Federal Relations

July 25, 2011

Deficit Talks Continue…

Bipartisan deficit reduction talks broke down again over the weekend and congressional leaders are now writing their own proposals to avoid a government default in eight days (August 2nd).  Lawmakers could vote on their separate plans later this week, which may form the basis for a compromise.  The House Speaker will present a plan to House Republicans today with the goal of having legislation filed later in the day to allow a vote as early as Wednesday.  This proposal calls for a two-step process to raise the $14.3 trillion debt ceiling and cut spending.  The first debt limit increase, which seems likely to cover government borrowing through at least the end of the calendar year, would rest on discretionary spending caps for fiscal years 2012 and 2013, which could yield $1 trillion or more in savings over the next decade.  The plan also would create a bicameral deficit committee that would recommend more budget cuts, which would then get a vote in the House and Senate.  The second installment of increased borrowing authority will likely be contingent on Congress clearing the committee’s recommendations for additional spending cuts of $3 trillion to $5 trillion over the next decade.  The White House and Democrats would likely oppose that plan.

Meanwhile, the Senate Majority Leader does not appear opposed to two rounds of spending cuts or a bicameral committee, but has joined the White House in seeking a debt limit increase that would last through the 2012 elections and in opposing a short-term increase.  His plan is likely to call for a $2.7 trillion increase in the debt ceiling with equal spending cuts without any changes in entitlements programs or increases in revenues.  The time frame for a Senate vote is not clear, but could come by the end of the week.   The White House seems likely to back the plan that also could gain some GOP support in the Senate, but it would face resistance in the House if entitlement cuts are not part of the deal.  Details of the spending cuts have yet to be released.

Both the House and Senate proposals will likely use most of the $200 million in cuts that Vice President Biden and congressional negotiators agreed to earlier this year in deficit reduction talks, including cuts aimed at aid for needy students, such as Pell grants, and federal dollars for disadvantaged school districts.  One option that will not resurface in coming weeks is the “cut, cap and balance” plan (HR 2560) promoted by House conservatives, which the Senate rejected last Friday in a party-line procedural vote.  The bill would have made an increase in the debt limit contingent upon the passage of a balanced-budget constitutional amendment and deep spending cuts.  The measure’s defeat had been expected, but a vote on the plan was intended to show conservatives’ support for deep cuts, and was seen as a necessary step toward reaching a compromise on deficit reduction.