Republicans lose budget battle, but US fiscal war may continue

(By Deutsche Welle) In the last-minute deal that averted a default, Republicans won no substantive concessions from the White House. After taking a hit in the polls, the Grand Old Party is licking its wounds and contemplating what’s next.

For more than two weeks, Republicans went to the mat in Washington’s latest partisan fiscal battle in a push to defund President Barack Obama’s signature Affordable Care Act (ACA). But on Wednesday, the Tea Party caucus couldn’t hold the line any longer, with many moderate Republicans agreeing to cut their losses and support a bill to fund the government and raise the debt ceiling through the New Year.

“We fought the good fight, we just didn’t win,” Republican Speaker of the House John Boehner told conservative radio talk show host Bill Cunningham in Cincinnati, Ohio.

Under Wednesday’s agreement, the federal government will receive funding through January 15, while the debt ceiling has been raised until February 7. In exchange, Republicans secured only a token concession, which tightens income verification rules for Americans applying for health care subsidies under the ACA.

“Our drive to stop the train wreck that is the president’s health care law will continue,” Boehner said in a press release.

Although Boehner had encouraged his party to support the bill that the president would eventually sign, only 87 Republicans heeded the speaker’s call and voted for it. In the Senate, where the bill originated, 18 Republicans cast their ballots in favor of the legislation.

“The real question going forward is the same question as this time,” Theda Skocpol, author of “The Tea Party and the Remaking of Republican Conservatism,” told DW. “When will other Republicans, conservatives who want to operate within normal governing procedures, when are they going to stand up to these folks?”

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Little sign of progress on US debt deal

(By Deutsche Welle) Negotiations in Washington to raise the nation’s debt limit have faltered on the partisan political divide. Credit rating agencies and Asian countries have warned the US to adopt responsible fiscal policies.

Republicans and Democrats have reached an impasse in an escalating ideological battle over raising the US debt ceiling, with the rating agency Moody’s threatening to downgrade Washington’s credit worthiness if the two sides fail to find a compromise by August 2 – a move that could destabilize the global economy.

“It’s the foundation of our financial system,” US Federal Reserve Chairman Ben Bernanke said during a recent congressional hearing. “The notion that it would become suddenly unreliable and illiquid would throw shock waves through the entire global financial system.”

Tax increases versus spending cuts

Both political parties agree in principle that the US must increase its $14.29 trillion (9.8 trillion euros) debt ceiling in order to continue paying its bills and avoid a short-term default on its financial obligations. Negotiations, however, have reached a stalemate due to a partisan divide over the appropriate balance between taxes and spending cuts.

Republicans have preconditioned any debt limit increase on parallel cuts in spending while at the same time rejecting tax increases across the board. Democrats, meanwhile, have been reluctant to make cuts in social programs such as Medicare and Medicaid that could alienate their electoral base, proposing instead to raise taxes on wealthier Americans.

Republican House Speaker John Boehner and President Obama appeared on track to bridge the divide through a “grand bargain” that would have included a $3 trillion reduction in spending and $1 trillion in tax increases. Rank-and-file Republicans led by House Majority Leader Eric Cantor, however, rejected the deal due to the tax hikes.

In lieu of the politically risky “grand bargain,” Cantor reportedly called for a short-term solution rooted in spending cuts. Cantor’s proposal prompted Obama to dig in his heels against Republican demands in what has become a volatile game of political brinkmanship.

“The problem is that there is no party discipline,” Josef Braml, an expert on American politics at the German Council on Foreign Relations, told Deutsche Welle.

“Obama can’t get his liberals on board. On the other side, it’s difficult for Republicans to get the Tea Party guys involved because they would commit electoral suicide if they agreed to tax increases.”

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