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May 16^th 2011 Deadline

By Children’s Home Society of Florida Foundation

In February of 2010, the federal debt limit was set by Congress at $14.294 trillion. Treasury Secretary Timothy Geithner indicates that the United States will reach that debt limit on May 16th, 2011. Through various internal borrowing strategies, Secretary Geithner believes that there will not be an actual default on U.S. bonds until August 2nd, 2011. However, the Federal Government may face funding problems by late July if there is no expansion of the debt limit.

Three Sets of Negotiations

Facing a serious economic problem if the debt limit is not expanded, there are at least three sets of negotiations underway in Washington.

• First, the “Gang of Six” Senators from both parties are still attempting to move forward with a bill that implements the recommended solution by the 2010 Presidential Fiscal Commission.
• Second, at the request of President Obama, Vice President Joseph Biden is meeting with House and Senate leaders of both parties.
• Finally, Senate Majority Leader Harry Reid (D-NV) disclosed this week that Senate Budget Chair Kent Conrad (D-ND) has prepared a new proposed compromise plan. The proposal by Sen. Conrad is to increase taxes in an amount equal to the budget cuts. In effect, the proposal is 50% tax increases and 50% budget reductions.

The Skeptics

Minority Leader Mitch McConnell (R-KY) was skeptical that the “Gang of Six” plan would succeed. He stated, “With all due respect to the Gang of Six or any other bipartisan discussion going on in this issue, the discussions that can lead to a result between now and August are the talks being led by Vice President Biden.”

House Speaker John Boehner (R-OH) spoke May 9th to the Economic Club of New York. He indicated that tax increases were not acceptable and that the deficit plan should instead focus on spending reductions.

In response to the comments by Boehner, White House Press Secretary Jay Carney suggested that the Speaker is “holding the US economy hostage.” Press Secretary Carney indicated that there needs to be flexibility in order to produce compromise.

Assessment

Majority Leader Reid continued the discussion later in the week and noted that it would be essential to have some tax increases. He stated that it “can’t all be done with spending cuts.

“House Majority Leader Eric Cantor (R-VA) is part of the discussion group with Vice President Biden. He indicated that he cannot disclose the specifics of the negotiations. However, in his view, House Republicans continue to support the spending reduction plan introduced by Rep. Paul Ryan (R-WI).

Editors Note: Your editor and this organization take no specific position on these comments. It is widely expected that the discussions on increasing the federal debt limit will lead to a compromise before the August deadline. The Republican negotiators continue to seek a solution that involves spending cuts. It now appears that Democratic negotiators are moving to a proposal with 50% tax increases and 50% budget reductions. Final negotiations are likely to produce a result that reduces federal spending and may include tax increases.

Conclusion

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Filed under: Taxation | Tagged: Economic Club of New York, Eric Cantor, Gang of Six, John Boehner, Kent Conrad, Paul Ryan, Timothy Geithner, US Debt Limit | 7 Comments »