Tax increases threaten debt talks

The president challenged Congress, in a Friday morning speech, to compromise and do something big to reduce long-term deficits as time runs out to raise the nation's debt limit.

He said that Congress has run up the “credit card” and “those bills have to be paid” otherwise there are adverse consequences for all Americans. “Effectively a tax increase on everybody.” 

“We could end up with a situation for example where interest rates rise for everybody all throughout the country,” Obama said in the televised speech. 

America has always been the bellwether on having risk-free government securities and the interest rates on individual debts are tied to that. A default would send those interest rates soaring.

“That too will transfer over to things like mortgage rates, like automobile rates and car loans and ex cetera,” Tony Cherin, a San Diego State University professor, said.

Cherin said the contagion could spread to the private sector, like Exxon bonds for example.

“The rates on (Exxon bonds) will go up. Well how are they going to pay for the increased interest they have on those bonds? Raise gas prices,” Cherin said. “All of this is going to cause extremely deleterious effects on the general population.”

However, the argument doesn't sway the Republican party. They have said they will not support taxing the wealthy.

“We asked the president to lead, we asked him to put forward a plan. Not a speech, a real plan. And he hasn't. And we will,” House Speaker Rep. John Boehner said in response to Obama's Friday speech.

The president said that more sacrifices cannot be asked of the middle class and the vulnerable in society.

“We should not be asking (the middle class) to make sacrifices if we're not asking the most fortunate in our society to make sacrifices as well,” Obama said. 

Paul Downey oversees operations San Diego Senior Centers and said a default could put seniors out on the street.

“The political shenanigans going on in Washington D.C. affect people here in San Diego on main street,” Downey said. “And enough is enough. We basically have to stop the game playing.”

One argument is the “game” is playing for political positioning for the 2012 presidential election. Both sides stressed that default is not an option.

Now that White House talks have failed, Obama has told leaders in both parties to come back to him in 36 hours with a plan that Congress can support.

Categories: KUSI