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Die Zeit, Germany

Wealthy Americans Get Off 'Scot-Free'


"This compromise is a bitter defeat for Barack Obama and hurts the American economy. Less revenue and more spending have led to rising deficits. The idea that tax cuts would pay for themselves with higher economic growth has long since proven to be a fairytale of U.S. conservative politics."


By Fabian Lindner


Translated By Stephanie Miller


August 1, 2011


Germany - Die Zeit - Original Article (German)

President Barack Obama: Will the U.S. debt ceiling agreement damage his chances for another term?


FINANCIAL TIMES VIDEO: Weak growth shakes investors around the world, Aug. 4, 00:07:09RealVideo

At the last minute, U.S. lawmakers have prevented Washington from not having the money to pay its bills tomorrow, thus allowing the United States a narrow escape from banana-republic-like circumstances.


This compromise is a bitter defeat for Barack Obama and hurts the American economy because the president agreed to almost all of the Republican demands: In spite of a record budget deficit, there will be no tax increases, and budget consolidation will be accomplished with spending cuts alone.


Increasing taxes for the rich and those with higher incomes wouldn't have such a significant effect on the economy, since such individuals save large portions of their income rather than spending it. But the wealthy have been completely absolved of any responsibility for the U.S. debt, which has risen so sharply since the financial crisis. Instead, significant cuts in government social services are planned. This will widen the U.S. income gap even further.


With this compromise, the Republicans can celebrate a complete and total victory: They have shown perseverance and increased the likelihood that Obama will not be reelected due to the sluggish economy and persistent unemployment. And finally, the U.S. welfare state they hate so much has sustained a major blow.


The compromise is also a result of Obamas tactics of celebrating himself as the conciliator of American politics. He would like to be a president who closes the gulf between Democrats and Republicans. Ultimately, however, Obama only plays into the hands of his political enemies.


Republicans - particularly the mighty Tea Party movement - will use all possible means to end the presidency of allegedly-socialist Obama as quickly as possible. No reasonable compromises are possible with them. Their true goal is not to reduce the debt but to eliminate the American welfare state, as built up by Roosevelt in the 1930s and President Johnson with his Great Society in the 1960s.


Since Ronald Reagan, Republican presidents have given no more than lip service to debt and deficit reduction. It has never played a role in practical politics. Under Reagan and Bush Jr., taxes were radically reduced alongside massive spending increases, in particular for the military.



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Less revenue and more spending have led to rising deficits. The idea that tax cuts would pay for themselves with higher economic growth has long since proven to be a fairytale of U.S. conservative politics.


Republican governments, which were in power before Obama, therefore bear the most responsibility for the increased debt burden. As a result of their tax cuts, the government lost badly needed revenue. Under Ronald Reagan, the public debt-to-GDP ratio rose by 33 percentage points and under George W. Bush, by 28 points. Thereafter, the lack of revenue has always been used to justify cuts to the welfare state.


There was no need for Obama to bow to pressure from the Republicans - and there was most certainly a legal basis for raising the debt ceiling by presidential decree. The Republicans would have had to file a complaint with the Supreme Court, but it would have won Obama time - time to prove to the American people that he and the country cannot be taken hostage. In addition, Obama should have clarified earlier the real goals of the Republicans, and more emphatically clarified the policies that they are fighting for. But his self-imposed role of conciliator prevented this.


If the compromise is passed by the House and the Senate, the crisis of U.S. insolvency will be averted for the moment. But the political price Obama will pay is high. The agreement exacerbates the U.S. economic crisis, and more importantly: Global confidence in the governability of the United States - a world power - has been badly shaken.



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[Posted by WORLDMEETS.US Aug. 5, 2:10pm]




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