Having just returned from Italy where there is fiscal madness and a crises brewing, I had time to reflect on the problems that the United States might encounter.
First went Greece, with its overspending and tax-collection problem. When the Greek financial crises broke, enterprising reporters went to the wealthy areas of Athens, photographing swimming pools and fancy gated homes of people who were not paying taxes. Now, with the European Union and other world financial institutions demanding accountability, people are also taking to the streets, demanding that services continue. Many Americans are saying that this is what is to come, that we can't be a nanny state any longer and if we do not reign in the hoards of people on the public dole we will wind up with a massive crisis like Greece.
Then there is Italy, where I just spent a week. Italy has a lousy growth rate and, depending on where in the country you are, a pretty miserable rate of unemployment. According to reports in the Economist, "Its debt burden is high but stable for years. Its primary budget (before interest payments) is in surplus. … If the price Italy must pay rises high enough for long enough, its debt will eventually spiral out of control." This is exactly what the United States will be facing if it does not quickly get its act together.
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A Wall Street friend of mine was telling me that defaulting on our credit obligations or even nearing default would spook the credit markets. He put it quite plainly. "What if," he said, "you pay your bills but you keep borrowing to pay that monthly nut? What if you live near the edge and you talk to your friendly neighborhood banker who knows how on the edge you might be? What if the banker overheard you at a cocktail party saying you were thinking of walking away from some of that debt, or pushing the clock out on refinancing your debt and not paying your bills on time?" Do you think that local banker is going to give you a favorable rate? Do you think that banker isn't going to increase your rate, as he or she takes on more risk with you as a client?
That is exactly what the United States is looking at. Sure, once we get Congress and the White House marching in the same direction, the U.S. will have access to credit, but at what cost? Can the U.S. risk having a credit-rating downgrade? Can it risk having our creditors stop giving credit? I think not, and this is what can put us in the soup just like we have seen in Greece and some of the other European countries.
Like in Greece, some reporters have attempted to point out who is not going to be affected by these budget negotiations. Want to take a guess? It is not the federal retiree or those who collect Social Security or Social Security disability payments. No, it is the folks from the multinational corporations with a ton of offshore entities. The counter argument is that companies will go and stay off shore if they can't get the tax breaks (think tax loopholes) that they now enjoy. This makes sense as an argument, but most of those companies are already offshore, not paying taxes and not creating jobs here at home. Most of these companies want access to customers based in the United States. If they want our customer base, it should be pay to play.
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To most of the Republican's working on the debt ceiling negotiations, any tax increase even if it only closes a loophole is unacceptable. A high-school economics student can outline what needs to be done: Increase revenue and decrease spending. The GOP wants to decrease spending, so does President Obama. You can't just cut spending. You also have to raise revenue. As much as the Republicans say that cutting taxes will assuredly raise revenue, there are no guarantees. Cutting taxes, sending jobs overseas and having little or no job growth won't increase revenue. However, getting rid of loopholes that allow huge corporations to pay tax rates less than their rank-and-file employees pay will increase revenues. These companies are not going anywhere as most have already left for offshore havens, and they still need and want access to our markets.
It is time for the Republicans to negotiate fairly and stop doing the bidding of the corporations with large PACs and lobbyists. If we don't want to wind up close to the precipice like the Italians, it is time to stop fiddling while Rome burns.