The Debt Ceiling Agreement

Well, the president and congressional leaders have all agreed to a framework for the debt agreement. Actually getting the law written and passed in time to avoid missed payments will take a set of behind the scenes miracles. But there’s a good chance the agreement will pass tomorrow and become the law of the land.

One of the most interesting early explanations of what that law will look like comes from Speaker Boehner’s office. It’s a 7-slide presentation on the agreement (pdf), part of the effort to convince his caucus to support the bill. A few items that catch my attention:


It’s all about jobs (slide 1) – Since the latest poor jobs report, Republicans have been doing their best to cast all their efforts in jobs terms. This framework is no exception. The problem? Their tax argument relies on an implicit assumption that more money in the economy is a good thing for jobs creation. So why isn’t slashing government spending as bad for jobs as raising taxes?

No new taxes, now or ever (slide 2) – I don’t yet know whether the law would “effectively make it impossible for the Joint Committee” to raise taxes or what that means? If it means that any revenue-increasing tax reforms are out of bounds, that strikes me as a terrible way of tying the hands of the new Joint Committee. For this to work properly, everything’s got to be on the table as an option.

Spending caps (slide 4) – I’m not a fan of spending caps for the same reason I don’t favor the balanced budget amendment: both are blunt instruments for achieving a goal that really requires nuanced institutional changes. If Congress were serious about limiting government, it would restructure the budgeting and appropriation process. Instead, members have decided that they just need one more artificial ceiling. But of course, such lines can move. Or they can serve as an opportunity to hold the nation hostage to the most ideologically committed. (For example, see this debt ceiling battle.)

How NOT to amend the Constitution (slide 5) – Members of the Supreme Court follow a simple rule in negotiating decisions: no trading votes. You can’t give your vote on a death penalty appeal in exchange for another justice’s support on a tax case. Congress would be well-served to follow a similar rule in attempting to rewrite the Constitution. The threat of financial shortfall by the federal government (which will arise again next spring) should not be used as a cudgel to force support of a Constitutional amendment. Tea Party members who supported this provision have lost sight of what it means to love and preserve the Constitution.

Watch the numbers and the timing (slides 5, 6, and 7) – If Congress passes a Balanced Budget Budget or approves more than $1.5 trillion in cuts, the president “would be authorized to request a debt limit increase of $1.5 trillion.” But if the Joint Committee’s recommendations fall short of $1.2 trillion in deficit reduction, the president could request a debt ceiling increase of $1.2 trillion, with automatic cuts kicking in to make up the difference (to $1.2 trillion).

So what if the Joint Committee recommends, and Congress passes, $1.3 trillion in cuts? It appears that the president could then enact a $1.2 trillion raise in the debt ceiling, and avoid automatic cuts. That sounds pretty ideal for the Democrats, so you can bet there’s a catch. My guess is that the smaller increase would necessitate revisiting this issue in the fall of 2012, right in the middle of the election. If so, this is a political trap, not a responsible solution.

What’s the balance? (slide 7) – The automatic cuts need to be painful enough on both sides to spur a deal with bipartisan support. Since they’re all cuts, there are some conservative members who won’t be motivated to stop them. A better plan would have built in an automatic expiration of the Bush tax cuts in the absence of a deal. That would have spurred Republicans to work out a better deal going forward.

But short of that, they key is what it means for spending cuts to be “equally split between defense and non-defense programs.” Does that mean as much money has to be saved from defense spending as non-defense spending? I’m guessing not, unless we’ve all decided to count drawing down the wars as savings. Otherwise, a proportional cut to defense spending on one hand and Medicare on the other isn’t a balanced set of incentives.


Once the legislation is drafted and we get some independent analysis (which will probably catch up AFTER the bill passes – see Patriot Act, Health care legislation, etc.), we’ll have better answers to these questions. In the meantime, we’ll have to be content that it appears the federal government won’t have to default on any obligations just because we’re imposed an artificial debt ceiling.

One Response to The Debt Ceiling Agreement
  1. kaahl
    August 3, 2011 | 4:25 am

    I am shocked, shocked that politicians are setting traps for each other!