Friday, July 29, 2011

What will the final debt ceiling deal include?

Now that Boehner’s plan, and also maybe Boehner’s speakership, is toast, what kind of debt ceiling deal are Democrats and Republicans likely to reach?  Erzra Klein at the Washington Post says the following will likely comprise the final deal which will be a mixture of the Boehner, Reid, and McConnell proposals.

Cuts: $1.2 trillion in discretionary spending cuts, with somewhat more of the total falling on defense spending than in Boehner’s bill and somewhat less of the total falling on defense spending than in Reid’s bill.

Committee: The bipartisan “Supercommittee” will be formed and charged with developing a plan that cuts the deficit by $1.8 trillion or more. Unlike in Boehner’s plan, future debt-ceiling increases will not require passage of the committee’s plan. But unlike in Reid’s plan, there will be a “trigger” mechanism that begins making automatic, across-the-board cuts if their plan — or some variant — isn’t adopted.

Debt ceiling: The debt ceiling will be raised by $1 trillion upon passage of the plan. 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.

Wild cards: Boehner’s plan requires a future vote on a balanced budget amendment. I’d expect that will be part of the final deal.

As Klein points out, 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.  And, we will still have 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.

Of course, Klein could be wrong and the U.S. could just default sometime next week and things will get really bad, really quick.

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