Sunday, July 31, 2011

'Dealer Folds At 17!' - The Tentative Debt Deal Explained

A tentative deal on the debt ceiling and the deficit appears to be in the making as Senate Minority Leader Mitch McConnell bypassed Majority Leader Harry Reid and went directly to the White House late yesterday.

McConnell shrewdly realized that the president's main priority right now is his re-election and that everything else is negotiable. So the new, tentative plan extends the debt ceiling beyond the 2012 presidential and congressional elections.

The president gave up the notion of those huge tax increases - pardon me, 'new revenues'- that he was so in love with before, undoubtedly figuring that he can slap the electorate with them after he safely slithers back into the White House.He's already admitted as much openly.

It also includes a vote on a balanced budget amendment, which was meaningless concession for the president since he knows most of the Democrats in the Senate won't vote for it.

The deal, negotiated late Saturday night, raises the nation's debt limit would rise in two steps by about $2.4 trillion and spending would be cut by a slightly larger amount. The first stage — about $1 trillion — would take place immediately and the second later in the year.

Ah, but the devil's in the details. Automatic triggers for that second tranche is a large part of what's at issue. So far, that's all to be decided later this year by a joint congressional committee, 6 Republicans and 6 Democrats. And since they probably won't agree, the second set of cuts is likely to be held up indefinitely, since President Obama and the Democrats just got a new, higher limit on their credit card.There are, after all, the people who sat there for two years with clear majorities in both Houses of Congress and didn't bother to pass a budget,something unique in the history of our republic.And the president didn't bother them in the least about it.

Right now, here's what at issue on the triggers, according to Jennifer Rubin at the WAPO.

If a new congressional commission introduces a plan totaling at least $1.5 trillion in cuts by Thanksgiving and it’s passed by Christmas there are no across-the-board cuts. Or, if a balanced budget amendment is passed and sent to the states, then across-the-board cuts are avoided. However, if there is no commission package passed AND the balanced budget amendment is not passed and sent to the states, then across-the-board cuts of $1.2 trillion including Medicare and defense (the details of which aren’t final) go into effect. If the across-the board-cuts go into effect, the debt ceiling is only raised $1.2 trillion (likely insufficient to keep the government operating for long), meaning “we could do this all over again, depending on economic growth.” In other words, if we went to sequestration the total debt-ceiling increase would be $2.1 trillion in two doses.

Let's translate some of this. The new congressional committee isn't likely to come up with much of a plan as I mentioned and the Balanced Budget Amendment is dead in the water because of the Senate Democrats, so across the board cuts are almost a certainty. The Democrats will want the cuts to come from defense and from things like restructuring the tax code to generate those 'new revenues' and to hit the oil companies and other businesses harder that actually generate revenue and create jobs. The Republicans are going to want to cut government spending,things like ObamaCare, the salaries and departmental budgets for the president's czars, tax breaks that favor the president's union allies and certain elements of foreign aid.

There's also what I'll call the Obama factor, the president operating in bad faith and simply ignoring any part of the deal he doesn't feel like going along with by using a signing statement. That's happened before.

Without iron clad triggers and agreements beforehand on where the cuts will be this is all a temporary fix, and as Moody's said, it doesn't necessarily protect America's AAA credit rating anyway.

It remains be seen whether these pesky details are going to be worked out or if they're simply going to be glossed over in the frenzy to cut a deal.

The bottom line is this - the Republicans have demonstrated that they will do almost anything to avoid shutting down the government. The Democrats have no such scruples, and they have the advantage because they're willing to do something which the Republicans won't.

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