Congress and the President are down to the wire on cutting a debt limit deal. The President's goal haqs been to sound fiscally conservative, make clear the August 2 deadline, point to the need for a combination of spending cuts and tax increases, and encourage more discussions.
- It's still possible that the two parties will agree to a scaled-down deal based mostly on spending cuts. However, the Biden $2 trillion package probably can't get the required 50% of the House. It includes tax increases not offset by tax rate cuts, leaves spending growing fast from the current high level, relies on "interest not paid on debt not incurred" for part of its savings, and hurts seniors and other taxpayers by changing indexing formulas from CPI-W to the less-inflationary chain-weighted CPI (that's the normal headline reading announced monthly.) The CPI change hits seniors by reducing their cost-of-living increase a bit (due for a bump in December after two 0% COLAs in 2009 and 2010.) The CPI change also hits income taxpayers by holding down the inflation-adjustment in the tax bracket thresholds causing more bracket creep.
- Because the Biden package is probably a non-starter, there's a fall-back under discussion -- a mini-deal for only a TARP-sized $800 billion or so debt limit increase. There would be $1.5 trillion-$1.8 trillion of reductions in spending growth (over 10 or 12 years), minimal tax increases, and a nod toward considering a balanced budget amendment (this gives members cover to vote for more debt.) This smaller debt limit increase would last through about December, the time of year Congress will be most able to cut another deal in order to kick the can past the 2012 election and get home for Christmas (like the 2010 deal to extend all the tax cuts and loopholes and keep 99-week unemployment benefits for another year.)
If they don't reach an agreement, we think Treasury will be able to make the August 2 deadline stick, meaning construct the legal justification for non-payment of obligations. (We don't think there is any consideration in Treasury of trying to apply the 14th amendment in order to issue more debt.)
To meet the August 2 deadline for enacting the actual law increasing the debt limit, the Administration has said it needs an agreement to be reached by Friday July 22
Morgan Brittany
Morgan now spends much of her time devoted to military organizations and other conservative causes. Her greatest passion is speaking on behalf of the greatness of America!