U.S. Debt Threatens the Wealthy

Even the Americans are starting to worry when they look at their enormous mountain of debt. The budget deficit is around 10 percent of GDP, and America has displaced Greece into a runner-up position. Large investors are beginning to abandon buying U.S. treasuries; they feel the risk is too great, that these “junk bonds” will lose their value.

In addition, the United States has long had what is just coming into fashion in Germany: a “debt ceiling.” The results of that are absurd, since the money appropriated in the budget will only last until mid-May of this year, after which point the United States is officially bankrupt unless Republicans and Democrats can agree to raise the debt ceiling. If it is not raised, the unthinkable happens: The United States is bankrupt and would be unable to pay its debts.

So it’s no surprise that the budget deficit dominates every conversation in Washington. And as Obama’s debt speech made clear, the subject of debt reduction has been forged into a political weapon that distorts Washington’s balance of power. While the Republicans have a majority in the House of Representatives, it angers them that it’s not very useful.

Obama was crystal clear that increased taxes on the rich would be part of his debt reduction strategy. He wants to eliminate tax loopholes and increase rates on the wealthiest taxpayers. He doesn’t intend to cut social services. Republicans, on the other hand, want to give the wealthy even bigger tax breaks, but a veto could hurt their position: A majority of Americans agree with Obama that the richest should pay more in taxes. Like the Free Democratic Party (FDP) in Germany, the Republicans are caught on the horns of a dilemma: In times of increasing deficits, it doesn’t pay to try to protect the privileged.