The United States has reached its legal debt ceiling of $14.3 trillion. It is now borrowing from U.S. government funds to meet its responsibilities. Congress has until August 2, 2011 to vote to increase the debt limit.
Republicans control the House of Representatives. They say they will not agree to increases in the debt limit unless there are reductions in government spending. Their budget plan calls for large reductions in spending on Medicare.
Medicare is the health insurance program for the elderly and disabled. The federal government pays most of the health care costs. Working people pay for the program in payroll taxes. Beneficiaries pay monthly premiums for the medical part of the program. They also buy additional insurance to pay for costs that Medicare does not cover.
The Republicans want to change the plan. Their plan is for payments (vouchers) to eligible people enabling them to buy private health insurance. Democrats claim the payments would not be enough. Democrats would reduce Medicare costs by lowering payments to health providers.
The sides are far apart. They agree they will not be able to resolve the differences by August. Experts say the parties will have to find savings in other programs, such as farm subsidies. They will also have to agree on future cuts in “entitlement” programs such as Medicare and Medicaid.
The Republicans do not want to raise taxes to pay for these programs. The Democrats want to raise taxes on wealthy taxpayers.
Most observers agree that not raising the debt ceiling would be a disaster for the economy. The Senate and the House of Representative have to reach agreement. The stakes are high and the time is running out.