The gov’t has finally reached a deal on the debt limit and a lot of people are curious about what the deal contains. So let’s go over some of the details now.
The deal increases the debt ceiling and also cuts spending in the federal budget. It does so basically in two stages. In the first stage:
-The deal cuts about 917 billion dollars from the federal budget over the next 10 years. The cuts are in discretionary spending and will come from a variety of federal programs, including defense, which will see its budget trimmed by about 350 billion dollars. Major entitlement programs such as Medicare, Medicaid and social security will not be cut.
-The deal raises the debt ceiling by 900 billion dollars.
-The first stage does not include any tax increases or closings of tax loopholes.
The second stage includes the following:
-Creation of a bipartisan fiscal commission whose sole purpose will be to identify and recommend an additional 1.2 trillion dollars in deficit reduction.
-This fiscal commission or “Super committee” as it is being called will be made up of 12 members of Congress. Its members will be split evenly between republicans and democrats; 6 members from each party.
-There will be a total of 6 Congressman and 6 Senators on the committee.
-The members will be chosen by their respective body and party leaders. So Speaker of the House Boehner will pick 3 Republican House members, and Minority Leader Pelosi will pick 3 Democratic House members. Senate Majority Leader Reid will pick 3 Democratic senators and Minority Leader Mitch McConnell will pick 3 Republican senators.
-The committee will have until November 23, right around Thanksgiving, to produce a plan and present it to congress. Any plan produced by the committee will enjoy “fast track” status. That means Congress will not be allowed to filibuster, or stall, the plan or add any amendments to it. The plan will go to Congress for a straight up or down, simple majority vote.
-Congress will then have until December 23rd to vote on any proposal made by the committee.
-Now, in order to motivate the committee to produce a plan, and not only any plan, but one that has a fair chance of passing the Congress, this debt deal establishes a so-called trigger mechanism that will go into effect if the committee is deadlocked and cannot produce a plan. Or, if the committee produces a plan that is not passed by Congress. So basically if the committee fails to accomplish its sole goal. If the committee does not reach an agreement or does not reach an agreement that passes Congress, 1.2 trillion dollars of across-the-board spending cuts will automatically go into effect. These cuts would be divided equally among defense and non-defense spending. While programs like Social Security and Medicaid would be exempt from the cuts in that trigger, other programs like certain aspects of Medicare, as well as infrastructure and education would not be exempt. The rationale behind this trigger is that if the super committee fails to reach an agreement that can pass through Congress, deep, across-the-board cuts will take place in programs that are important to both democrats and republicans alike.
-Now, in this stage, the president will also be able to raise the debt ceiling once more without a vote in congress. If the committee fails to reach an agreement, the president will be able to raise the debt ceiling by another 1.2 trillion dollars. So along with the 900 billion from the first stage, this means the president will be able to increase the debt ceiling by at least 2.1 trillion dollars overall as a result of this deal. This increase is expected to give the federal budget enough room so that another debt ceiling increase will not be necessary until early 2013, well after next November’s presidential election.
Now that a deal has been reached, the debate is centering on who won and who lost politically during the negotiations. Now, it’d be hard to argue that most of the republican demands went unmet. The president originally wanted a separate up or down vote on the debt ceiling. But Republicans wanted to link this issue with the larger issue of deficit reduction, and in the end, got their way. The president originally demanded that any cuts in spending be accompanied by increases in tax revenue. Specifically, the closing of tax loopholes for wealthy individuals and corporations. Again, the republicans refused and in the end, they got their way. I also would have liked to see the trigger contain the threat of tax increases. As I think tax increases to republicans are a little more analogous to what spending cuts are to democrats. Cuts in defense spending are also near and dear to republican’s hearts. But tax increases would be far greater motivation I believe than cuts in defense. Plus, I don’t know that we need to use cuts in defense as a threat for one party over another. Cuts in defense affects all Americans, not just republicans. But all in all, I’m willing to be optimistic that the trigger will not be needed at all.
In fact, the only demand of the president’s that did get met was the demand that any raise in the debt ceiling be large enough so that another vote on raising the ceiling won’t be necessary until after next year’s presidential election. The president wanted to make sure that the next debate over this issue would be free of the posturing and bluster that invariably comes with a presidential election season.
Many people are complaining that the president conceded too much and didn’t negotiate as hard as he could of. At this point, I think that would appear to be the case. However, I think the final chapter will be written this fall when the committee makes its findings and/or recommendations public. The way the committee works together (whether amicably or otherwise), the type of agreement they reach (if they reach one), and the action that is then taken on that agreement, will greatly influence what happens from that point forward. It will also serve as the final analysis on who the winners and losers are politically in this whole fight, and establish a certain amount of momentum going into next year’s presidential election. The main thing to remember however and the main goal of this committee is that whatever comes out of it should make the country stronger and benefit the country as a whole. Let’s hope that in the end, that is remembered above than short term politics.