A nightmarish half year of bitter squabbling and talks over raising the $14.3 trillion debt ceiling came to a close Tuesday afternoon, as the Senate followed the House’s lead and voted to approve a bipartisan plan to extend the Treasury’s borrowing authority through early 2013 while committing the government to reducing the deficit by more than $2.1 trillion over the coming decade.
Staring at a midnight deadline for averting the threat of the first default on U.S. debt and obligations in history, the Senate voted 74 to 26, with 45 Democrats joining 28 Republicans and one independent to pass the legislation, which will be sent on to President Obama for his signature later today. The measure immediately grants the Treasury $400 billion of additional borrowing authority and provides other incremental increases through the coming year.
The bruising battle between Obama and the Democrats on one side and congressional Republicans and their Tea Party allies on the other in the end produced far less in long term debt reduction than appeared possible at one time. None of the reforms to the tax code and entitlement programs including Social Security and Medicare that most budget experts say will be essential to bending the government’s cost curve were included.
Only a couple of weeks ago, Obama and House Speaker John Boehner were close to a potentially historic “grand bargain” of nearly $4 trillion in long term savings, as much as $800 billion in fresh tax revenues and reforms of Social Security and Medicare to slow the rate of growth of those programs before they run out of money or eat too deeply into other programs. But that plan – similar to one recommended by a presidential fiscal commission last December – blew up in a barrage of partisan recriminations, and now Congress and the administration are left with a compromise that Boehner and Obama freely acknowledge is far from what they would have preferred.
Yet even as Congress and the administration rushed to put the finishing touches on the compromise of spending cuts, extended borrowing authority for the government and no tax increases before a long summer break, lawmakers and experts were beginning to look to the fall, when even more contentious budget and tax battles are looming.
“I think our long national nightmare is just on hold and will start up in all its glory in the fall,” said Robert Bixby of the Concord Coalition, a budget advocacy group.
A new, super joint committee of Congress will be mandated to figuring out how to come up with as much as $1.5 trillion of the overall savings in the coming decade -- here’s where the battle will be won or lost over true tax and entitlement reform. The 12-member House-Senate committee-- evenly split between Democrats and Republicans – will conduct no-holds barred talks over ways for stabilizing the growth of the debt. Those potentially can include reductions in benefits for Social Security and Medicare beneficiaries, reforms to the federal tax code to eliminate wasteful deductions and loopholes, and even raising tax rates – although Republicans have made it clear from the start that tax hikes would not be an acceptable option.
House Majority Leader Eric Cantor, R-Va., and other Republicans have argued that tax increases would be “impossible” for the commission to find. “The big win in this measure is that despite the insistence of the President and his party, there are no tax hikes,” Cantor said on Monday. “With so many people out of work, with the middle class hoping for more jobs, the last thing we need right now are tax hikes.” But centrists and liberals agree that the rate of deficit growth cannot be stemmed without them. “No thinking person in America believes that we can really solve this problem long term without raising revenues,” said Sen. Mary Landrieu, a Democrat from Louisiana.
While the Republicans have prevailed so far in their opposition to any tax increases, Obama will have a new playing card for the 2012 election campaign from this week’s deal. If the economy begins to pick up next year and there is less pressure for more stimulus of any type, Obama’s ace in the hole will be expiration of the Bush-era tax cuts on Jan. 1, 2013. The president and Obama can argue on the campaign trail that markets needn’t worry about a deadlocked super committee not being able to deliver on a deal for achieving more savings, since expiration of the tax cuts would save the Treasury a whopping $4 trillion over the coming decade.
Obama insists that any long term solution to the deficit must be balanced, meaning a combination of cost controls on entitlements and higher taxes on the wealthiest Americans and corporations. But however the scenario plays out, the deliberations of the new joint committee will be gut wrenching and politically divisive. And the failure of the committee and Congress to agree on a package of reforms and savings would automatically trigger a tough budget enforcement mechanism that woud impose across the board cuts in spending – equally divided between military and domestic programs – as well as reductions in Medicare payments to providers.