The payroll tax hike that kicked in Jan. 1 is already pinching many Americans’ pocketbooks and is expected to take a substantial toll on the economy. Economists anticipate the two-percentage point increase will discourage consumption and shave more than 1 percent of growth from the first quarter of 2013.
The Obama administration and Congress allowed the payroll tax cut to expire as part of the New Year’s Day deal to avoid the fiscal cliff by extending Bush era tax cuts for all but the wealthiest Americans. - Read more at CNBC
FITCH ISSUES ANOTHER DOWNGRADE WARNING Fitch Ratings agency warned Congress on Tuesday that the U.S. could risk another credit downgrade if lawmakers fail to raise the debt ceiling in a timely manner. In its warning, Fitch cautioned that even if Congress narrowly avoids another debt ceiling crisis, the country could lose its coveted triple-A rating in the absence of a credible deficit reduction plan. - Read more at CNBC
GEITHNER: TIME IS RUNNING OUT Outgoing Treasury Secretary Timothy Geithner informed Democratic and Republican congressional leaders on Monday afternoon that the U.S. will begin defaulting on its obligations as early as mid-February and urged lawmakers to raise the $16.4 trillion borrowing limit as soon as possible. Geithner has used “extraordinary measures to keep the government’s lights on since the government technically bumped up against the debt ceiling on New Year’s Eve but said the Treasury would not be able to stave off default much longer. - Read more at The Hill
DEMS BLAST GOP’S “PRIORITIZATION” PLAN Some Republican lawmakers are arguing once again that a default on the U.S. debt wouldn’t be the worst thing if the Treasury prioritized debt service to make sure the most important bills are paid first. They are dusting off an idea first proposed by Sen. Pat Toomey, R-Pa., during the last debt ceiling debate in 2011.
Toomey has argued that as long as the Treasury meets its obligations to the government’s biggest creditors – including China and Japan – and keeps essential government agencies and services operating, the government could muddle through until Congress and President Obama finally reach a compromise to raise the debt ceiling. But Democrats dismiss the idea out of hand.
“This proposal to prioritize payments to foreign creditors over those to seniors, families, and veterans is the wrong way to go and it’s an absolute nonstarter in the Senate,” said Senate Budget Committee Chairman Patty Murray, D-Wash. “Anyone concerned about the devastating impact hitting the debt ceiling would have on our economy and our credit rating should work with Democrats to do the responsible thing and raise the debt limit so the government can pay the bills we’ve already accrued.” Read more at Talking Points Memo