Federal Relations

July 26, 2011

Competing Debt Proposals Released

The Senate Majority Leader has released draft legislation last night that would raise the debt ceiling through 2012 while trimming the deficit by $2.7 trillion over 10 years.  The package would boost the debt limit by $2.4 trillion immediately, would not include any new revenues (taxes), and would not affect Medicare, Medicaid, or Social Security benefits.  The Senate has not yet announced when they might vote on this legislation, but the August 2nd deadline set by the US Treasury is looming.  Meanwhile, the House Republicans have released their draft legislation to raise the federal debt limit.  The House may vote as early as Wednesday on their proposal.

The House plan would authorize $1 trillion in new borrowing right away, and another $1.6 trillion would be allowed in several installments (unless two-third majorities in Congress objected each time).  These additional “installments” would be considered only after a new special congressional committee proposes a package of entitlement cuts.

According to a fact sheet distributed by Democrats, the Senate plan would include $1.2 trillion in discretionary spending cuts, in both defense and non-defense programs, which were already agreed to in bipartisan talks led by Vice President Biden a few months ago.  Another $1 trillion would come from “savings from winding down the wars in Iraq and Afghanistan,” an approach that the fact sheet says matches one used in the House GOP “cut, cap and balance” bill passed last week (HR 2560) and the House-passed budge resolution (H Con Res 34).  The sheet said there would be $400 billion in interest savings as a result of the spending cuts, which it claims is also reflected in the House plans.

Another $100 billion would come from “savings” in mandatory programs negotiated by the Biden group. But according to the fact sheet, the savings “will not impact Medicare, Medicaid or Social Security benefits in any way.”  This is good news for Graduate Medical Education (GME) funding that comes from Medicare and supports medical residency programs throughout the country.

The figure includes $40 billion in “program integrity savings,” which encompasses $15 billion by reducing fraud and abuse in mandatory programs through continuing disability reviews and Supplemental Security Income redeterminations, IRS tax enforcement measures, health care fraud and abuse control, and reviewing unemployment insurance for improper payments; $30 billion in savings at Fannie Mae and Freddie Mac; $15 billion from broadcast spectrum sales and changes to the Universal Service Fund; $10 billion to $15 billion in agriculture program changes; and unspecified savings from higher education programs that will go to “sustain the Pell grant program.”

For student aid/Pell Grants, the House and Senate plans are similar.  They both eliminate the in-school interest subsidy for graduate and professional student loans, effective for any period of instruction beginning on or after July 1, 2012. The House plan includes an exception to the elimination of the in-school interest subsidy for students enrolled in a program leading up to a degree or certificate or students enrolled in a program necessary for a teaching credential or certification where such credential or certification is required by the state.  This exception is not in the Senate bill.

Both the House and Senate plans use savings from the in-school interest elimination to provide additional mandatory funding for Pell, though in slightly different amounts.  The House adds $9 billion in FY12 and $8 billion in FY13, while the Senate provides $10.5 billion in FY12 and $7.5 billion in FY13.  Overall the Senate provides a total of $18 billion, while the House provides $17 billion for Pell.

Comparison of House and Senate Proposals

Debt limit increase

House Republicans:

• Add $1 trillion immediately to the current $14.3 trillion debt limit, which would be expected to allow the government to continue borrowing into the early months of 2012.

• The President would be authorized to request a further increase of $1.6 trillion only if the recommendations of a joint committee created to reduce the deficit are enacted.  The second increase, if requested, would take effect unless Congress passed a resolution of disapproval, presumably by a two-thirds vote in each chamber to override an expected veto.

Senate Democrats:

• Add $2.4 trillion immediately to the current $14.3 trillion debt limit, which would be expected to allow the government to continue borrowing until after the 2012 election.

Savings from discretionary spending

House Republicans:

• Reduce spending immediately and cap future spending to save $1.2 trillion over 10 years.  Adherence to annual spending caps would be enforced through a process of automatic spending cuts similar to the process created by the 1997 deficit reduction law (PL 105-33), which expired in 2002.

• The plan assumes no specific savings from declining war costs in Iraq and Afghanistan.

Senate Democrats:

• Reduce domestic and defense spending by a total of $1.2 trillion over 10 years, based on cuts negotiated in earlier meetings with Vice President Biden.

• The plan counts $1 trillion in additional savings from declining war costs in Iraq and Afghanistan.

Savings from mandatory programs

House Republicans:

• Create a 12-member joint committee of Congress that includes three Republicans and three Democrats from each chamber, and co-chairmen named by the House Speaker and Senate Majority Leader.  The joint committee would be charged with reporting back to both chambers by November 23rd with recommendations to reduce the deficit by an additional $1.8 trillion over 10 years.  The committee proposal would be subject to up-or-down votes in both chambers by December 23rd.  No amendments would be permitted and a simple majority in each chamber would be needed for passage.  A Senate filibuster would not be permitted.

• It is unclear whether the total amount of deficit reduction assumes savings from reduced interest payments on the federal debt.

Senate Democrats:

• Cut the deficit by $100 billion over 10 years by reducing waste and fraud in entitlement programs, improving IRS enforcement, curtailing agriculture subsidies, selling broadcast spectrum, and finding savings from Fannie Mae and Freddie Mac.  No changes in Social Security, Medicare or Medicaid benefits are counted.

• The plan assumes $400 billion in savings over 10 years from reduced interest payments on the federal debt.

• The plan would create a 12-member joint committee similar to that in the House plan to recommend ways to reduce the deficit to about 3 percent of gross domestic product, but enactment of its recommendations would not be tied to the debt-limit increase.

Increased revenue

House Republicans:

• No tax increases assumed, although the joint committee would be empowered to consider additional revenue to achieve its deficit-reduction target.

Senate Democrats:

• No increase in revenue is assumed.

Balanced-budget amendment

House Republicans:

• Both chambers would be required to vote after October 1st but before the end of 2011 on a proposed amendment to the Constitution that would require a balanced budget.  The specific terms of the proposed amendment were unclear.

Senate Democrats:

• No balanced-budget amendment is assumed.