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House Passes Increase in Debt Ceiling

Obama and Congress marginally closer to a resolution

Q. What are the consequences of this budget bickering?

A. Any solution, or lack of a solution, will have widespread impact. If no deal is reached and the nation can't pay its bondholders after Aug. 2, the market likely will react by raising interest rates. That means higher rates for consumer credit cards and home mortgages, a drop in stock and bond values, and potentially a drag on the fragile economy.

"A failure to raise the debt ceiling would have a catastrophic effect on every citizen and probably precipitate another recession," said Thomas E. Mann, senior fellow at the Brookings Institution.

If the underlying imbalance between spending and revenue isn't solved, the debt will grow as a percentage of the nation's economy. In European countries where that already has happened, it has caused political and budget upheaval.

"We need to get serious about changing the way we spend money here in Washington," said Boehner. Restraining spending can boost the economy by making a better environment for businesses to create jobs, he said.

Social Security, Medicare and other programs could be cut under any deal.

Q. What's the schedule for sorting this out?

A. Aug. 2 is several days away, but any deal must pass the House and then the Senate. Each chamber has procedural rules that add days to the process.

Obama had pushed for a “grand bargain” — a large agreement to cut spending and increase taxes that would trim projected federal spending by up to $4 trillion over the next 10 or 12 years. But that approach is less likely now. Instead, House and Senate leaders each are pushing for different smaller deals. Each would use a two-step process in which the debt ceiling is raised along with some spending cuts, followed by another round of spending cuts later.

Q. Does it matter to older Americans whether there is a grand bargain or a mini-bargain?

A. All the deals would cut spending on federal non-security programs that need annual appropriation votes by Congress. That $1 trillion cut could hit home for seniors, said David Certner, AARP legislative policy director.

“Those are potentially deep cuts, which will affect some programs we care about — housing and food programs that seniors rely on, and other services,” Certner said.

The latest deals also likely would include defense spending cuts, though much of those reductions would have happened anyway as two expensive wars are finished up.

A major difference between the grand or smaller bargains is the impact on taxes and on Social Security and Medicare. A smaller deal is unlikely to include tax hikes, because Republican House members have steadfastly opposed the idea.

The sweeping deals would likely cut $500 billion or so from Medicare and Medicaid. And they likely would change the way Social Security cost-of-living increases are figured. Certner said the change would start at only about $40 a year in lower Social Security checks but would grow, meaning thousands of dollars less for seniors over their lifetimes.

Next: Why do we have a debt ceiling? >>

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