Supposedly we have a deal on the debt ceiling and deficit reduction although we still don’t know if Senate and House leaders can get it passed. We’ll find out today or tomorrow. It’s a lousy deal no one regardless of party or political philosophy should like AND beyond avoiding default, it does more harm to the economy than good and make cost the country up to 200,000 jobs over the next year.
Here are the key features:
- 10-year discretionary spending caps generating nearly $1 trillion in deficit reduction; balanced between defense and non-defense spending are immediately enacted.
- The President is authorized to increase the debt limit by at least $2.1 trillion, eliminating the need for further increases until 2013.
- A 12-member Bipartisan committee is established tasked with identifying an additional $1.5 trillion in deficit reduction, including from entitlement and tax reform. The committee is required to report legislation by November 23, 2011, which receives fast-track protections. Congress is required to vote on Committee recommendations by December 23, 2011.
- An enforcement/trigger mechanism is established to force all parties – Republican and Democrat – to agree to balanced deficit reduction. If the committee fails, the enforcement mechanism will trigger spending reductions beginning in 2013 – split 50/50 between domestic and defense spending. Social Security, Medicare beneficiaries, and low-income programs are protected from any cuts caused by the trigger.
The immediate $1 trillion cut (spread over 10 years) includes $900 from capping discretionary spending and $350 billion in cuts to Defense spending (over 10 years).
When enacted, these cuts would reduce domestic discretionary spending to the lowest levels since the 1950s. But, as Jared Bernstein writes, “Why is that a good thing? Why are 1950s levels (relative to GDP) of investment, infrastructure, and research in medicine and innovation so damn optimal?” http://jaredbernsteinblog.com/a-few-more-comments-on-the-pending-deal/
Pell grants are protected.
Recommendations of the bipartisan committee will be given a fast track to a up-or-down vote in the House and Senate.
The bipartisan committee CAN consider entitlement reform and revenue-raising tax reform in deciding how to generate the $1.5 trillion of additional savings.
It there is no balanced deal, the President can use his veto to end the Bush Tax Cuts. (The obvious assumption is that Republicans will pass a bill making the Bush tax cuts permanent since they are scheduled to expire on 1/1/2013. Obama is saying that if there is no deal on additional deficit reduction, then he would veto the bill extending the Bush tax cuts that Republicans are expected to push through Congress. )
The trigger, but not the bipartisan committee, exempts Social Security, Medicaid, Medicare benefits, unemployment insurance, programs for low-income families, and military retirement.
Erza Klein says this about the trigger:
[I]t’s arguably the most important part of the deal. In his remarks on Friday, President Obama said he would support a trigger if it was done in “a smart and balanced way.” The implication was that it had to include tax increases as well as spending cuts, as a trigger with just spending cuts wouldn’t force Republicans to negotiate in good faith. The trigger in this deal does not include tax increases.
What it includes instead are massive cuts to the defense budget. If Congress doesn’t pass a second round of deficit reduction, the trigger cuts $1.2 trillion over 10 years. Fully half of that comes from defense spending. And note that I didn’t say “security spending.” The Pentagon takes the full hit if the trigger goes off.
In other words, Defense could be hit by $950 billion in cuts ($350 billion now and $600 billion if trigger goes off). The assumption is that Republicans would want to protect the Defense Department from such huge cuts. Would they? As Paul Krugman notes, “the G.O.P. has just demonstrated its willingness to risk financial collapse unless it gets everything its most extreme members want. Why expect it to be more reasonable in the next round?” http://www.nytimes.com/2011/08/01/opinion/the-president-surrenders-on-debt-ceiling.html?_r=1 And, what is to prevent Congress from restoring the cuts should we decide to fight a little war somewhere over the next 10 years?
Can the nonpartisan committee really propose raising taxes? As Klein notes, Boehner is telling his caucus that it can’t really do so. Klien’s explanation:
Boehner says (pdf) that the rules governing the committee “effectively [make] it impossible for Joint Committee to increase taxes.” Specifically, he’s arguing that using the Congressional Budget Office’s “current-law baseline” makes tax increases impossible, as that baseline assumes the expiration of the Bush tax cuts, and so, if you touched taxes at all, you’d have to raise taxes by more than $3.6 trillion or the CBO would say you were cutting taxes and increasing the deficit.
[The $3.6 trillion is what the Bush tax cuts will cost over 10 years if they are made permanent and don’t expire. Are you surprised to learn that the Bush tax cuts are MORE than the entire amount of cuts Congress has be arguing about in this entire debt ceiling deal. In other words, by just agreeing to eliminate the Bush tax cuts, Congress could achieve MORE than it is achieving with this whole deal if it simply passed legislation ending the Bush tax cuts now or simply agreed to do nothing to extend them. But then, that would be the simple solution.]
Boehner is misleading his members to make them think taxes are impossible under this deal. But make no mistake: The Joint Committee could raise taxes in any number of ways. It could close loopholes and cap tax expenditures. It could impose a value-added tax, or even a tax on carbon. The Congressional Budget Office would score all of this as reducing the deficit under a current-law baseline. The only thing that wouldn’t reduce the deficit is going after part of the Bush tax cuts. That means they’re likely to go untouched in this deal.
Now to believe that Boehner’s slight-of-hand will work, you have to believe that Republicans are so dumb they can’t see through his charade and/or they don’t read Klein.
So taxes increases are technically on the table even though Boehner says they really aren’t. Regardless, most Republicans in the House have pledged to oppose any deal involving raising taxes and members of the bipartisan committee know that. So, will the committee include tax increases when they know that taxes might be a deal killer? Probably not. That leaves $1.5 trillion coming exclusively from spending cuts which will most likely require deep cuts in entitlements, Social Security, Medicare, Medicaid, low-income programs and so on that are protected under the trigger but not from the recommendations of the bipartisan committee.
As Klein says, this “deal” is in effect the “lowest-common denominator lawmaking. There are no taxes. No entitlement cuts. No stimulus. No infrastructure. Less in actual, specific deficit reduction than there was in the Simpson-Bowles, Ryan, or Obama plans, and even than there was in the Biden/Cantor or Obama/Boehner talks.”
Bottom-line: I agree with Krugman who says the deal is a disaster for progressives, the Democratic Party and the country. “It will damage an already depressed economy; it will probably make America’s long-run deficit problem worse, not better; and most important, by demonstrating that raw extortion works and carries no political cost, it will take America a long way down the road to banana-republic status.” Source: http://www.nytimes.com/2011/08/01/opinion/the-president-surrenders-on-debt-ceiling.html?_r=1
This deal may cost 200,000 jobs over the next year
David Dayen at Fire Dog Lake provides some calculations showing the impact of the immediate $1 trillion in cuts will have on jobs.
“[The immediate cuts mirror] what House Speaker John Boehner got as a score for his revised bill. If we move to the bottom of the CBO analysis, we will see the total effect on the deficit: FY2012: $22 billion. FY2013: $42 billion.
So from now until next October, you’re talking about $22 billion in cuts. That’s about 1/4 of the $100 billion in cuts sought by House Republicans in the 2011 budget. That original House Republican budget for FY2011 was analyzed by Mark Zandi and Goldman Sachs, and they said it would cost anywhere between 700,000-1 million jobs. So if this deal cuts $25B in FY2012, I think it’s somewhat imperfect, but also somewhat reasonable, to assume that it’s a deal costing 175,000-200,000 jobs.” Source: http://news.firedoglake.com/2011/08/01/a-few-thoughts-on-the-debt-limit-deal/
Will it pass?
The Senate is expected to pass the deal with 70 or so votes. Expect a vote sometime today. See: http://blogs.abcnews.com/thenote/2011/08/abcs-jonathan-karl-jonkarl-reports-i-am-told-only-11-senate-republicans-are-poised-to-vote-no-on-the-debt-deal-that-sho.html
Right now, the outcome in the House is uncertain. Boehner will to get about 76 Democrats to vote for the deal in order to pass it since 80 to 100 Republicans are expected to vote against it. The Hill is posting a running whip count showing the possible votes as House members announce their intentions here if you want to watch the drama unfold: http://thehill.com/homenews/house/174649-whip-count-house-leaders-seek-votes-to-pass-debt-limit-deal
There is no word on the timing of the House vote. Boehner first has to round up enough votes. My guess is they will try to vote sometime tomorrow but who knows.