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The Congress of the United States finally voted to raise the statutory debt limit of the USA’s federal government, but only after threatening not to do so for months and waiting until the very last moment to do so. In the absence of this action, America’s Treasury would have had to slash all federal payments by 40% this week to avoid defaulting on a portion of the $US 8.3 trillion in federal debt held by investors and governments all over the world. The U.S. government makes 80 million payments per month, including state pension checks for the elderly, salaries for public servants, income support for farmers, etc. A radical cut in these payments or a debt default would have plunged an already fragile US economy and perhaps the entire world economy back into a deep recession.



Raising the US debt limit is normally a routine affair – it has been done more than 40 times since 1981 without controversy – after all, it simply authorizes the US government to pay its bills -- for decisions taken by its Congress on taxes and spending. Unfortunately, the Republican Party, one of the USA’s two major political parties, threatened to crash the world economy to advance its extreme right-wing ideology by refusing to raise the debt limit unless President Obama agreed to adopt its policy of economic austerity. Worse, many right-wing Republicans held out for an amendment to the US Constitution to require a balanced budget each year as the price for raising the limit. This backwards policy would make every future recession worse by mandating spending cuts when economic stimulus is needed.



The US labour movement denounced this undemocratic strategy for what it was – political extortion. With control of just on house of Congress, the Republicans were willing to risk catastrophe to win. Sadly, over the weekend, the Obama administration gave into the political blackmail, agreeing to a $US 3.0 trillion deficit reduction package over 10 years to secure a 2-year increase in the debt limit. Fortunately, the plan does not include a balanced budget amendment – just the promise of a vote on such an amendment (which will fail).



The deficit reduction plan adopted was grossly unfair, providing no new tax revenues to help close the budget deficit caused by reckless tax cuts and overseas wars launched during the administration of President George Bush. Despite the public’s broad support for “shared sacrifice,” the Republicans refused to close wasteful loopholes in the corporate tax system or ask the wealthy to pay one penny more in taxes as part of the deal. They even refused to end a rule that allows hedge fund managers to treat their salaries as capital gains income, permitting them to pay lower tax rates than the janitors and secretaries that work in their companies. Fearing a new financial crisis if the limit were not raised, President Obama and the Democrats reluctantly agreed to an unfair spending-cut-only plan that targets programs for the poor and working class.



This shocking state of affairs has posed a dire threat to the jobs and living standards of millions of workers who are represented by UNI’s affiliates in the USA. It comes at a time when the recovery of the US economy has stalled and Republicans have launched an all-out attack on the American labour movement. In more than 23 states, some 800 legislative proposals have been introduced to repeal or restrict the labour rights of American workers, particularly its public sector workers. America’s unions and a broad progressive coalition have been fighting back and winning many of these battles. But in some states, the collective bargaining rights of government workers have been gutted – most notably in Wisconsin and Ohio. But in both those states, the fight is not over.



· In Wisconsin, workers and their unions have launched special elections to “recall” or remove from office six Republican state senators who voted to strip the states teachers and public employees of their union rights. The right-wing supporters of Gov. Scott Walker retaliated by forcing recall elections for three Democrats. So over the next two weeks, voters will go to the polls in nine Wisconsin cities. If the unions are successful – in spite of an advertising blitz funded by a huge amount of out-of-state money from corporate-funded interests groups – the Wisconsin senate will switch back to the Democrats. This would block any further attacks from Governor Walker and set the stage for his recall election next January.



· In Ohio, the labour movement collected 1.1 million signatures on a petition to stage a referendum on the anti-collective bargaining legislation passed by the Ohio legislature earlier this year. Under the state’s constitution, citizens can demand a referendum on legislation they oppose if enough voters demand a vote in the next general election. The unions collected twice as many signatures as needed for this “citizens’ veto”, setting up a repeal vote in November. A full-fledged campaign is underway with polls showing a repeal of the law winning by a two-to-one margin.



The unions in the USA face other battles at the national level as well. The Republicans are refusing to approve President Obama’s appointments to the National Labor Relations Board and are threatening to cut off the agency’s funding unless it reveres a ruling against the Boeing aircraft company for retaliating against one of its unions for striking -- by shifting production to a non-union facility in South Carolina.



And just last week, the GOP cut off funding for the Federal Aviation Authority, forcing it to cease most of its operations (except for air traffic control). The Republicans objected to an attempt by the Obama administration to make it easier for airline workers to organize unions. The administration had reversed an old decision by the Reagan administration to unfairly count non-voting employees in union recognition elections as “no votes.” So rather than respect the democratic principle that a majority of those voting should win an election, the agency remains closed, which has led to lay-offs of tens of thousands of workers working on airport construction projects. It is also costing the government millions of dollars as airport taxes go uncollected.



At a time of mass unemployment in the USA – with official joblessness at 9.2% and the unofficial rate at more than 16% -- the Republican austerity agenda makes no sense whatsoever. The jobs crisis (caused by the global financial crisis in 2008) led to the huge federal deficit, not the other way around. Budget cutting at this time is counterproductive – massive cuts in infrastructure spending and programs that help working people will not only increase unemployment and worsen the long-term financial position of the USA. Unemployed workers don’t pay taxes and require the assistance of social safety net programs. Indeed, the loss of nearly a million of jobs by state and local government employees over the past year due to state-level austerity has already reduced the economic growth rate to less than 1.5% this year, suggesting that the economy is already heading back into recession.



As UNI Global Union and the global labour movement have argued for the past two years, the shift of the G-20 and the OECD towards fiscal austerity since 2010 has been foolish. The policy has utterly failed in Britain and threatens to destroy the Eurozone with its application to Greece, Ireland and Portugal. With Japan also struggling to recover from two decades of deflation and the devastation of recent natural disasters, the last thing the global economy needs right now is more austerity. Leaders everywhere have forgotten the lessons of the 1930s when premature fiscal tightening prolonged the Great Depression.



Once employment recovers, any long-term efforts to achieve ‘fiscal consolidation’ should be undertaken with equity. The out-of-control bankers whose speculative gambling caused the global financial crisis must pay their fair share to help spur recovery. And increased tax revenues must be part of the answer – not just spending cuts. A crucial first step to achieve this equity and to raise this revenue would be a global Financial Transactions Tax. The tax could finance public investment and job creation in the short term and deficit reduction in the long term, while discouraging a return to destructive casino capitalism.



UNI calls on the U.S. government and all other governments to focus on the most immediate crisis – the jobs crisis. Massive public investment and job creation programs are needed now. Economic growth and rising wages secured by workers with collective bargaining rights are the keys to restoring balance to government finances – not reckless austerity.