Today House Majority Leader Eric Cantor (R-VA) withdrew from the debt ceiling negotiations led by Vice President Joe Biden. Cantor said that a framework has been established for making necessary spending cuts, but that he could no longer proceed with negotiations if Democrats insisted on tax increases. Democrats have demanded that any deal which includes spending cuts that impact the poor and middle class must also include tax increases, preferably on the richest Americans. Cantor claimed tax increases would harm the economy, and also said he did not have the votes to pass any tax increases through the House.
For now the talks seem to be at an impasse. Cantor says that President Obama would need to resolve the issue of the tax increases. If President Obama tries to move forward with a deal that does not include some tax increases, then he is likely to face stiff opposition from Democrats on Capitol Hill. Democrats already feel as though they have given enough in the deal through spending cuts. Speaker Boehner could attempt to make a deal separate from Cantor, but Boehner has also said that he is opposed to any tax increases. Until someone “budges” there is no hope for a deal being struck at this time.
The Treasury Department has said they can keep paying on the United States debt up until early August. However, congressional leaders said they would like to have a deal done by July 4th. In addition, various bond market experts have said the market could start reacting negatively in July if no deal is made. Investors prefer to anticipate bad news as opposed to reacting to it.
If a deal is not reached in the coming weeks the stock market will surely start to feel the pain, and the 401(k) accounts of millions of Americans will be affected as well. In the long term if a deal is not reached it could have severe economic consequences. Economic experts have said a default on the United States debt could negatively affect the United States credit rating, raise interest rates for all borrowers, and possibly even lead to another economic depression.
Of course, there is still a chance that one side will give in once the market really starts to go down. A number of political analysts believe Republicans will ultimately concede the fight once their biggest donors from Wall Street put pressure on them. Nearly everyone agrees that not raising the debt ceiling will have negative economic effects, but the politics of the matter currently stand in the way.
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