Deficit Update: Muddied Waters

Posted on July 20, 2011. Filed under: Uncategorized | Tags: , , , , , , , , , , |

JULY 20, 2011

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Don’t be deceived that the bipartisan budget plan announced yesterday by the “Gang of 6” offers a solution to the debt ceiling crisis. Although it provides a valuable outline of steps to address our long term structural deficit problem, it is far too complex and vague to have much impact on actions necessary to avoid default on August 2nd.

The Gang of 6 plan requires $1 trillion in new revenue from closing tax loopholes and eliminating tax breaks – anathema to conservative House Republicans. This is significant because the Constitution requires that revenue bills originate in the House. Also, it would take weeks, if not months, to put the Gang of 6 plan into legislative language and get it through the CBO scoring process before Congress could begin to consider it.

Sadly, the current Congress may be too dysfunctional to enact the Gang of 6 plan. The Gang of 6 framework relies completely on the ability of Congressional Committees to meet specified savings and revenue targets, plus a return to regular order culminating in a final grand compromise between House and Senate. We haven’t seen any bill, let alone a complex one involving tax reform and huge spending cuts, be enacted through regular order in a very long time. Such a grand effort is not likely to succeed until after the 2012 elections, at the earliest.

Still, the Gang of 6 proposal has established some high ground that the President and many in Congress can embrace – a ritual that puts a little oil on roiled waters while negotiations to avoid default continue.

What’s Next

Here’s the batting order for Congressional action this week to address the debt ceiling crisis, subject to change at any moment.

Following yesterday’s House passage (234-190), of the House cut, cap, and balance (CCB) legislation, the Senate will take up some variation of this bill this week. A final Senate vote is expected on Saturday, assuming this bill gets cloture and the usual time limits apply. It is not expected to pass, and would be vetoed by the President in any case.

The House is expected to take up its extreme version of a balanced budget amendment (BBA) today and/or tomorrow. This bill is not expected to achieve the 2/3 majority vote necessary to move a Constitutional amendment. The Senate may take up a more moderate version of a BBA this week also, with the same outcome.

After all the venting and posturing on these bills is complete, the Senate plans to take up the McConnell-Reid modified Plan B. At the rate things are going, this won’t occur until late next week or even August 1st!

The McConnell-Reid modified Plan B is slated to move using a Senate first, House amendment, Senate re-vote strategy. In a gesture designed to save face in the House, the Senate will allow the House to amend the Senate-passed bill by adding spending cuts, the amount of which is under vigorous negotiation. The House will want a much higher number than can pass the Senate. A $1-1.5 trillion cut is envisioned by McConnell and Reid, but the House is pressing for a higher number.

Once the House passes an amended McConnell-Reid Plan B bill, it must be returned to the Senate for another vote. Then, if it passes in identical form in both chambers, it moves to the President for signature.

But there is no guarantee that the McConnell-Reid bill will pass in the House. Plan B will be opposed by Tea Party and other fiscally conservative Republicans, regardless of the amount of spending cuts it imposes. Boehner and Cantor are attempting to work out a spending cut number with Pelosi that can attract at least as many Republican votes as Dem votes. Pelosi has leverage in this negotiation, because House Democratic votes will be essential for passage.

To add a further complication, CBO has indicated it would need 2 weeks to score the McConnell-Reid bill. A CBO score is a prerequisite for floor consideration of any legislation in either chamber under current rules. As one CBO staffer put it, “There are only so many 24 hours in each day”.

There are rumors that some new alternative is in the works in case the McConnell-Reid deal fails, or can’t be passed in time. If such an alternative is to prevail, it will need to be simple, probably a small short-term increase in the debt ceiling that the President has said he wouldn’t sign. He may have no choice.

While things look very bleak at the moment, one bad day in the stock and bond markets could advance the McConnell-Reid Plan B proposal quickly.

Meanwhile, Boehner and Obama continue back-channel talks on a big deal (in case financial markets fall to the point where this is possible) as well as a possible stop-gap last resort fix to get us through the first week of August.

The House CCB bill and the Gang of 6 budget framework are attached for your information.

Note the spending caps imposed for FY 2012.

Turner GPA is one of the premier, highly respected government and public affairs firms in the nation. Turner’s state-of-the-art advocacy has earned them respect and acclaim from the media, clients, policymakers and even their competitors! Turner advocates on behalf of cutting edge businesses, municipalities, and non-profits that wish to ensure their perspectives and needs are taken into account in Washington, in state capitols and in City Hall, as well as in the media. The firm creates and implements intensely focused and targeted advocacy campaigns designed to meet and exceed its client’s expectations and goals. For more information on Turner GPA, visit

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