Congress finally has a deal on the table that may pass. The House passed it Monday evening with a vote expected to be held in the Senate mid-day on Tuesday. And that vote is also expected to be successful in passing the debt ceiling deal. So, who won? Who lost? Is it a massive cave by the President and Democrats? Or is there something more to it?
In looking at the deal, folks on the left are acting outraged. Medicare takes some cuts, there’s no revenue component, it looks like the Republicans got everything they wanted. Indeed, Speaker of the House John Boehner says he “got 98 percent of what I wanted”. But did he?
Here’s some of the details that say he might have some ‘splaining to do later:
Democrats are upset that the deal does not include increasing revenues. But that’s not accurate. In fact, it virtually guarantees a revenue increase by the end of 2012. And Boehner knows it.
Here’s how it works: Part of the deficit reduction estimates used to sell this deal to the Republicans count on Congressional Budget Office estimates. Those estimates set a baseline. All reductions have to come from that baseline and if any additional spending is to be made, offsetting cuts must also be enacted.
Here’s where it gets interesting. The CBO baseline already assumes that the Bush Era tax cuts will expire at the end of 2012. The spending levels for 2013 include the additional revenue from those cuts expiring. If Republicans want to extend those tax cuts (which are considered spending), they will have to make cuts to the budget to offset every penny. They won’t have the political control needed to do that before the end of 2012, even if the President loses his office and they take control of the Senate, as the cuts expire in 2012, and a new administration and Congress would not be seated until January 2013.
So, unless Republicans want to try to pass an extension along with offsetting cuts during an election year, those cuts will expire. Senate Majority Leader Harry Reid has already said he will not allow the issue to come to a vote, and the President has vowed he will veto it. So if Republicans want to extend those cuts, they will have to come up with $4T in spending cuts to offset the tax cuts. To make it more difficult still, the deal makes it clear that those cuts must come in a 50/50 ratio between defense and non-defense spending, with Social Security, Medicaid, unemployment insurance, civilian and military retirement off the table. Medicare cuts would only come from the provider side, not the individual.
Now, take that in for a minute. If Republicans want to extend the tax cuts, they will need to cut an equal amount out of spending, with half of that coming from defense spending. Half. This is in addition to the $350B that are already being cut as part of this deal. To get their tax cuts, Republicans would have to slash another $2T from defense spending. They would have to justify slashing the defense budget for the benefit of the wealthiest Americans. And with all the social programs off the table, where will they find the other $2T?
The plain fact is, they can’t. Senate Majority Leader Harry Reid says he won’t let it come to a vote, and the President says he would veto any extension. But the key issue is – they don’t need to. In fact, all they have to do is make sure to speak loudly if/when Republicans try to extend any tax cuts, and frame it as cutting the military. It’s a pretty clear cut distinction and attacks the entire ethos of Republicans as deficit hawks and military backers. In the meantime, if the Republicans can’t find the cuts, the cuts expire, and revenue increases.
Now, Boehner has played this deal as one that does not allow “tax increases”. He had to for it to pass. But the safe bet is that most of the Republicans who voted for this did not realize that the baseline includes the additional revenue from the expiration of the Bush era tax cuts, and that extending them is not counted as raising taxes, but rather, as increasing spending. And that will require hugely Draconian cuts in the areas Republicans are most loathe to touch.
An interesting battle will start next year. It will begin to pit the military industrial complex against the bankers and million/billionaires. If the rich guys want to keep their tax cuts, 50% of it will come from military spending – contractors. That’s a big lobby to fight against. It will be fascinating to see how the spin starts to work there, as Republicans find their corporate benefactors are suddenly pitted against each other, and the American people get to see where the loyalties really lie.
Medicare and Social Programs
There has been a bit of moaning that this deal touches Medicare. But again, the details are important. The area touched here has nothing to do with individuals. It’s all on the provider side.
To be sure, this could have an effect on individuals, as providers may decide they don’t want to deal with Medicare if reimbursements are reduced, and this could reduce choice. But on the subscriber side, nothing changes. More importantly, the subscriber side is sequestered from further cuts, as are Medicaid and Social Security in their entirety.
Again, this is really a trap for the Republicans. With all of those areas off the table, where will they find cuts? And remember, they still need to cut an equal amount from defense as they do for anything else. Social programs are a large part of the budget. When you take them off the table, you remove major sources of budget reduction. Which means that cuts to other areas will have to be massive to have a chance at making a difference. So Republicans will have to sell Draconian slashes to areas such as education to be able to find enough budget to cut.
But here’s a kicker – $1.5T in cuts and additional revenue must be defined and sent to Congress for ratification before the end of 2011. So, while Boehner is claiming no raising of taxes, with this deal he has put Republicans further behind the 8-ball. If they do not pass a package that features all of these cuts, an automatic trigger is reached, and an addition $500B is immediately cut from defense, and additional cuts would be made to infrastructure and other programs. That’s in addition to the $350B already cut as part of the deal.
Why does this leave Boehner and Senate Minority Leader Mitch McConnell is a tough spot? Because they must pass $1.3T in cuts before the end of the year to avoid the automatic trigger. They don’t want to be seen as cutting military spending (although that is likely where a lot will come from anyway). And because they insisted that the decrease in spending from the wars in Iraq and Afghanistan not be counted as spending reduction, they’ve removed that ploy from the table as well. If they are unwilling to compromise, they will be facing massive additional cuts to the military. And all while not touching sacred social programs. That’s a hell of a corner to be painted into.
So, What Did It Accomplish?
A whole bunch. Pell Grants have actually been increased. The default scenario has been averted until at least 2013 with a debt ceiling raise. It did not require the passage of a Balanced Budget Amendment. And the cuts that are included are backloaded, meaning that they come further down the line, when the economy is (hopefully) on a better footing.
Sure the President is taking heat on this now. But the focus can now be on jobs (on which there has not been a single piece of legislation), and Republicans who are gloating now may not be so cheerful when it comes time to make the cuts they demanded.