As soon as America reached its debt ceiling on Jan. 19, exhausting the $31.4 trillion in its credit line from the Treasury, all eyes and ears turned to the country’s financial future. Congress has until June 5 to get things in order, by either reducing spending or raising the debt limit. So far, neither political party seems willing to budge on its proposed way forward.
While the Democrats have suggested raising the debt ceiling to ensure that essential programs remain viable, Republicans say they will not take that idea into consideration until spending comes down, leaving conversations in a gridlock. And that has left many Americans worried about the fate of the essential, federally funded programs like Social Security, Medicare and SNAP benefits they rely on.
Some members of the GOP have come forth with ideas to balance the budget. As The Washington Post reported, the Republican-led House, steered by new Speaker Kevin McCarthy, is creating special panels to discuss Medicare and Social Security spending. One idea on the table is raising the age at which Americans can start claiming full retirement benefits from 66 or 67 to 70, which has been met with strong contention from Democrats and even some Republicans, including former president Donald Trump.
One other idea that has been floating around is a FairTax, what Vox deems a “radical plan” that would effectively impose a 30% national tax on most consumer purchases — including groceries, healthcare, rent and home purchases. A fact sheet from FairTax.org posted on the the Senate Finance Committee website notes that used goods, including homes, would not be subject to FairTax. “Registered” households would receive a prepaid monthly rebate, or “prebate,” to reimburse the tax they pay on necessities, up to the federal poverty level.
A vote on the measure is a concession McCarthy made to the holdouts in his party in order to sway a majority vote to make him speaker of the House, Vox reported. The idea has been popular among conservatives for the past several decades, though criticized by liberals and some economic experts as placing even more tax burden on the middle-class and creating unsafe black markets.
Democrats, on the other hand, have also shared some ideas for how to better fund America’s spending. In addition to calls to raise the debt ceiling, Sen. Joe Manchin (W.Va.) told CNN he would consider the “easiest and quickest” thing Congress could do, which would be to raise the income cap on payroll taxes for Social Security so that the country’s highest earners would have to contribute more to the program’s funding. As of now, each American worker and their employer both pay 6.2% of the worker’s wages, up to a taxable maximum $160,200 for 2023, in Social Security withholding. But million-dollar-a-year earners reach that around February every year, meaning they don’t contribute any additional dollars the other 10 months. President Biden has touted a payroll-tax expansion in his Plan for Older Americans.
Biden has so far said he will not negotiate anything with Republicans that would cut benefits for Americans. Manchin disagrees with that stance. “I think it’s a mistake because we have to negotiate. This is a democracy that we have. We have a two-party system,” Manchin told CNN. “Using the debt ceiling and holding it hostage hasn’t worked in the past.”
If Congress does not reach an agreement by June 5 and heads into default, there could be grave consequences, such as six million jobs lost and a 7% unemployment rate, according to a Jan. 23 report from Moody’s Analytics.
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