US debt crisis: Obama warns of 'tax rise for all' if deal cannot be done

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http://www.guardian.co.uk/business/2011/jul/15/us-debt-deal-failure-would-put-up\

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US debt crisis: Obama warns of 'tax rise for all' if deal cannot be done

President says failure to increase borrowing would put up interest rates, in

effect raising everyone's taxes

McGreal in Washington guardian.co.uk, Friday 15 July 2011 18.17 BST

Article history

Barack Obama has warned that the US is " running out of time " to raise the limit

on US government borrowing and that failure to do so will lead in effect to a

tax increase for all Americans, because a downgrade of the country's credit

rating would cause an interest rate rise.

The president's warning was reinforced by a threat from the ratings agency

Standard & Poor's to strip the US of its AAA standing if no long-term political

deal is reached to tackle government spending and debt.

As Obama and Republican leaders in Congress continued to wrangle over the terms

for approving an increase in the US's $14.3 trillion (£8.9tn) debt ceiling by

the 2 August deadline – with Republicans rejecting Obama's demand that tax

increases for the wealthy accompany sharp budget cuts – the president warned

ordinary Americans of the seriousness of the situation.

" This is not some abstract issue. These are obligations that the United States

has taken on in the past. The Congress has run up the credit card and we now

have an obligation to pay our bills. If we do not it could have a whole set of

adverse consequences. We could end up with a situation, for example, where

interest rates rise for everybody all throughout the country, effectively a tax

increase on everybody, " he said.

But Obama also told a White House press conference that while the situation was

serious, it could be resolved. " We don't have to do anything radical to solve

this problem. Contrary to what some folks say, we're not Greece, we're not

Portugal.

" It turns out that our problem is we cut taxes without paying for them over the

last decade ... We fought two wars. We didn't pay for them. We had a bad

recession that required a recovery act and stimulus spending. "

S & P, which follows Moody's in warning of a possible downgrading of the US's top

credit rating, put America on negative watch on Thursday and said there was " at

least a one-in-two likelihood " that it could downgrade its debt " by one or more

notches ... if we conclude that Congress and the administration have not

achieved a credible solution to the rising US government debt burden and are not

likely to achieve one in the foreseeable future " .

Obama said that political leaders " should not even be this close to a deadline

on this issue " , but he stood firm in his opposition to Republican plans for

$2.4tn in immediate spending cuts. The president said to achieve that level of

savings without added tax revenues would require the " gutting " of social

programmes that he could not support. He said that when ordinary Americans are

asked to contribute more to retirement and healthcare programmes, then

" millionaires and billionaires can afford to do a bit more " .

Republican leaders in the US Senate appeared to be edging closer to an emergency

deal with Democrats that would permit the president to raise the debt ceiling

unilaterally, but there was continued opposition from fiscal conservatives in

the House of Representatives who view such an arrangement as a victory for the

White House. Obama said that the Republicans had " boxed themselves in " with

election commitments.

The Republican leadership in the House of Representatives said it won control of

the lower house of Congress in last November's election with a mandate to

sharply cut government spending without any increase in taxes.

The Tea Party movement and fiscal conservatives intend to hold newly elected

House members to that commitment, and warn that any deal with the president that

does not include deep cuts or permits tax increases will be viewed as a

betrayal.

Obama described any temporary solution that did not tackle long-term spending

problems as the least attractive option. " We have a unique opportunity to do

something big. We have a chance to stabilise America's finances for a decade,

for 15 years or 20 years, if we're willing to seize the moment, " he said.

Chambers, chairman of S & P's sovereign ratings committee, also warned that

an interim solution of the kind under discussion in the Senate would not be good

enough and that Washington must tackle the long-term debt issue. " If you get a

small agreement, that will lead to a downgrade, " he told Reuters.