UPDATE: the House has passed the debt ceiling bill, 269-161. The Senate will take up the vote on Tuesday.
Negotiations between the White House, the vice president and Senate leaders ended with a deal late Sunday, and the only thing that’s clear is that everyone hates it. (Well, not everyone…)
Liberals are apoplectic that the deal doesn’t include revenues. Hawks are pissed that the deal includes triggers for massive defense cuts. It’s bad blood all around, with a source telling TRR negotiations inside the White House got ugly when President Obama threatened to kill the Bush tax cuts with a veto if necessary, to which an unnamed Republican in the room responded, “how do you know you’ll be president by then?” Apparently, the look he got from the president wasn’t pretty.
In the end, the deal appears to be something like the Reid plan, with a Mitch McConnell amendment negotiated with Vice President Biden. The deal won’t raise taxes right now, and it cuts around $1 trillion dollars in spending reductions over ten years. The deal is already boosting the futures markets in Asia, and it will likely boost the stock market in the U.S. as well. The National Journal has this take:
Obama lost on his push for higher revenue. Tax increases – even for favorite targets like corporate jet subsidies and oil companies (heavy on symbolism but relatively light on revenue) – were left to a special committee. That means Obama traded spending cuts upfront without a dime of guaranteed new revenue – already a flashpoint on the left.
Obama did protect Social Security, Medicaid, children’s health insurance and veterans from any cuts – governed by the new spending caps or the so-called super committee charged with finding at least $1.5 trillion in additional spending cuts. The deal specifically shields Social Security, veterans benefits, unemployment benefits, military pension and children’s insurance from cuts under the special committee jurisdiction.
Also, Obama won a 50-50 split in all domestic cuts between non-defense spending and allocations for defense, homeland security and the State Department. This amounts to $350 billion over 10 years and gives Obama an opportunity to press for more economical spending in the security sphere. Republicans say they will fight another day to ensure military readiness, training and availability of necessary weapons systems.
But the president opened the door to Medicare cuts. Even though they are limited to providers, Obama has put Medicare cost savings on the table at just the moment congressional Democrats cherished a clean shot at Republicans for backing a 10-year plan to transform the health care program for the eldery from fee-for-service to a voucher system to finance insurance purchases on the open market.
On the tax side, Republicans are certain the rules will nullify higher taxes. Democrats are equally convinced the magnitude of future spending cuts through caps or across-the-board sequestration will prove so politically unpopular Republicans will relent and raise taxes. That’s what happened in 1990, when sequestration-ordered cuts led President George Herbert Walker Bush to raise taxes in a budget deal reviled to this day by conservatives.
For Republicans, the victories are embedded in forcing Obama to agree to deficit-reduction with no explicit call for tax increases. They also won votes in both chambers on a balanced budget amendment to the Constitution and built what they regard as acceptable protections of future defense spending. They also eliminated a Democratic bid to count as savings $1 trillion in spending on wars in Afghanistan and Iraq that was unlikely ever to be spent. GOP unity was sorely tested and House Speaker John Boehner’s leadership clout is less sturdy than it was.
And there’s this:
Of the $917 billion in discretionary cuts on the table now, only $7 billon occur in this fiscal year. Another $3 billion will be cut in next year’s budget from the 2010 spending levels. That’s certainly a cut when compared to typical year-to-year spending increases that take inflation into account. But it also makes the deficit-reduction target in the out-years considerably larger than most House Republicans would prefer. In essence, Obama won a $900 billion debt ceiling increase for $10 billion in hard cuts over two years – with half coming from defense.
In the biggest win for President Obama, it does end this issue for the duration of the election season — a key goal — and the commission that will seek an additional $2.7 trillion in deficit savings can revisit the tax issue.
And as Ezra Klein points out, (and as I was tweeting earlier today) Democrats now hold the same whip hand over taxes that GOPers held over the debt ceiling: if they simply refuse to act, the Bush tax cuts will die in December 2012, regardless of the results of the election. That’s the scenario my source tells me the White House and Sen. Reid are planning on, and that would mean nearly $4 trillion in deficit savings. And since the trigger mechanism wouldn’t kick in until 2013, when the Bush tax cuts will theoretically be history, the deficit reduction will have been achieved, averting the need for additional cuts anyway.
The Beltway will see this as a win for the president, and a big loss for liberals, and the latter will agree with the second part. The White House has already begun pushing back on that, putting out a fact sheet designed to change perceptions of the deal from “capitulation” to worthy compromise. (Full text of the president’s statement at the end of the post). But according to TRR sources, the deal stripped out John Boehner’s more egregious requests, like Pell Grant cuts, and holds both Social Security and Medicare beneficiaries harmless (there may be future cuts on the provider side, but that’s not spelled out in this bill.) That seems to be the consensus even among wavering House Democrats.
And if the White House can make the case for ending the Bush tax cuts over the course of the next year and a half — a reisky proposition in an election year, but something they may be preparing to take the plunge, and the hits from Republicans, and do — they can win in the longer term what they lost in the short term.
Of course, now the question is whether John Boehner can steer the deal through the House. It’s certain to pass the Senate, now that Mitch McConnell has seized the stage and added his bits to it. That means he won’t filibuster, leading to what could be a big margin of victory in the Senate — which would put additional pressure on the House.
From the fact sheet released by the White House tonight:
BIPARTISAN DEBT DEAL: A WIN FOR THE ECONOMY AND BUDGET DISCIPLINE
The debt deal announced today is a victory for bipartisan compromise, for the economy and for the American people. The agreement:
- Removes the cloud of uncertainty over our economy at this critical time, by ensuring that no one will be able to use the threat of the nation’s first default now, or in only a few months, for political gain;
- Locks in a down payment on significant deficit reduction, with savings from both domestic and Pentagon spending, and is designed to protect crucial investments like aid for college students;
- Establishes a bipartisan process to seek a balanced approach to larger deficit reduction through entitlement and tax reform;
- Deploys an enforcement mechanism that gives all sides an incentive to reach bipartisan compromise on historic deficit reduction, while protecting Social Security, Medicare beneficiaries and low-income programs;
- Stays true to the President’s commitment to shared sacrifice by preventing the middle class, seniors and those who are most vulnerable from shouldering the burden of deficit reduction. The President did not agree to any entitlement reforms outside of the context of a bipartisan committee process where tax reform will be on the table and the President will insist on shared sacrifice from the most well-off and those with the most indefensible tax breaks.
Mechanics of the Debt Deal
- Immediately enacted 10-year discretionary spending caps generating nearly $1 trillion in deficit reduction; balanced between defense and non-defense spending.
- President authorized to increase the debt limit by at least $2.1 trillion, eliminating the need for further increases until 2013.
- Bipartisan committee process tasked with identifying an additional $1.5 trillion in deficit reduction, including from entitlement and tax reform. 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.
- Enforcement mechanism established to force all parties – Republican and Democrat – to agree to balanced deficit reduction. If Committee fails, enforcement mechanism will trigger spending reductions beginning in 2013 – split 50/50 between domestic and defense spending. Enforcement protects Social Security, Medicare beneficiaries, and low-income programs from any cuts.
Apparently, the $1 trillion in “cuts” are really $900 billion in discretionary spending caps, plus $350 billion in defense cuts, which the White House points out is the first cut in the defense budget since the 1990s. And again, the bill stripped out Boehner’s attempt to cut Pell Grants.
As for the “supercommission” — this from the White House fact sheet:
· The Deal Locks in a Process to Enact $1.5 Trillion in Additional Deficit Reduction Through a Bipartisan, Bicameral Congressional Committee: The deal creates a bipartisan, bicameral Congressional Committee that is charged with enacting $1.5 trillion in additional deficit reduction by the end of the year. This Committee will work without the looming specter of default, ensuring time to carefully consider essential reforms withoutthe disruption and brinksmanship of the past few months.
· This Committee is Empowered Beyond Previous Bipartisan Attempts at Deficit Reduction: Any recommendation of the Committee would be given fast-track privilege in the House and Senate, assuring it of an up or down vote and preventing some from using procedural gimmicks to block action.
· To Meet This Target, the Committee Will Consider Responsible Entitlement and Tax Reform. This means putting all the priorities of both parties on the table – including both entitlement reform and revenue-raising tax reform.
So that means the decision on revenues has been pushed down the road. Now here, we have two possibilities: the White House and Republicans will agree to overall tax reform that makes the Bush tax cuts irrelevant, or they let the Bush tax cuts sunset, and force Republicans to stand aside and watch them die.
More on the committee process, and entitlements:
· The Deal Includes An Automatic Sequester to Ensure That At Least $1.2 Trillion in Deficit Reduction Is Achieved By 2013 Beyond the Discretionary Caps: The deal includes an automatic sequester on certain spending programs to ensure that—between the Committee and the trigger—we at leastput in place an additional $1.2 trillion in deficit reduction by 2013.
· Consistent With Past Practice, Sequester Would Be Divided Equally Between Defense and Non-Defense Programs and Exempt Social Security, Medicaid, and Low-Income Programs: Consistent with the bipartisan precedents established in the 1980s and 1990s, the sequester would be divided equally between defense and non-defense program, and it would exempt Social Security, Medicaid, unemployment insurance, programs for low-income families, and civilian and military retirement. Likewise, any cuts to Medicare would be capped and limited to the provider side.
· Sequester Would Provide a Strong Incentive for Both Sides to Come to the Table: If the fiscal committee took no action, the deal would automatically add nearly $500 billion in defense cuts on top of cuts already made, and, at the same time, it would cut critical programs like infrastructure or education. That outcome would be unacceptable to many Republicans and Democrats alike – creating pressure for a bipartisan agreement without requiring the threat of a default with unthinkable consequences for our economy.
Looked at in total, the deal doesn’t look that bad. It caps rather than slashes spending, spread out over 10 years, and it includes real defense cuts; and it doesn’t take revenues off the table. Liberals may still hate it, but the answer to that, again, is to elect a better Congress in 2012.
Here’s the president’s statement tonight:
THE PRESIDENT: Good evening. There are still some very important votes to be taken by members of Congress, but I want to announce that the leaders of both parties, in both chambers, have reached an agreement that will reduce the deficit and avoid default — a default that would have had a devastating effect on our economy.
The first part of this agreement will cut about $1 trillion in spending over the next 10 years — cuts that both parties had agreed to early on in this process. The result would be the lowest level of annual domestic spending since Dwight Eisenhower was President — but at a level that still allows us to make job-creating investments in things like education and research. We also made sure that these cuts wouldn’t happen so abruptly that they’d be a drag on a fragile economy.
Now, I’ve said from the beginning that the ultimate solution to our deficit problem must be balanced. Despite what some Republicans have argued, I believe that we have to ask the wealthiest Americans and biggest corporations to pay their fair share by giving up tax breaks and special deductions. Despite what some in my own party have argued, I believe that we need to make some modest adjustments to programs like Medicare to ensure that they’re still around for future generations.
That’s why the second part of this agreement is so important. It establishes a bipartisan committee of Congress to report back by November with a proposal to further reduce the deficit, which will then be put before the entire Congress for an up or down vote. In this stage, everything will be on the table. To hold us all accountable for making these reforms, tough cuts that both parties would find objectionable would automatically go into effect if we don’t act. And over the next few months, I’ll continue to make a detailed case to these lawmakers about why I believe a balanced approach is necessary to finish the job.
Now, is this the deal I would have preferred? No. I believe that we could have made the tough choices required — on entitlement reform and tax reform — right now, rather than through a special congressional committee process. But this compromise does make a serious down payment on the deficit reduction we need, and gives each party a strong incentive to get a balanced plan done before the end of the year.
Most importantly, it will allow us to avoid default and end the crisis that Washington imposed on the rest of America. It ensures also that we will not face this same kind of crisis again in six months, or eight months, or 12 months. And it will begin to lift the cloud of debt and the cloud of uncertainty that hangs over our economy.
Now, this process has been messy; it’s taken far too long. I’ve been concerned about the impact that it has had on business confidence and consumer confidence and the economy as a whole over the last month. Nevertheless, ultimately, the leaders of both parties have found their way toward compromise. And I want to thank them for that.
Most of all, I want to thank the American people. It’s been your voices — your letters, your emails, your tweets, your phone calls — that have compelled Washington to act in the final days. And the American people’s voice is a very, very powerful thing.
We’re not done yet. I want to urge members of both parties to do the right thing and support this deal with your votes over the next few days. It will allow us to avoid default. It will allow us to pay our bills. It will allow us to start reducing our deficit in a responsible way. And it will allow us to turn to the very important business of doing everything we can to create jobs, boost wages, and grow this economy faster than it’s currently growing.
That’s what the American people sent us here to do, and that’s what we should be devoting all of our time to accomplishing in the months ahead.
Thank you very much, everybody.
National Journal: what to worry about now