Debt Deal Talks Heading into the 11th Hour
The budget and debt-limit negotiations are approaching the 11th hour. Congressional leaders and the President continue negotiating over a deficit-reduction package, the size of which is still up in the air. Estimates have ranged from a “small package” of somewhere between $1 and $2 trillion to a larger deal of about $4 trillion, both over ten years. Some details of the discussions can be surmised from a presentation that House Majority Leader Eric Cantor (R-VA) gave to his caucus on 7/12.
But it seems that each day brings a flurry of new developments and proposals over how to raise the debt ceiling. For a while, there was talk that a “mini-deal” would consist of what was left of the low hanging fruit: a switch to the chained CPI and more discretionary cuts, most likely with a large portion coming from non-defense spending and other changes to some mandatory programs -- such as spectrum incentive auctions and changes to federal retiree benefits.
Last week, Speaker Boehner (R-OH) and President Obama had discussed the possibility of a "grand bargain" that would save roughly $4 trillion over ten years that would touch entitlements as well as tax reform. Over this past weekend, Speaker Boehner then said that the "grand bargain" was dead. In Monday's press conference, President Obama voiced his willingness to take “significant heat” from his party in order to reach a $4 trillion deal. Reports indicate that entitlement reforms, such as raising the Medicare entitlement age (see here for our analysis of this issue), means testing Medicare and Social Security and moving to the chained-CPI have been floated in negotiations, but it's hard to know at this point what is still on the table. There is also a long list of health care cuts offered by Rep. Cantor such as Medigap reform, reform rural hospital programs and reducing bay debts.
Yesterday, Senate Minority leaders Mitch McConnell (R-KY) floated a proposal that would give the President more or less the authority to raise the debt limit three times (which have sparked sharp rebuke from many conservatives) this year through the use of three short term increases. The Congress would be allowed to prevent an increase with a two-thirds majority vote, which is highly unlikely.
Chairmen of the Senate Budget Committee Conrad (D-ND) also released a blueprint yesterday for a Senate budget resolution (read more about that on our blog here), although the full details are not yet known but are expected to be released soon.
Time is running short and it's not necessarily clear that we're getting closer to a deal. But a deal must happen and it should include both an increase in the debt limit and meaningful deficit reduction. It is absolutely imperative that lawmakers raise the debt ceiling as soon as possible. But they also need to enact the beginnings of a comprehensive fiscal plan (or perhaps even a full plan). Failing to do either could seriously jeopardize the financial strength of the U.S. in the future.