Congress and The Debt
The Debt Deal is in and Congress steps out until September
Congress finally did it. The debt ceiling has been raised for the 74th time in United States history. According to the Congressional Research Service, “Ten of those times have occurred since 2001.” The media is claiming Republicans and Democrats both had to compromise to strike this deal and neither party is 100% content with the agreement.
Most outside of Congress only know the outline of the deal; very few are disclosing the actual details of the plan. The Huffington Post reported, “President Barack Obama and Republican congressional leaders reached a historic agreement Sunday night on a compromise to permit vital U.S. borrowing by the Treasury in exchange for more than $2 trillion in long-term spending cuts.” That’s all well and good, but what exactly is the deal?
The first phase of the plan provides some quick relief to the economy. It immediately increases the debt ceiling by $400 billion which will allow the United States to continue paying necessities such as military salaries, interest on existing loans, and Medicare. This initial increase simply allows the government to keep paying its bills; to avoid default.
The second part involves a second raise in the debt ceiling by another $500 billion. Now here is where the compromising starts to come into play. This second increase was passed according to the BBC as a “political gesture and a symbolic rejection of the increase by conservatives in Congress.” It is symbolic because although the plan allows Congress to vote against this increase, President Barack Obama plans to veto any such vote. So it seems this second increase will happen whether Republican congressmen want it or not. Did Republicans read the fine print of this bill before they signed it?
The next steps in the debt plan get a bit messy. While these first two increases are enacted, it is the government’s job to determine how it will meet the overall goal of $2.1 trillion in spending cuts over the next 10 years. There are some general guidelines in place such as another $917 billion in spending cuts which is set to start in October. However, the overall long-term details of how this will be achieved have been left to the new congressional committee that is to be formed.
The new Super Congress, also being referred to as the new Super Committee, is set to be assembled in November. For more information on this Super Congress and its layout please refer to the article Super Congress in Old Congress Out featured here on the BQB.
This special joint committee of 12 people will contain 6 Democrats and 6 Republicans from the House of Representatives and the Senate. The purpose of this new Super Congress is to determine where to cut $1.5 trillion from to reach the overall goal.
Although officials claim the Super Congress will not be allowed to increase taxes, they will be allowed to makes amendments to the tax code in order to provide additional revenue. So essentially they can not raise the current taxes directly, but they can create all new taxes to bring in more money. That’s a nice little loop-hole they found isn’t it?
The Super Congress is anticipated to make these decisions by this coming holiday season. Once these decisions are made, it will be put up for a vote by the original Congress. The Congress will only be able to vote for or against the Super Committee’s plan- no amendments to the plan will be allowed. This provision was put in place to ensure whatever decision is reached by the Super Committee will be accepted hands down.
But what if the Congress rejects the plan of this new Super Committee? Well, then automatic spending cuts will take place in January 2012. These automatic cuts have already been decided on and are meant to be very hash; intended to make both political parties cringe at the thought. The cuts are planned to be so extreme that Congress will have no other option other then accept the plan of the Super Committee- the lesser of two evils.
Nonetheless if they do vote against it, these automatic trigger cuts will affect defense funds. These cuts would not only affects the military but the entire Department of Homeland Security. According to the New York Times, “The deal will take a big bite out of the Pentagon’s budget. Close to half of the overall cuts, not counting interest savings, will come from defense and related areas.”
Other automatic cuts to be put in to effects if Congress rejects the Super Committee’s plan are reductions in Medicare. But please don’t worry because as the BBC reported, “Healthcare for the poorest and pension payments would be spared cuts.”
The final part of the deal must occur before the end of 2011 and is a balanced budget amendment to the constitution. This amendment must be voted on by the House of Representatives and the Senate; it will require that in the future, federal spending could never exceed revenue. Sounds like a great idea. But there is a catch.
The decision will require a two-thirds majority vote from the House and the Senate and is being seen as another “political gesture on the part of fiscal conservatives ahead of an election year.” If it is the same type of “political gesture” as mentioned previously in the deal, citizens can be pretty sure it is destined to fail.
If it does pass it will allow President Obama to request another $1.5 trillion increase in the debt ceiling- that definitely sounds like a balanced budget, doesn’t it?
There is one more very important aspect of the bill which needs to be mentioned. All of these increases and spending cuts will wards off another government shutdown until 2013, right after the 2012 Presidential election; ensuring President Obama will not have to deal with another possible government shutdown in the middle of his re-election campaign. If you remember this is exactly what he wanted all along- so thank you President Obama for your compromise!
It does not seem this deal was much of a compromise. Any negotiations included in the plan are regarded as “political gestures.” These provisions are only included as a courtesy, but are designed to fail- the deal guarantees it! Doesn’t sound like much of a deal, does it? With Congress on vacation until September, it will be interesting to see what happens when they return.