Why the Debt Ceiling Negotiations Matter to Seniors and Everyone
In the past few years Americans have become more savvy about what default on their credit obligations can mean for them personally. A payment a few days after the grace period on a credit card bill could mean higher interest rates or denial on the next loan application. A continuing mortgage default can ultimately result in homelessness.
The debt ceiling on the national debt is something like that. If the government does not raise the debt ceiling it is the equivalent of the government announcing in advance that it cannot be relied on to pay its obligations. Soldiers, vendors, government employees, Social Security and Medicare recipients, and military pensioners as just a few examples, would not be paid. Second, defaulting on the national debt is worse than defaulting on your credit card but, like that, it would mean higher interest rates on the debt that already exists causing even more debt than there is now. Paying a bill back at a higher interest rate, assuming that people would be willing to lend the money, is much more expensive than paying it back at a lower rate. So, refusing to raise the debt ceiling could not only paralyze the government but also make it more expensive to run than it already is.
So, recognizing that the results of failing to raise the debt ceiling would be catastrophic, even to the point that the new head of the International Monetary Fund has stated that it would have disastrous effects not only on the US economy but on the world
economy, and that the deadline is fast approaching this month, why is there a holdup now?
I did some research. It is not that Congress cannot do it. Congress has raised the debt ceiling ten times since 2001. During the Bush administration alone, the ceiling was raised in 2002, 2003, 2004, 2006, 2007, and twice in 2008. Republicans now will not vote for it and insist that everything to close the deficit needs to come from the spending side of the equation which means a great portion of it from Social Security and Medicare – and nothing from additional revenue. The implications for seniors are obvious. The reasoning is that increased taxes, by which is meant also closing tax loopholes, in a down economy would affect job creation. Democrats say that, to begin to close the gap, funding should come both from reducing expenses and increasing revenue.
I did some exploring to see what the taxes breaks are that are so important to be preserved that we have reached this point and discovered some examples. Here are a few.
Foreign gamblers. As strange as it may seem, foreign gamblers are protected from paying American taxes. While gambling winnings by American citizens in the US are subject to withholding taxes, foreign gamblers are not subject to withholding. This is an issue that has been debated but not changed and would be regarded as a “tax increase.”
Hedge Fund Managers. Hedge fund managers, among the people who helped create the current debt crisis, under a provision called “carried interest” can pay taxes on a portion of their fees at 15% instead of the maximum 35% paid by the rest of the public. The cost to the American taxpayer is estimated at .
Ethanol Tax Credits. Even American businesses complain that the tax credits (otherwise thought by many to be “subsidies”) to corn growers for production of ethanol are unnecessary and artificially increase their costs. The Senate has passed a bill to eliminate the tax credits. It has not been passed by the House. This would be considered a “tax increase.”
For more, listen to “50+ Planning Ahead” a weekly radio program on WCHE 1520 on every Wednesday from 4:30 pm to 5:00 pm with Janet Colliton, Colliton Law Assocs., PC, and Phil McFadden of Home Instead Senior Care.
About the Author Janet Colliton
Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.