Democrats and Republicans finally agreed on a deal to raise the debt limit Sunday, less than 48 hours before the nation was set to hit its borrowing limit. The deal resulted in a clear “victory for the cause of smaller government” and for conservatives who held the debt ceiling — and the American economy — hostage for more than two months. The deal does nothing to help with the biggest problem facing America: anemic job growth and a faltering economy. In fact, by putting a noose on public investments and tightening the squeeze on the middle-class, the deal goes in the wrong direction.
Despite those concessions, many conservatives were still hesitant to endorse the plan, believing they could extract an even better deal. Utah Sen. Mike Lee (R), a proponent of the Balanced Budget Amendment, and presidential candidate Mitt Romney (R) both denounced the plan, even as other conservatives indicated their support. Meanwhile, progressives from Nobel Prize-winning economist Paul Krugman to members of both the Congressional Black and Progressive caucuses immediately announced opposition to the plan on grounds that it cut spending to vital programs and jeopardized economic growth.
So why have a deal? Because if the alternative is marching the country to the economic Armageddon where conservatives in the House of Representatives had us headed, with their refusal to raise the debt limit, the deal is better. But other than that, this is a deal that does nothing for the economy and jobs and, in fact, may lead to higher budget deficits resulting from feeble growth.
THE DETAILS: The deal, which Congress still must pass, includes an immediate $400 billion increase in the debt ceiling (followed by another $500 billion subject to a motion of disapproval in Congress) in exchange for $1 trillion in spending cuts over the next decade, most of which were agreed upon in the bipartisan debt meetings led by Vice President Biden, and one-third of which must come from defense spending. But unlike the balanced approach sought by the president, this deal includes no new revenues — no tax increase on the wealthiest Americans, no closing of corporate tax loopholes, no end to subsidies to oil companies. Instead, it reduces domestic discretionary spending to its lowest level since President Eisenhower was in office at a time when the loss of government jobs at the state, local, and federal level is holding back an already modest economic recovery. It also fails to extend unemployment insurance or the payroll tax cut, programs that are beneficial to millions unemployed and middle- or low-income Americans. The little good news for low- and middle-income Americans is that the deal preserves federal Pell Grants that aid low-income college students and protects Social Security, Medicaid, and programs benefiting low-income Americans (though not Medicare) from sharp spending cuts at a later date.
HOW IT WORKS: The deal institutes a combination of debt limit increases and deficit reduction in two parts. A $400 billion increase combined with $1 trillion in cuts occurs immediately, followed by another $500 billion increase subject to a motion of disapproval in Congress (which President Obama could simply veto if it managed to pass). Later, it will gives Congress another shot at finding $1.2 to $1.5 trillion worth of deficit reduction dollars – by establishing a bipartisan Super Committee. The committee, made up of six Republicans and six Democrats (three each appointed by the four party leaders in the House and the Senate), must report a plan by Thanksgiving, and Congress must approve the plan by Christmas. If the plan is not agreed upon in both chambers or is vetoed by the president, or if Congress does not pass a Balanced Budget Amendment, the deal includes a “trigger” that will force $1.2 trillion in spending cuts in exchange for an equal debt hike. Those spending cuts will be divided evenly between defense and all non-exempt, non-defense spending, with the aforementioned protections for Social Security, Medicaid, and other entitlement programs going into effect. While Medicare could be exposed to cuts if the trigger is used, cuts will be to provider payments, not to actual benefits.
A PROPOSAL FOR GOING FORWARD: Where can progressives go from here? How do we restore “balance” to this discussion? The second round of cuts will depend on the actions of a special congressional committee — which will consist of 12 members of Congress: six from each party, six from each house. They are assigned the task of coming up with $1.5 trillion of deficit reduction over the next 10 years. While the committee is charged with finding a net decrease in the deficit of $1.5 trillion, there’s nothing stopping it from actually finding more than that in combined revenue increases and spending cuts and then putting what’s left over to the important task of job creation. Democrats must make sure that those individuals selected to serve on that committee are committed to raising revenues and focusing on what Americans want: getting the economy growing and creating jobs. Infrastructure investment or an extension of unemployment benefits, for example, could mitigate some of the negative economic impacts created by sharp spending cuts. Should the plan agreed upon by Obama and Republican leaders pass, Democrats should use the Super Committee it creates to push for policies that will create jobs and institute much-needed investments into America’s future, while also insisting that an overall deficit reduction package is balanced, fair, and effective.
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