Negotiations between President Barack Obama and Congressional leaders on raising the debt ceiling and the parameters of a deficit reduction plan continued the week of July 11 with little progress made. The President wanted lawmakers to agree on a plan by July 17, but on July 12, Senator Mitch McConnell (R-KY) stated publically that he did not think an agreement was possible. Republicans insist deficit reduction should be achieved without closing tax loopholes or raising revenues.
Senator McConnell instead proposed raising the debt limit through 2012 to allow further time for negotiations on a broader deficit reduction agreement. The Senator proposed that the President request an increase to the debt limit that lawmakers could reject and that the President could then veto. This would allow the President to increase the debt ceiling by up to $2.5 trillion, without Republicans having to vote in favor of it, providing them with political cover. Senator McConnell and Senator Harry Reid (D-NV) are currently negotiating additional spending cuts of up to $1.5 trillion that could be included in such a plan.
This plan is not popular among many Senators, the Administration and members of the House as it is seen as a temporary measure that only delays necessary negotiations on government spending. Senator Thomas Coburn (R-OK), a former member of the Gang of Six, a bipartisan group of senators crafting a deficit reduction plan, intends to unveil a new, $9 trillion dollar deficit reduction proposal on July 18. While new and recycled proposals abound, Congress and the Administration do not appear close to bridging the gap between the varied frameworks for approaching the deficit and debt crisis.
While the broader deficit debate continues, Congress is proceeding with specific proposals to reduce the deficit.
The House had planned to debate H.J. Res. 1, a resolution which would require amending the U.S. Constitution to require that the federal government balance its budget each year by capping spending at a percentage of gross domestic product (GDP) (see Memo, 7/8, 6/17). This proposal would negatively impact domestic discretionary programs, likely including HUD programs.
Instead, House Republicans have decided to hold the vote on the balanced budget amendment and instead vote on H.R. 2560, the Cut, Cap and Balance Act of 2011, a bill that outlines the terms that many House Republicans propose for any increase to the debt ceiling. H.R. 2560 was introduced on July 15 by Representative Jason Chaffetz (R-UT) along with Representatives Mick Mulvaney (R-SC) and Ried Ribble (R-WI) and had 87 co-sponsors by the end of the day. The bill would require that a balanced budget amendment to the Constitution be in place before the federal debt limit could be raised. States would have to have ratified the amendment in order for Congress to consider the President’s request to increase the debt ceiling. The bill would require that such a balanced budget amendment include a supermajority in Congress to increase revenues and that spending be capped at a percentage of GDP.
In addition, the bill would cut spending in 2012 by $111 billion, bringing spending to lower than 2008 levels according to the bill’s authors. Sixty-eight percent of these cuts, or $76 million, would come at the expense of non-defense discretionary spending. The bill would also cut mandatory spending by $35 billion but excludes funding for veterans, Medicare and Social Security from these cuts. No spending reductions would come from defense spending.
The bill would institute caps on federal spending for ten years beginning in 2012. The 2012 spending level would be capped at 23% of GDP with annual decreases of between 1% and .25% until an 18% cap is reached in 2021. This 18% cap would remain in effect for subsequent fiscal years.
There are several proposals for balanced budget amendments in the Senate, one of which, S. J. Res. 23, will be brought to the floor for a vote late in the week of July 18. The Senate may also vote on its version of the Cut, Cap and Balance bill, S. 1340, introduced by Senator Michael Lee (R-UT) on July 7. The bill has 32 co-sponsors.
NLIHC joined 246 other national organizations in objecting to a balanced budget amendment to the U.S. Constitution. In the letter to Representatives, organizations write that such an amendment is “a recipe for making recessions more frequent, longer, and deeper, while requiring severe cuts that would harshly affect seniors, children, veterans, people with disabilities, homeland security activities, public safety, environmental protection, education and medical research.” A similar letter was sent by state and local groups.
The Senate Committee on the Budget has not yet introduced an FY12 budget resolution. Committee Chair Kent Conrad (D-ND) presented a framework for an FY12 Senate budget resolution on July 13. Senator Conrad intended to use the Gang of Six plan to craft an FY12 Senate budget resolution but the group has yet to produce an agreement. In lieu of that group’s proposal, Senator Conrad has moved forward with a framework that has agreement from Committee on Budget Democrats. The long awaited framework for a budget resolution includes $4 trillion in deficit reduction over a ten year period, $50 billion more than the House Republican plan. The framework would derive savings from $2 billion in spending reductions and $2 billion in the elimination of tax expenditures and increases in revenue. The Plan would reduce spending from 24% of GDP to 23% and then 22% for the remainder of the decade, the average level of spending during the Reagan administration. The framework includes spending reductions for the Department of Defense at the same level proposed by the bipartisan Commission on Fiscal Responsibility and Reform (see Memo, 4/29). The plan excludes from spending reductions programs supporting veterans, as well as Social Security.
The framework includes increasing revenues from the current 14.8% of GDP level to 19.5%. “If we look at the last five times the budget has been balanced in the last 50 years, here is what we see: revenues had to be close to 20% of GDP,” Chair Conrad said in a floor speech. The Committee Democrats also propose simplifying the tax code and closing tax loopholes.
Now that Committee Democrats have agreed to a framework, the Committee on the Budget can mark up an FY12 resolution which will allow the Senate Committee on Appropriations to divide the budget cap total between its 12 appropriations Subcommittees. In lieu of having this top line budget figure, the Committee on Appropriations has provided guidance to some of its Subcommittees so that the subcommittee markup process could begin. The Transportation, Housing and Urban Development and Related Agencies (T-HUD) Subcommittee has not yet been instructed to proceed with marking up an FY12 bill. It is not clear when the Committee on the Budget will mark up an FY12 resolution and it is likely that the committee will wait until after the agreement has been reached about navigating the August 2 debt ceiling deadline.
View the national BBA letter: http://www.nlihc.org/doc/BBA_Coalition_Letter_7-13-11.pdf
View the state and local BBA letter: http://www.nlihc.org/doc/BBA_State_Local_Letter_7-13-11.pdf
View Senator Conrad’s budget framework speech: http://budget.senate.gov/democratic/index.cfm/multimedia?ContentRecord_id=f4a88b2c-e2b8-4197-a4dd-34aa0d42b164&ContentType_id=9732d7bc-d5dd-40ed-ba87-c20683c9ac6a&Group_id=20f6915d-0050-49d0-8a28-13ef967028ee