House Republicans leaders were left scrambling to rewrite deficit reduction legislation after a widely anticipated vote on the proposal was canceled late Thursday. The vote on the debt limit and deficit reduction plan could come today (Friday) if the House Speaker is able to modify his bill enough to garner the votes he needs for passage. However, it is not clear what revisions would be made to the plan that would be acceptable to the most conservative members of the House. House leadership had expected narrow passage of the bill, which would cut spending by $917 billion over 10 years, mostly through discretionary spending caps, and raise the debt ceiling by $900 billion. It would also link a second, $1.6 trillion debt limit increase to the enactment of another $1.8 trillion in deficit reduction. House conservatives have criticized the measure for not seeking deeper cuts and not mandating a balanced-budget amendment to the Constitution.
The Senate had planned to reject the measure after the House passed it Thursday, a move that was expected to clear the way for negotiations on a final package. Without an agreement in place to raise it, the federal government will go into default. To forge a deal that can clear Congress, negotiators will need to find a middle ground that meets each party’s basic needs. It will need to reduce the deficit by at least as much as it increases the debt limit, without raising taxes, in order to be acceptable to the House’s Republican majority. And to appeal to Democratic votes, it will have to raise the debt limit enough to allow government borrowing through 2012 — and leave entitlement programs alone.
Negotiators are increasingly focused on the chief difference in the plan: when and how to raise the debt ceiling. Republicans want a second installment of a proposed $2.5 trillion increase conditioned on another deficit reduction measure being signed into law sometime next year. But Democrats worry that would lead to another debt ceiling standoff if the plan does not clear Congress – a VERY likely scenario. A compromise being promoted by Democrats would eliminate the conditional debt increase and instead put in place a fiscal enforcement mechanism, or a trigger, that would force tax increases or spending cuts, or a combination of both, if deficit reduction goals are not met. The triggers would be modeled after similar mechanisms used in the 1985-90 Gramm-Rudman deficit reduction plan that required across-the-board spending cuts if the limits were breached.
Meanwhile, the Treasury Department says the current $14.3 billion borrowing limit will be hit August 2nd (some say the “real” date is actually August 4th). The Treasury plans to release information on their contingency plan after the financial markets close today (Friday).