U.S. Debt Compromise: The Rich Are Getting Away With It

At the last moment, U.S. policy has prevented the government in Washington from lacking the money to pay their bills tomorrow. The U.S. has, therefore, only just escaped banana republic conditions.

The compromise that has been found is a bitter defeat for Barack Obama and damages the U.S. economy. This is because the U.S. president has adopted nearly all Republican demands: Despite the record deficit, there will be no tax increases, only spending will be cut to consolidate the budget.

Tax increases for high-earners and the rich would not affect the economy so deeply since they do not spend the majority of their income anyway; they save it. The wealthy, however, are completely exempt of responsibility for the sharp rise in U.S. debt after the financial crisis. Instead, significant cuts in state social security benefits are planned. Therefore, the income gap in the U.S. will continue to widen.

The Republicans can celebrate this compromise as a victory across the board: They have shown determination and increased the likelihood that Obama will not be reelected in 2012 because of the stagnating economy and constantly high unemployment. At long last the U.S. welfare state that the Republicans hate so much has been subjected to a bitter attack.

However, the compromise is also a result of Obama’s tactic of commending himself as the reconciler of U.S. politics. He wants to be a president who negotiates the gulf between the Democrats and Republicans through compromise. Ultimately, Obama is only playing into the hands of his political opponents.

The Republicans — especially the mighty tea party movement — will use every means to end the presidency of the alleged socialist Obama as soon as possible. They will not allow any sensible compromises. In truth, they do not want to reduce the debt; they want to get rid of the American welfare state as it was built up in the 1930s with Roosevelt’s New Deal and President Johnson’s Great Society in the 1960s.

The debt and deficit reduction under Republican presidency has been nothing but empty talk since Ronald Reagan’s presidency. It has never played a role in practical politics. The taxes were radically reduced under Reagan and Bush Jr., who dramatically increased spending, in particular for the military.

Less revenue and more spending have led to rising deficits. The fact that tax cuts are financed by higher growth has long since proven to be a conservative myth. Therefore, the Republican governments in power before Obama shoulder most of the responsibility for the increased debt burden. The state did not receive the necessary revenue because of their tax reductions. The debt ratio under Ronald Reagan (public debt as a percentage of gross domestic product) increased by 33 percentage points, under George Bush Jr. by 28 percentage points. The lack of revenue was then always touted as a reason to reintroduce the welfare state.

Obama should not have had to bow to pressure from the Republicans. It was quite legally possible to raise the debt limit by presidential decree. However, the Republicans would have had to complain to the Constitutional Court, but Obama would have gained time — time to prove to the American people that he is not holding himself and the country hostage. In addition, Obama should have made it clearer what aims the Republicans are actually pursuing and which policies they are fighting for earlier and with more force. However, his self-imposed role of the reconciler has prevented this.

If the House of Representatives and Senate approve the compromise in the coming days, the payment crisis in the U.S. will be averted for the time being. However, the political price that Obama must pay for this is high. The agreement exacerbates the economic crisis in the U.S. Worse still, the confidence in the governability of the world power the United States is strongly shaken.