Here is the deal that seems to be emerging from negotiations between Obama and the Republicans as of this afternoon according to various sources:
Cuts: $2.7 trillion in discretionary spending cuts. $1.3 trillion in cuts will be agreed to now. A bipartisan “Super-committee” will be formed and charged with developing a plan that cuts the deficit by an additional $1.5 trillion or more. The super-committee will issue its plan before year-end, perhaps before Thanksgiving.
Trigger: There will be a “trigger” mechanism that begins making automatic, across-the-board cuts if the super-committee’s plan — or some variant — isn’t adopted. The trigger cuts will hit the Pentagon budget the most. Medicare providers but not beneficiaries will see cuts as will other programs.
Two items are still being negotiated:
1) The exact ratio of Pentagon to non-Pentagon cuts in the trigger – Democrats want 50% from the Pentagon, Republicans want less;
2) Democrats want to exempt programs for the poor from the cuts.
Also Democrats say –if tax reform doesn’t happen through the super-committee, President Obama will veto any extension of Bush tax cuts when they come up at the end of 2012.
1) The exact ratio of Pentagon to non-Pentagon cuts in the trigger – Democrats want 50% from the Pentagon, Republicans want less;
2) Democrats want to exempt programs for the poor from the cuts.
Also Democrats say –if tax reform doesn’t happen through the super-committee, President Obama will veto any extension of Bush tax cuts when they come up at the end of 2012.
Debt ceiling: The debt ceiling will be raised by $900 billion upon passage of the plan and another $1.5 trillion next year for a total of $2.4 trillion, enough to get the government through 2012. Further increases will be done through the McConnell mechanism (the president will essentially be able to raise the debt ceiling on his own, but Congress will be able to issue resolutions of disapproval if and when he does so) or through the passage of a Balanced Budget Amendment which is not likely.
Bottom-line: The Republicans win, Democrats lose, the country is damaged.
The final deal will give Republicans just about everything they wanted and Democrats little of what they wanted. We will still have to sit through a vote on a Balanced Budget Amendment, which will be defeated in the Senate. We will still have to sit through debt-ceiling votes, although they will be just meaningless political theater. It will be all spending cuts and no revenue increases. The spending cuts that will kill jobs and harm the economy. The country’s debt rating will still probably be downgraded so interest rates will go up. But, we will not have a default. It’s not much, but I guess it is….not much.
This deal will do nothing to help the economy or create jobs. The best scenario is that the deal does not do significant harm. The most probably result from this deal is that the economy slips into a second recession and that unemployment climbs back above 10%. If that happens, Obama’s re-election chances will be in serious doubt unless the Republicans nominate a true nut case as their candidate or Obama is able to somehow convince voters that Republicans are to blame for the economic disaster because they were controlled by the Tea Part nutters.
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