Talks led by Vice President Biden explore several deficit reduction options, including deficit caps and spending caps (no, they aren't the same).
Spring ended early in Washington, and it’s likely to be a long, hot summer full of long, hot speeches — and votes — on the deficit.
As you recall, Vice President Biden was asked by President Obama to form a high-level working group to develop a bipartisan proposal to reduce the deficit. Members of this group include Senators Jon Kyl (R-AZ), Daniel Inouye (D-HI) and Max Baucus (D-MN), and Reps. Eric Cantor (R-VA,) James Clyburn (D-SC) and Chris Van Hollen (D-MD). After a longer-standing bipartisan group (Senate Gang of Six) lost a member and its mojo, the Biden Group took on an enhanced importance and visibility. Biden said this week that his working group hopes to submit its debt reduction agreement to congressional leaders for their consideration before July 4.
Deadline Approaching – Biden said the group hopes to deliver a final debt deal soon to help reassure Wall Street investors that Congress will not seriously flirt with a default on U.S. financial obligations. The goal, Biden said, is to give lawmakers time to write implementing legislation before Aug. 2 — the deadline for raising the $14.3 trillion debt limit and avoiding a government default, according to the Treasury Department.
Senate Republicans said last week that they are seeking $2.4 trillion in spending cuts over a 10+ year period to accompany an offsetting $2.4 trillion increase in the debt limit. That is the estimated amount of increased borrowing authority needed to carry the U.S. government through the 2012 election. If Democrats won’t agree to the proposed cuts, it would likely lead to multiple votes on smaller, incremental increases in the debt limit accompanied by spending cuts, reminiscent of the numerous votes on the Fiscal Year 2011 continuing resolutions.
Caps to Center Stage – This week the Biden group has been discussing debt and deficit caps, which would set limits on the deficit or debt and enforce the limits through spending cuts, revenue increases or a combination of the two. The caps help give teeth to the deficit plans, so they are very important features. Note that there are different types of caps under discussion.
Republican leaders have not been generally supportive of budgetary caps as a tool of deficit reduction, including a debt cap proposed by President Obama earlier this year. The president’s cap would require spending cuts and elimination of tax breaks if the debt does not begin to fall as a share of the economy later this decade.
However, Republican leaders have been more open to spending caps – a specific kind of budgetary cap that relies only on spending cuts, and that would limit government spending to a share of the economy and enforce the limit through automatic spending cuts if necessary. The cap in the Senate Judiciary Committee’s Balanced Budget Amendment is an example (see the end of this story).
APA and other science, health and advocacy groups have raised concerns about deficit reduction plans that rely solely on spending cuts. (See the May 18th blog entry below, for a discussion about that.)
The sticking point over revenues remains the highest barrier to bipartisan agreement on deficit reduction. A large portion of the Republican caucus in the House refuses to consider any revenue increases, while most Democrats maintain revenues must be part of any agreement. However, during consideration of an Economic Development and Revitalization Act in the Senate this week, 34 Republicans voted to end the ethanol tax credit which costs the Treasury about $6 billion per year. Democrats saw the vote as evidence that Republicans are willing to consider ending some special interest tax breaks, and thus increase government revenue, for deficit reduction purposes. (While the ethanol amendment passed 73-27, the bill to which it is attached is unlikely to pass the full Senate… so no actual savings were achieved with the vote.)
Another strategy: Balanced Budget Amendment – This week the House Judiciary Committee passed H.J. Res. 1 by a party-line vote of 20-12. As amended, it caps spending at 18 percent of U.S. Gross Domestic Product, requires a 2/3 vote to raise revenues, and a 3/5 vote to raise the debt ceiling. The committee expects to report out the bill next week. The House is in recess the following week, so it appears the earliest the amendment could come to the House floor would be the first two weeks of July. While this amendment will likely be approved by the House of Representatives this summer, it is unlikely to pass in the Senate and become law.
So where are we now? – The Congressional Budget Office reported last week that the deficit is now $929 billion, about $6 billion less than this same time last year. Revenues are up 10 percent for the year, with individual income taxes registering a 29 percent increase so far, which have contributed to the decline.
And has anything good happened this week? – Yes! Forty-one members of the U.S. Senate sent a letter to the Chairs and Ranking members of the Senate Appropriations Committee and Labor-Health and Human Services and Education Subcommittee, asking that the upcoming bill maintain a strong commitment to the National Institutes of Health. The letter, originated by Senator Bob Casey (D-PA), included 41 signatures, including 7 Republicans. The signers, in alphabetical order, were: Senators Akaka, Begich, Bingaman, Blumenthal, Boxer, Scott Brown, Burr, Cantwell, Cardin, Casey, Collins, Coons, Crapo, Durbin, Feinstein, Franken, Gillibrand, Hagan, Hoeven, Tim Johnson, Kerry, Klobuchar, Landrieu, Lautenberg, Leahy, Levin, Menendez, Merkley, Mikulski, Reed, Rockefeller, Schumer, Shaheen, Snowe, Stabenow, Tester, Mark Udall, Tom Udall, Whitehouse, Wicker and Wyden.