Last Minute Deal Avoids Federal Default

Posted on August 3, 2011. Filed under: Uncategorized | Tags: , , , , , |

By Carl Chancellor

In the words of Maxwell Smart: “Missed it by that much.”

Like the hapless television secret agent who by dumb luck routinely escaped impending disaster, Congressional leaders and the White House were able to strike a deal at the last possible moment to raise the federal debt limit. By agreeing to increase the nation’s debt ceiling by $2.1 trillion—a mere 24 hours before the nation faced the prospect of not having enough money to pay its bills—federal leaders averted an unprecedented default and the resulting economic catastrophe that would ensue.

The deal reached by Republican and Democratic leaders late Sunday night and signed into law Tuesday by President Obama, will cut federal spending by at least $2.1 trillion over the next 10 years, while raising the debt ceiling by roughly the same amount. The bill, which was approved overwhelmingly by the Senate, 74 to 26, was passed by the House Monday night by a vote of 269-161, garnering the support of 174 Republicans and 95 Democrats. The House vote was highlighted by the return of Rep. Gabrielle Giffords, D-Ariz who cast her first vote in Congress since she was seriously wounded in a January shooting in Tucson.

A relieved President Obama said the deal “will allow us to avoid default and end the crisis that Washington imposed on the rest of America. It ensures also that we will not face this same kind of crisis again in six months, or eight months, or 12 months. And it will begin to lift the cloud of debt and the cloud of uncertainty that hangs over our economy.”

Calling the process “messy” and the time required to reach an agreement taking “far too long,” the President nevertheless said he wanted to thank the leaders of both parties for finding “their way to compromise.”

The compromise has lead to a less than ideal agreement, which has sparked deep anger among Democrats and Republican’s alike. Arizona Democrat Rep. Raul Grijalva, quoted in USA Today said the deal “trades people’s livelihoods for the votes of a few unappeasable right-wing radicals.”

On the other side of the aisle, Rep. Jim Jordan, a freshman Republican from Ohio, told the Associated Press that the deal “opens the door to dangerous national security cuts and raises the possibility that six Democrats and one misguided Republican could put tax increases on the table.” He was referring to the 12-person special committee—made up of six Democrats and six Republicans—charged with identifying further spending cuts by Thanksgiving. The special committee would have to propose $1.2 trillion spending cuts to achieve that amount of deficit reduction over 10 years. The committee could overhaul the tax code or find savings by cutting Medicaid, Medicare or Social Security.

However if the special committee can’t reach an agreement or Congress rejects it’s recommendations, then automatic across the board cuts both to defense and non-defense spending would go into effect.

In addition to the special committee here are the other key elements of the deal as compiled by the Los Angeles Times:

• Debt ceiling is increased in stages by up to $2.4 trillion, while providing a dollar-for-dollar exchange in spending cuts. The package would resolve the issue until 2013, after the presidential election.
• Gives President Obama authority to immediately increase the debt by $400 billion. It also establishes procedures to raise the debt ceiling by an additional $500 billion as soon as September, for a total of $900 billion.
• The initial increases are offset by $917 billion in spending cuts through caps on discretionary spending through 2021.
• The deal also requires that the House of Representatives and the Senate vote before the end of 2011 on a joint resolution proposing a balanced budget amendment to the Constitution, though passage is not required.
• If the automatic across-the-board cuts are triggered, they would not take effect until January 2013, giving Congress time to revisit the issue and agree on other budgetary or tax reforms. Given that neither party nor the White House supports $50 billion in annual cuts to defense spending, the framework is designed to give all sides motivation to negotiate.

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