Announced two days before the country is expected to fully exhaust its $14.3 trillion in borrowing authority, a deal to end the debt ceiling negotiations has been announced. After Congresional Republicans held firm in their commitment to taxpayers to reject any and all tax increases, the deal forces lawmakers to get serious about government spending that drives the country’s mounting debt. While final legislative language is yet to be fully agreed upon by the full caucuses in both chambers, a strong sketch is emerging on what the deal looks like.
- The first portion remains the same (as far as we can tell) as the House’s Budget Control Act. It curtails the President’s aggressive spending agenda by allowing $900 billion in new borrowing authority in exchange for $917 billion in savings.
The second tranche of debt authority has many moving parts:
- A Joint Committee would be established charged with finding savings greater than $1.5 trillion. Should the Committee report be enacted into law, the President is authorized to receive a $1.5 trillion increase in the debt ceiling
- Should the Committee fail to report a proposal or Congress refuse to pass such a report, Congress must pass a Balanced Budget Amendment for the President to request additional borrowing authority.
- If the Committee fails to enact at least $1.2 trillion in savings, the President may request $1.2 trillion in new borrowing authority, which can only be extended if an across-the-board sequester is enacted to make up the difference between cuts that have been enacted and the amounts necessary to amount to a total of $1.2 trillion.
- Taken together, these measures incentivize serious progress in the Select Committee. We have already discussed how this Committee is pressured to report legislation that focuses solely on spending. It is highly unlikely such a body would be able, much less willing, to approach any kind of tax reform.
- The plan seriously addresses spending restraint, implementing annual spending caps that limit the annual growth of spending, enforced by sequesters. Our Cost of Government Day Report fully explains the significance of establishing a metric for spending growth, which will net trillions in savings for taxpayers over time. Spending caps, enforced by sequesters, have achieved significant savings in the past.
- The focus on cutting discretionary spending up front will catalyze mandatory spending reform in the future. The spending limitations enact almost $1 trillion in discretionary savings, removing the low-hanging fruit of easy spending cuts to force lawmakers to confront the entitlement burden.
The debt limit machinations have shown that until legislative language is made available and the caucuses can certify agreement on the deal, no plan is certain. We will provide further analysis and comments as more details become available. However, this framework – that totally rejects any tax increases and enacts lasting and critical spending reform – is a serious game-changer that bodes well for taxpayers as we move into future tax and spending battles in the 112th Congress.