Category: On the Hill

The framework for a final deal to raise the debt ceiling is finally on the table.  The House and Senate will continue working today with a goal of pushing a bill through both chambers by tonight.  The leadership of both parties in both chambers have also agreed to commence their August recess as soon as the bill is approved. 

The following is a summary of the final deal:

Debt Ceiling Increase:  The current $14.3 trillion ceiling on total federal borrowing would be increased by an amount sufficient to allow the Treasury Department to operate beyond the 2012 election and into 2013.  That would be accomplished in two steps.  The debt limit would be increased by $900 billion immediately.  Then, a second increase of between $1.2 trillion and $1.5 trillion would be available at the President’s request.  However, exactly how that would happen is unclear.  Earlier measures would have provided an immediate increase and phased additional increases that would be subject to a congressional resolution of disapproval.  To block a debt limit increase, such a resolution would presumably have to be enacted over the President’s veto, requiring two-thirds majority votes in both chambers.

Spending Cuts — Round One:  An immediate reduction in the deficit of roughly $1 trillion over 10 years would be enacted.  Most details have not been made public, but such a cut would probably be accomplished through specific caps on appropriations for each year from FY12 through FY21.  The agreement is expected to set discretionary spending caps of $1.043 trillion for FY12 and $1.047 trillion for FY13, with a “firewall” between defense and non-defense spending — meaning domestic accounts could not be raided to bump up security spending.  The amount for FY12 is about $24 billion larger than the amount approved by the House-adopted budget resolution.  It is unclear if the House will adjust their appropriations bills to account for the higher number (not likely).

Spending Cuts — Round Two:  A special joint committee would be created to recommend specific ways to reduce the deficit by an additional $1.8 trillion by 2021.  This committee, composed of three Democrats and three Republicans from each chamber, was a part of earlier plans from both parties.  The panel would report its recommendations to both chambers, and the recommendations would be subject to up-or-down votes without amendment.  Earlier versions required the committee to report by November 23^rd and required the House and Senate to act by December 23^rd.  Presumably all aspects of the federal budget will be on the table, including entitlement cuts and revenue increases.  It is not clear if the committee will be specifically authorized to consider an overhaul of the tax code.

Enforcement Triggers for Panel’s Recommendations:  If the enacted recommendations from the joint committee do not produce at least $1.2 trillion in savings, a process for automatic spending cuts would be triggered that is similar to the system of spending “sequesters” enacted as part of the 1985 Gramm-Rudman anti-deficit law and the 1997 deficit-reduction law.  Any sequester would be equal to the portion of the $1.2 trillion savings target that was not achieved.  It would apparently fall equally on defense and non-defense accounts, including some entitlement spending.  Programs targeting low-income individuals and families would largely be exempt from the sequester, as they were under Gramm-Rudman.  Medicare cuts would be restricted to no more than 2 percent of the program’s outlays, and would only affect payments to providers, not to beneficiaries.  The idea is to provide a strong incentive for the committee not to deadlock in trying to make recommendations and for the two chambers to enact them.  Democrats did not win agreement to incorporate a tax increase as part of the enforcement trigger mechanism.

Entitlement Cuts:  The special joint committee is likely to look closely at entitlement spending to achieve its deficit reduction goals.  This could very likely include changes to the Pell Grant program.  Those spending cuts would be subject to tough negotiations over the next four or five months.  As noted, if a sequester is triggered to enforce mandated spending cuts later this year, some restricted automatic cuts in Medicare spending might occur.  It is unclear what other entitlement spending might be subject to a sequester.

Taxes:  The plan does not include any immediate increase in revenue, although the joint deficit-reduction committee may consider several forms of revenue increases.  Earlier in the negotiations, the House Speaker proposed an increase of $800 billion in revenue.  Such an increase might come either from the elimination of tax breaks or by not renewing the Bush-era tax cuts for high-earners, or both.  In addition, a comprehensive overhaul of the tax code might be structured to yield a net revenue increase.

Balanced-Budget Amendment:  The plan requires both the House and the Senate to vote on a proposed balanced-budget amendment to the Constitution by the end of the year.  Unlike the proposal approved by the House last week, lawmakers would not have to adopt this amendment — and send it to the states for ratification — for the debt limit increase to take effect.

The House Appropriations Committee today released their FY12 State & Foreign Operations Appropriations bill, which will be considered in subcommittee tomorrow.  The bill includes a total of $39.6 billion in regular discretionary funding, which is $8.6 billion or 18 percent below FY11 levels and $11.23 billion below the President’s FY12 request.  Included in these reductions are cuts back to the FY08 levels or below for certain operations and assistance accounts.  

Bill Summary:

International Security Assistance – The bill provides $8 billion in discretionary funding for international security assistance, a decrease of $61 million from last year’s level and $167 million from the President’s request.  This includes funds for international narcotics control, nonproliferation and anti-terrorism programs, peacekeeping operations, foreign military financing, and international military education and training.  

Bilateral Assistance – The legislation contains a total of $17.7 billion for bilateral economic assistance, a decrease of $3.5 billion below last year and $4.8 billion below the President’s request. This includes funding for global health programs, international disaster assistance, refugee assistance, the Peace Corps, the Millennium Challenge Corporation, and various economic and democracy promotion programs.

Multilateral Assistance – The legislation provides $1.6 billion for multilateral assistance, a reduction of $729 million below last year and $2.1 billion below the President’s request. This includes significant cuts to many international organizations and programs, including the World Bank, the Global Environment Facility, and several other international financial institutions.  In addition, the bill eliminates funding for the Clean Technology Fund and the Strategic Climate Fund.

Export and Investment Programs – The bill provides $266 million for export assistance programs, a reduction of $84 million from the President’s request.  The Trade and Development Agency – which promotes US trade interests abroad – is level funded at $50 million, the same as last year.

State Department Operations and Related Agencies – The bill contains a total of $11.9 billion in discretionary funding for operational costs of the State Department and related agencies – a decrease of $3.9 billion below last year’s level and a $3.1 billion below the President’s request.  This includes funding for programs such as diplomatic and consular affairs, embassy security and operations, assessed contributions to international organizations, and international broadcasting.  The bill also eliminates temporary pay raises for overseas officers.  

United States Agency for International Development (USAID) Operations – The bill contains $1.04 billion for USAID – a reduction of $488 million from last year’s level and $705 million below the President’s request.  The bill halts new hiring at USAID and stops expansion of facilities overseas associated with that hiring.

Policy Riders:

Global Gag Rule (“Mexico City Policy”) – A policy that prohibits all federal funding from going to any organization that uses their own funds to perform abortions, promote legalization, or provide counseling including these services.

UN Human Rights Council – Prevents the US from influencing the council by defunding our participation. 

UN Peacekeeping Activities – Caps US contributions to UN Peacekeeping Activities at 25 percent.  This abrogates our treaty agreement with the UN.  

Defunds UNFPA – Blocks US contributions to the UN Population Fund.

Climate Change – Cuts funding to accounts and programs across the bill that address global climate change.  

International Monetary Fund (IMF) – Rescinds funds appropriated to the IMF to shore up its role as the first responder to global financial crises.

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.