Deficit Talks Near Deadline

June 22, 2011

Bipartisan negotiations to agree on a plan to reduce the federal budget deficit while increasing the federal debt limit appear to be reaching a critical stage this week. The talks, led by Vice President Joe Biden and including a bipartisan group of lawmakers from both the House and the Senate have given themselves until the end of June to reach a deal—or announce that such a deal does not seem possible.

Should a deal not be reached, and the U.S. begins to default on the bonds it has issued, small businesses are likely to bear the brunt of the economic distress, with much tighter credit, higher interest rates, and declining property values as predicted by economists.

NSBA has called on policymakers to move quickly to address the long-term drivers of the ballooning U.S. budget deficit. NSBA believes that a thorough overhaul of the U.S. tax code could greatly enhance economic growth, thereby contributing to federal tax collections. Further, overall federal spending must be constrained. Over the coming decades entitlement programs (such as Medicare) will add hugely to federal spending. NSBA strongly opposes increased payroll taxes to fund these programs, so the programs themselves must be restructured and reformed to produce significant savings over the long term.

As the deadline nears for addressing the debt ceiling increase, negotiators appear to be focused on creating a set of “triggers” that would automatically cut spending (or potentially increase revenue) in the absence of Congressional action to reduce the deficit. If properly designed, these mechanisms could create the necessary incentives for action. However, there also have been proposals to move forward with a series of short-term measures. These measures would only cut spending a bit, but also would only increase the debt ceiling a bit, so that the issue would need to be addressed on an ongoing, “revolving” basis.

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