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Monday, August 01, 2011

Debt Deal Reached: Who Is Happy And Who Is Not

Basically took the weekend off and come back Monday morning to see a debt deal has been reached, leaders in the Senate and House are now generating support for the deal to guarantee passage in both Houses to get it to Obama's desk for his signature.

WSJ provides the known details of the deal:

The big picture is that the deal is a victory for the cause of smaller government, arguably the biggest since welfare reform in 1996. Most bipartisan budget deals trade tax increases that are immediate for spending cuts that turn out to be fictional. This one includes no immediate tax increases, despite President Obama's demand as recently as last Monday. The immediate spending cuts are real, if smaller than we'd prefer, and the longer-term cuts could be real if Republicans hold Congress and continue to enforce the deal's spending caps.

The framework (we haven't seen all the details) calls for an initial step of some $900 billion in domestic discretionary cuts over 10 years from the Congressional Budget Office (CBO) baseline puffed up by recent spending. If the cuts hold, this would go some way to erasing the fiscal damage from the Obama-Nancy Pelosi stimulus. This is no small achievement considering that Republicans control neither the Senate nor the White House, and it underscores how much the GOP victory in November has reshaped the U.S. fiscal debate.

No wonder liberals are howling. They have come to believe in the upward spending ratchet, under which all spending increases are permanent. Not any more.

The second phase of the deal is less clear cut, though it also could turn out to shrink Leviathan. Party leaders in both houses of Congress will each appoint three Members to a special committee that will recommend another round of deficit reduction of between $1.2 trillion and $1.5 trillion, also over 10 years. Their mandate is broad, and we're told very little is off the table, but at least seven of the 12 Members would have to agree on a package to force an up-or-down vote in Congress.

If the committee can't agree on enough deficit reduction, then automatic spending cuts would ensue to make up the difference to reach the $1.2 trillion minimum deficit-reduction target. One key point is that the committee's failure to agree would not automatically "trigger" (in Beltway parlance) revenue increases, as the White House was insisting on as recently as this weekend. That would have guaranteed that Democrats would never agree to enough cuts, and Republicans were right to resist.

Instead the automatic cuts would be divided equally between defense and nondefense. So, for example, if the committee agrees to deficit reduction of only $600 billion, then another $300 billion would be cut automatically from defense and domestic accounts (excluding Medicare beneficiaries) to reach at least $1.2 trillion.

This trigger is intended to be an incentive for committee Members of both parties to agree on more cuts, but defense cuts of this magnitude would do far more harm to national security than they would to domestic accounts that have been fattened by stimulus. This is the worst part of the deal, and Mr. Obama's political goal will be to press Republicans to choose between tax increases and destructive defense cuts. The GOP will have to fight back and make the choice between domestic cuts and harm to our troops fighting multiple wars.

While the "trigger" includes no revenue increases, the committee itself could agree to raise taxes to meet the $1.2 trillion deficit reduction target. This means GOP leaders Mitch McConnell and John Boehner have to be especially careful in their choice of appointees. No one from the Senate Gang of Six, who proposed tax increases, need apply. The GOP choices should start with Arizona Senator Jon Kyl and House Budget Chairman Paul Ryan, adding four others who will follow their lead.

One reason to think tax increases are unlikely, however, is that the 12-Member committee will operate from CBO's baseline that assumes that the Bush tax rates expire in 2013. CBO assumes that taxes will rise by $3.5 trillion over the next decade, including huge increases for middle-class earners. Since any elimination of those tax increases would increase the deficit under CBO's math, the strong incentive for the Members will be to avoid the tax issue. This increases the political incentive for deficit reduction to come from spending cuts.

Reactions are coming out fast, with one of the loudest voices being Michigan’s Rep. John Conyers (D) who is calling for a massive protest at the White House.

Liberal Reactions

Greg Sargent at Wapo's The Plum Line headlines with "GOP on verge of huge, unprecedented political victory."

Anything can happen, but it apppears the GOP is on the verge of pulling off a political victory that may be unprecedented in American history. Republicans may succeed in using the threat of a potential outcome that they themselves acknowledged would lead to national catastrophe as leverage to extract enormous concessions from Democrats, without giving up anything of any significance in return.

Liberal Paul Krugman over at New York Times titles his piece "The President Surrenders."

In fact, Republicans will surely be emboldened by the way Mr. Obama keeps folding in the face of their threats. He surrendered last December, extending all the Bush tax cuts; he surrendered in the spring when they threatened to shut down the government; and he has now surrendered on a grand scale to raw extortion over the debt ceiling. Maybe it’s just me, but I see a pattern here.

Marc A. Thiessen at Washington Post with "How the Tea Party ‘hobbits’ won the debt fight."

What a difference a weekend makes. The reported debt-limit deal appears to be a victory for the Tea Party. It includes around $1 trillion in spending cuts and creates a special committee of Congress to recommend cuts of $1.2 trillion more. If Congress does not approve those additional cuts by year’s end, automatic spending cuts go into effect. The package sets an important new precedent that debt-limit increases must be “paid for” with commensurate cuts in spending. According to Sen. Rob Portman, a former White House budget director, if we cut a dollar of spending for every dollar we raise the debt limit, we will balance the budget in 10 years — something that even the Paul Ryan budget would not achieve. And all this is accomplished with no tax increases.

Other liberal headlines include but are not limited to;

Jonathan Chait at The New Republic with "Did Obama Get Rolled?"

Jonathan Cohn at The New Republic with "This Is Not Leadership."

Taylor Marsh with "Republicans Fake Pres. Obama Out of his Shorts."

Conservative reactions

Jeff Winkler at The Daily Caller with "Liberal commentators, lawmakers are not amused"

By the looks of things, if there is finally a debt deal, liberals must feel like they’ve had their head rammed into the ceiling fan.

A note from Smitty at The Other McCain to Paul Krugman (linked above)titled "Krugman, STFU!"

Sitting There Feeling Useless sits Paul Krugman, unable to grasp that the American people aren’t buying his swill.

The worst thing you can do in these circumstances is slash government spending, since that will depress the economy even further.

Can you not grasp reality, man? Government Spending Triggers Fiscal Undertows.
Only somebody with the mentality of an insect would lack the wisdom to see that, beyond a certain early point (long ago passed in our case) the governmental cast on the economic limb with the fracture* causes atrophy of the market muscles. Human beings that do not confuse themselves with Socialist ants can grasp that an exoskeleton on the limb implies increasing weakness over time, not recovery. Load-shed the government spending, the over-regulation, the suffocating growth of bureaucracy, and go for some good, old-fashioned physical therapy.
Sincerely, Thanks For Understanding.

Donald Doublas at American Power headlines "New York Times Slurs Republicans as 'Hostage-Taking Extremists'"

It's no mystery where the Times' editorial board gets such language. The progressive blogosphere has long been awash in beyond-the-pale attacks on principled conservatives. And the tone has taken a desperate turn of late. Government spending is out of control and leftist elites called for more of the same as an ostensible solution. The White House never offered an original plan and Senate Democrats played obstruction until the last moment. As I noted previously, elections have consequences. The GOP deserves credit for sticking to the political currents that brought them majority power last year in the House of Representatives. There's still a long way to go on the road to reform, and progressives are suffocating at the prospects of more good government rationalization. And reading this is like hearing the tormented screams of the demon being impaled. It's excruciating when your expansionist agenda decisively crushed.

Jazz Shaw at Hot Air with "So just how good was the deal?"

But was all of this a victory on the policy side? As Norquist termed it during the round of Sunday morning shows over the weekend, it was a “victory” in terms of seeing movement in the correct direction and it being done without tax hikes. (Which may still come out of the committee under the cloak of tax reform.) But the totals will fail to impress. Even if you reduce the deficit by roughly $3T over the next ten years, that means that instead of our nation debt ballooning to $26T one decade out, it will only go up to $23T. It’s hard to deny that this gaudy sounding number is actually nothing more than a few good sized drops in a still very large bucket.

William Teach at Pirate's Cove with "Debt Deal Winners And Losers"

Liberals are still more than welcome to send extra revenue to the IRS. Practice what you preach.

And what about the US economy? Winner? Loser? Time will tell, but, this same debate will need to be revisited next year in terms of the next budget, and we need to reduce spending further, and immediately. We need to rework the entitlements, to make them solvent for the future. And we need to knock Obama out of the White House, and flip enough seats in the Senate, in order to attempt to get our fiscal house in order.

Many, many, many and did I mention, MANY, more reactions and discussions at Memeorandum.