By Nick Mann | 6 December 2012
US President Barack Obama has said he is not willing to make concessions over future tax and spending plans to win Republican support for an increase in the country’s borrowing limit next year.
Obama was responding to reports that the Republican opposition would agree a deal to avoid the automatic across-the-board tax increases that are due to take effect in January – but at a price next year. The tax increases, alongside a package of automatic spending cuts, are part of the ‘fiscal cliff’ that analysts have warned will send the US economy into recession. Obama has proposed ‘middle class’ tax cuts be extended, while those for high earners are ended.
Almost as soon the parties reach agreement to avoid the ‘fiscal cliff’, they will have to turn their attention to increasing the US debt ceiling, which is forecast to reach its current $16.4 trillion limit by February or March. The Republicans plan to demand further spending cuts in return for agreeing a rise in the ceiling.
Speaking to business leaders yesterday, Obama said: ‘When I hear some on the other side suggesting that to resolve the possibility of a perpetual or a quarterly debt ceiling crisis that there is a price to pay – well, the price is paid by the American people and your businesses and the economic environment worldwide. And we should not accept going through that.
‘There had been reports... that perhaps the Republicans go ahead and let the middle-class tax cuts get extended. [Then] next year we come back and the thinking is Republicans will have more leverage because there will be another vote on the debt ceiling and we will try to extract more concessions with a stronger hand on the debt ceiling.’
‘That is a bad strategy for America. It is a bad strategy for our businesses. And it is not a game that I will play. We are not going to play that game next year.’ He added: ‘If Congress in any way suggests that they’re going to tie negotiations to debt ceiling votes and take us to the brink of default once again as part of a budget negotiation – which, by the way, we had never done in our history until we did it last year – I will not play that game. Because we've got to break that habit before it starts.
The debt ceiling can be increased only with the backing of Congress, and Obama said he wanted to avoid last August’s ‘catastrophe’, when political deadlock raised market concerns over a US default. The Congressional Budget Office has forecast the borrowing limit will need to be increased in February or March of next year.
‘There’s no uncertainty like the prospect that the United States of America, the largest economy that holds the world’s reserve currency potentially defaults on its debts; that we give up the basic notion that the United States stands behind its obligations,’ Obama noted.
The leader of the Republican Party in the Senate, Mitch McConnell, today criticised the president’s comments, which he said showed he wanted to raise the debt ceiling whenever he wanted in order to increase ‘wasteful’ spending.
‘For months, the president has been saying all he wants is to raise taxes on the top 2% so he can tackle the debt and the deficit,’ he said. ‘Yesterday, he finally revealed that’s not really his true intent. By demanding the power to raise the debt limit whenever he wants by as much as he wants, he showed what he’s really after is assuming unprecedented power to spend taxpayer dollars without any limit.’
‘This isn’t about getting a handle on deficits or debt for him. It’s about spending even more than he already is. Why else would he demand the power to raise the debt limit on his own?’
