Raising taxes on wealthy must be part of debt limit deal to help U.S. avoid disaster, Yarmuth says

If Congress is to cut funding for services aimed at the poor and working class, then America’s wealthiest citizens should “share in the sacrifice” and pay higher taxes, Democratic U.S. Rep. John Yarmuth of Louisville said.

Yarmuth said on Tuesday’s edition of Pure Politics that Democratic and Republican leaders seem to be making progress on agreeing to cut federal spending as part of a bill to raise the nation’s $14.3 trillion debt ceiling by August.

But he said he’s increasingly frustrated that Republicans have dug in against ending tax cuts for the richest bracket of Americans, as well as balking at closing tax loopholes on certain industries, including oil companies and subsidies for corn-based ethanol production.

“So it’s kind of like anything that’s going to increase revenue is off the table,” Yarmuth said around the 1:30 mark in the video. “This has been my complaint for a long time. Republicans in Congress seem to believe that there’s only one side to the balance sheet — that the only side is the expenditure side.”

Yarmuth responded to several of his Republican colleagues, who previously said on Pure Politics that raising taxes on anyone in this economy would be counterproductive.

“There is no real world evidence that that is the case,” Yarmuth said.

He pointed to tax cuts in the federal stimulus bill that Congress passed in 2009 and said essentially, they didn’t work.

“Has it proved productive? Has it increased job growth? Not particularly,” Yarmuth said.

Congress must raise the government’s debt limit from $14.3 trillion before August or risk defaulting. That would cause an economic chain reaction affecting everything from global stock markets to individuals’ credit card bills.

“The ultimate worst case scenario is there’s an economic collapse — a financial system collapse — throughout the world,” Yarmuth said around 4 minutes into the interview. “And that is not just a remote possibility.”

In the United States, the government won’t be able to borrow more money, forcing the federal government to essentially choose what not to pay for anymore.

And to avoid default, the first responsibility is to pay its lenders — just like any family trying avoid losing their home would have to keep up their mortgage payments.

“We would have to pay China before we pay our troops. We would have to pay China before we pay our senior citizens’ doctors,” he said around 4:45.

In the meantime, interest rates for the government go up, which then compounds the deficit spending as a higher percentage of the annual federal budget is eaten up by those interest payments.

“That in turn is going to raise interest rates throughout the system. So Anybody who has credit cards and anybody who has adjustable rate mortgages — those interest rates go up,” Yarmuth said.