medicare, Medicaid, Veterans benefits and Social Security – the only safety net for average Americans in the political bargain is best safeguarded than dismantled to attain positive returns through productivity and consumerism from healthy, able and economically stable citizens.

First and foremost, review and re-organize budget appropriations.

Budget financing for current expenditure already available in discretionary as well as defense allocations, tax reforms addressing tax evasions and deductions for luxury purpose rather than tracking the middle and lower income stimulus programs returning to the economy being the consistent consumer segment is a straightforward approach.

Exploring savings and revenues for government operation could begin with freezing salary increase and perquisites availed by Congressional members and federal agencies top management including the executive branch for two years.

Poignantly wasteful spending by Congress and federal organizations on travel and trimming bureaucracy with efficient technology could bring some relief.

Reviewing trade tariffs, levies and fees applicable on imports and providing incentives to corporations for local manufacturing and industrial expansion would trigger economic upward trend.

Selling or privatizing government owned buildings and tangible assets could assure cash conversion.

In an attempt to enhance the super wealthy income status – lowering tax rates for the rich and concurrently imposing taxes viewed negligible against the underemployed American work force tilts the scale higher again on the middle and lower income groups barely surviving in the harsh economic environment.

Corporations like General Electric innovative techniques to not only avoid paying taxes but also receiving tax refunds on zero tax payments are the kind to be blocked and dues collected retrospectively to fund legitimate services.

Protracted government operations and congressional offices replicating functions could be centralized to perform under single unit directives and supervision.

U.S. taxpayer bailouts of banking industry from 2008 to date – toxic assets removal from bank balance sheets with treasury intervention using taxpayer funds enabled banks to avoid bankruptcy,

Since rescue with taxpayer funds – banks have not eased the credit crunch experienced in commercial lending, housing market and small business stalling progress and economic recovery.

Accountability on interests owed and remaining principal balance from the bailout recipients could aid treasury from potential national default considering the banking sector’s record profits largely directed to CEO‘s extravagant bonuses and stock option distribution adhering to business as usual practice.

Eliminating tax subsidies to energy industry exempting clean natural resource energy production,

Nonetheless pursuing fossil fuel producers are some aspects of savings and revenue prospects to assist in debt reduction.

Environmental damages from gross negligence as witnessed in Gulf coast oil spill and repeat offences restoration costs collected from energy, pharmaceutical and agricultural chemical fertilizer companies…would supplement state and national income.

Without having to raise debt ceiling now or in the future, the unused budget allocations not excluding redundant expenditures could be identified for budgetary requirements.

Lowering tax rates from 35 to 29 percent to the top bracket could be incentivized for domestic investments and job creation instead of the reduction standardized that is otherwise held in offshore tax havens and Swiss bank accounts.

Again reiterating the fact that mortgage interest payments and other genuine deductions to middle and lower income groups representing the vast active consumer base and labor force routinely reinvested back in the economy.

Therefore any drastic initiatives to terminate essential services to Senior citizens, veterans and vulnerable demography notwithstanding economic stimulants to middle class America would fall back on the state ultimately affecting national GDP.

The House Speaker John Boehner and Republican House members’ position declining debt ceiling adjustment is relevant in light of alarming national deficit at $14.3 trillion and inevitably escalated with $2.5 trillion borrowing that could be procured from within the budget and monetary instruments at the treasury.

At the same time, Republican Congress in the house and Senate cannot avert default without meaningful and realistic fiscal solutions consisting revenues with tax reforms, levies and payments from Wall Street for causing economic and environmental adversity.

Although spending cuts targeting Main Street is the predominant component in every proposal not sparing the economically vital programs like Medicare, Medicaid, Veterans provisions and Social Security,

Republican majority in the House – Legislation titled cut, cap and balance primarily slashed and deprived significant population from basic existence.

White House plan extracting $650 billion Medicare, Medicaid, Veterans and Social security is in coherence with Republican strategy – streamlining funding for fundamental needs and tampering with robust Social security system.

Senate Gang of Six debt minimizing strategy admittedly contains 74 percent deep spending cuts and 26 percent revenue – the estimate cited as inadequate by the White House and,

Last but not the least –

Senate Republican minority leader Mitch McConnell offer yielding to White House on elevating debt ceiling generates a perception of political maneuver due to onus entirely on Democratic administration undertaking huge deficit hike likely to impact democrats in the 2012 election.

Hence ascertaining wealth in possession, income flow from taxes and other revenues juxtaposed to discretionary, defense and Congressional frugalities could provide for various government obligations.

In terms of deficit containment – ending the wars in Afghanistan, Iraq, Pakistan, Yemen and Libya and divestments in economy, health care, education and infrastructure repair and renewal is the only viable permanent remedy to rebuild the nation.

Constitutional amendment to balance the budget would not be sustained as long as the unsubstantiated unaffordable indefinite warfare remains the agenda for any administration.

The lawmakers and the White House passion to bring troops home from all corners of the world and sincere engagement in constructive dialogue leading to fruitful negotiations on all issues – fiscal matter in particular would exemplify congressional pledge towards national and public interest.

With the nation on the brink of financial insolvency communication breakdown and obstinacy for political reasons perpetuates the problem and adversely impact incumbents on both sides.

Esteemed members in Congress and White House are urged to resume talks by isolating political differences for bipartisanship on budget –

Without moving debt ceiling,

Preserving Medicare, Medicaid, Veterans and Social security funding,

Expeditious tax overhaul for ongoing legitimate income,

Exploring further income options on federal government activities and,

Finally concluding wars conducted on borrowed money from overstretched credit limits and external creditors viz. China and Saudi Arabia.

It’s time to halt the destructive course and steer the nation forward with thoughtful decisions relieving the present and next generation from burgeoning debt as long lasting legacy and tribute to the brave hearts for their sacrifice to the nation they defended in all frontiers.

Hopefully wisdom and rationality would guide leaderships in the peaceful reconciliation of fiscal and monetary policy.

When diverse ideas recognized and formulated to promote common cause that guarantees satisfaction to all then none left behind in their aspiration to rise to the occasion.

Good Luck! To all members for successful legislation on national debt reduction, adopting fair income expenditure methods in balancing the budget and diligently reverting to budget surplus than relying on enlarging unmanageable debt ceiling.

Peace to all!

Thank you.

Padmini Arhant














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