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August 22, 2019

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The Policy Racket

Deal on debt limits coming down to short-term vs. longer-term fix

Debt crisis

Carolyn Kaster / AP

President Barack Obama meets with House Speaker John Boehner of Ohio, left, in the Cabinet Room of the White House, Saturday, July 23, 2011, in Washington, to discuss the debt.

Debt crisis

Senate Majority Leader Harry Reid, D-Nev., holds his hand up as he whispers to House Speaker John Boehner, R-Ohio,  during a photo opportunity in the House speaker's office before a meeting on the debt limit increase on Capitol Hill in Washington on Saturday, July 23, 2011. Launch slideshow »

The weekend started off with House Speaker John Boehner walking away from the President, and declaring that in Congress was where he and Senate Leader Harry Reid would strike a deal to save the country from defaulting on its debt.

By weekend’s end, Reid and Boehner were both threatening to go it alone.

Up until this weekend, the chief hang-up in negotiations was always whether or not to raise tax revenues, in addition to making cuts, as part of a debt deal. But now, it’s one of terms: short vs. long.

Boehner wants a short deal, five or six months long, and Reid wants a $2.7 trillion package that will take Congress through 2012, also without raising revenues.

But as split as the leaders were in their pronouncements Sunday, the two demands may not be completely irreconcilable.

While the President has been pushing for a “grand bargain”, the quartet of congressional principals — Boehner, Reid, Senate Republican Leader Mitch McConnell, and House Democratic Leader Nancy Pelosi — have been talking for a long while about using a graduated, step-wise motion approach to raising the debt limit instead.

Reid and McConnell, in fact, had drafted legislation for a proposal that would have instructed the President to raise the debt ceiling in three stages between now and 2013, all but guaranteeing Obama an unblocked path to exercise that authority: it’s based on the split Congress’ mutually assured inability to override a presidential veto of budget-based resolutions of disapproval.

Reid said last week that that framework was the only workable basis for any debt package at this stage of the game — and the $2.7 trillion deal may show just how he intends to make that work.

Republicans have been adamant that any increase to the debt limit be accompanied by at least an equal, dollar-for-dollar amount of spending cuts — potentially even cuts outweighing the debt ceiling hike, according to sources familiar with the negotiations, as the cuts would be stretched over a much longer term than the borrowing authority.

If the first step of Reid’s $2.7 trillion plan preserves the introductory $900 billion ceiling-raiser from the Reid-McConnell plan, it would need to be offset by about $1 trillion in cuts — but that could come exclusively from discretionary spending. Adding $900 billion to $1 trillion in wiggle room on the nation's debt limit is enough to extend the country’s borrowing authority through the beginning of next year.

But the next $1.7 to $1.8 trillion in cuts are harder, because if there’s no revenues to offset anything, the money has to come from mandatory spending.

The obvious question is: where. The not-so-obvious answer might be: wars.

Pelosi told reporters after meeting with Reid and Obama in the Oval Office that Reid’s plan protects Social Security, Medicare and Medicaid beneficiaries.

That’s a line that many politicians have been using lately, no matter what cuts they’re making to the programs — but not Pelosi. She’s maintained a public campaign to protect Social Security especially, calling on her fellow negotiators and those Democrats who said they were open to discussing changes to entitlements — including even Reid — to take a similar stand. So to have her speaking highly of the plan’s merits vis-a-vis those programs suggests they really may emerge largely unscathed.

That leaves defense spending, where economic analysts say that the country is poised to save $1.4 trillion over the next decade anyway from scaling back the wars in Iraq and Afghanistan.

Aides for Reid said the leader planned to spend Sunday night telephoning Senate Democrats and briefing them on the negotiations. Pelosi and Boehner had both planned all-conference meetings with their parties in the House for Monday afternoon to try gauge reaction to their plans.

Boehner addressed his House Republicans Sunday afternoon via conference call, he sounded hopeful — and though he’d threatened earlier in the day during a Fox News Sunday appearance to “go it alone...today” — Sunday came and went without Boehner releasing any details of his go-it-alone proposal. Furthermore, on that conference call, he sounded like someone who was closer to a compromise than a standoff.

"The path forward, I believe, is that we pull together as a team behind a new measure that has a shot at getting to the president's desk,” Boehner told House Republicans Sunday afternoon. “It won't be Cut, Cap, & Balance as we passed it, but it should be a package that reflects the principles."

Cut, Cap, and Balance is the budget-balancing framework the House has been pushing and recently passed. It orders up a constitutional amendment to balance the budget (the House will take that up this week; as of yet, it’s not on the Senate’s calendar) that would cap federal spending at 20 percent of GDP, a threshold Democrats argue is too low for a recovering economy in need of investment.

For the most part, Democrats — even those who have voted for balanced budgets in the past — hate the idea. But Republicans have been charging full speed ahead — which raises the question of how, exactly, they’re going to get a similar enough deal under the debt package to allow lawmakers to proceed.

If Reid doesn’t insist on outlining all the cuts that will add up to his $2.7 trillion package upfront (and that’s likely too serious an undertaking in the week that remains, unless cuts are drawn from just wars and discretionary spending), the greater part of them — and the greater part of the debt limit hike — would likely be dependent on a trigger, as they were in the original Reid-McConnell plan. That trigger could be the debt commission’s report, the President’s request for budget cuts, or some alternate proposal.

But, if that trigger isn’t airlocked — e.g., not dependent on a vote in Congress that could fail — it potentially leaves Boehner with an opportunity down the line to hold up the debt limit again, which he could use to make another, stronger case for Cut, Cap, and Balance (stronger because the country will have already cut a significant amount from discretionary spending, leaving Democrats with less to counteroffer).

But underlying all these potential complexities is one simple fact: there’s nine days now until the country defaults, and global markets are already having negative reactions to the notion that it might.

That’s part of why Democrats say they’re pushing so hard for a longer-term debt limit increase: because the credit rating agencies have already warned lawmakers that if it looks like the U.S. is playing politics with its borrowing authority, or only addressing the problem with a temporary gloss, they’ll downgrade our credit rating anyway.

That, lawmakers agree, would make life far more expensive, as interest rates on everything from credit cards to home mortgages spike.

Lawmakers also have only a few days left to produce written legislation of whatever proposal wins the day, because the Senate needs almost a week to get a bill this complicated though.

Likewise in the House, Boehner has to worry about a potential mutiny from Republicans who say they won’t vote for a debt limit package that doesn’t make enough cuts, no matter what.

While lawmakers wait for the final details, the news that the measure will protect entitlements without raising taxes will certainly at least pique the interest of those on the far left and far right who had been excoriating lawmakers for seeming willing to strike a compromise on those issues.

It’s not such a clear salve for U.S. markets, which will post the first reaction to all this weekend’s development when they open at 9 a.m.

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