Defaulting on U.S. debt would be a “mistake” and lawmakers shouldn’t use the borrowing limit as leverage to force needed government spending cuts, said Thomas J. Donohue, president of the U.S. Chamber of Commerce.
“It would be a mistake to default on the debt” because doing so would lead to “so many unforeseen circumstances that that would be a bad thing to do,” Donohue said in an interview with Bloomberg Television’s Peter Cook for “Capitol Gains,” which airs Jan. 13.
The U.S. reached the statutory borrowing limit on Dec. 31, and the Treasury Department is using what it terms “extraordinary” measures to finance the government. The Congressional Budget Office estimates those steps will be exhausted by mid-February.
House Speaker John Boehner, an Ohio Republican, has insisted that any increase in the $16.4 trillion borrowing limit be accompanied by a dollar-for-dollar cut in new government spending. President Barack Obama said it’s the responsibility of Congress to raise the debt limit and he won’t negotiate with Republicans over their demands for conditions for acting, as he did in 2011.
Their positions create the prospect for a standstill similar to the one a year-and-a-half ago in which a last-minute accord wasn’t enough to prevent a downgrade of the nation’s credit rating by Standard & Poor’s.
The August 2011 deal produced legislation for $2.1 trillion in spending cuts over 10 years. As a result “we got $2.1 trillion of expanded debt,” Donahue said. “Now we’re facing a fundamental reality” that lawmakers and Obama “just have to turn down the rate of growth” in spending.
Last week, Congress voted to postpone for two months the start of the automatic spending cuts, known as sequestration, that was agreed to in 2011.
Concern about government spending and the insolvency of Medicare -- projected by the program’s trustees to occur in 2024 -- should be enough to motivate action by Congress and the president on deeper cuts, Donahue said.
“We shouldn’t use, we shouldn’t have to use the debt ceiling or sequestration or other issues to do it,” he said.
The chamber executive said he was concerned that “we get everybody to simply look at the numbers and understand reality” because “nobody up there, nobody in the White House, nobody wants to cut spending.”
While the chamber, the largest U.S. business lobby, doesn’t have to disclose all of its spending during the 2012 campaign, it spent at least $36 million, according to the Center for Responsive Politics. In most cases, the chamber backed Republican candidates.
Although Obama has insisted on more revenue as a condition for further spending cuts, Donohue said “there’s not enough money with wealthy people in this country” to solve the nation’s fiscal problems.
Donahue said the increase in tax rates in individual income of more than $400,000 that Congress approved last week is “affecting a huge number of small and medium-sized businesses” whose “taxes have really gone up.”
Commenting on the planned debate this year in Congress on simplifying the tax code, he said, “If there’s no spending fix, it’s going to be very hard to get a tax thing that provides any revenue.”
He didn’t rule out supporting an overhaul of the tax system that raises more revenue. Still, finding more revenue would be difficult because “we’ve already gotten rid of most of the deductions” taken by the highest earners, he said.
Donohue called Jack Lew, the White House chief of staff whom Obama nominated today to be the next Treasury secretary, a “tough guy.”
He added: “But a tough guy is easier to negotiate with.”
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