Senior White House advisor Valerie Jarrett held a call with reporters outlining the details of the debt ceiling deal reached with Congressional leaders this week and signed into law by the President.
However, the exact details of the legislation still baffles many. What exactly was lost in this firestorm?
Well, the proposed bill raises the debt ceiling by 2.1 trillion dollars through the end of 2013.
Much of the package resembles what Speaker of the House John Boehner proposed earlier, however, it is not as short term as his which would have only extended the debt ceiling through the end of the year, 2011. Neither does it restrict the president to raise the ceiling only as authorized by a bi-partisan Commission, as Boehner’s bill recommended.
The law raises the debt ceiling in two parts and reduce discretionary spending by about $1 trillion over the next decade.
- The law caps spending at $917 Billion over the next 10 years. This spending reduction will be the lowest since Dwight Eisenhower was president. This cap will amount to nearly $1 trillion dollars reduction in the deficit.
- “What’s very important is those cuts are done evenly in that the security part of the budget, that is defense, with the non-security part of the budget , “said Principal Deputy Director for the National Economic Council Jason Furman, who was also on the call. “This would be the first reduction in security spending since the 1990s”
- A total of $350 Billion of the initial cuts will come from defense spending.
Social Security & Low-Income Services
- “Also, there will be “no cuts in social security, no cuts in Medicare, no cuts in Medicaid, no cuts in food stamps or social programs,” Furman said.
- Those programs, however, will be subject to cuts by a bi-partisan committee that is authorized through November 23, 2011 this year to come up with comprehensive budget reform and make recommendations to Congress for approval. (see below for further details)
Debt Limit Increase
- The deal authorizes the President to increase the deficit up to $2.1 trillion dollars through 2013. To prevent a default, the President is authorized to increase the debt limit by $400 billion, immediately. He will raise the limit by another $500 billion shortly thereafter for a total of $900 billion, initially.
- The president can make additional debt limit increases, as he deems necessary, up to that $2.1 trillion limit through 2013.
- The deal does not include immediate revenue increases as many Democrats wanted; however, the White House has assured its base that when the Bush-era tax expires on January 1, 2012, they will not be reauthorized.
- In fact, Jarrett said emphatically that President Obama intends to veto any proposal that comes to his desk that would extend the Bush tax cuts further beyond January 1, 2012.
- The cuts will expire the same time that the first set of spending cuts will go in effect on January 1, 2012. Since the White House was unable to get a tax increase out of this negotiation, it is relying on the expiration of these cuts for a revenue increase. The tax increase will apply to all Americans however, not just the wealthiest 20%.
Part II: Committee recommended deficit reduction plan
- The plan authorizes the creation of a bi-partisan committee, which is being dubbed by policy wonks as the “Supercommittee.”
- Speaker of the House John Boehner, Minority Leader Nancy Pelosi, Senate Majority Leader Harry Reid and Senate Minority Leader Mitch McConnell will each be able to nominate three members to this committee.
- The Committee will be tasked with coming up with an additional $1.5 trillion dollars in cuts, which when added to the $900 billion initial cuts, will bring the total cuts to $2.4 trillion.
- The Supercommittee will be given carte-blanch authority to come up with the rules of the law, in terms of deficit reduction, for the next two years.
- “The legislation puts no restriction on what Supercommittee to do,” Furman said. “They can undertake spending reform, spending reductions, comprehensive tax reform, can close individual tax loop holes, they will have no constraints on their actions and the goal for that room would be to come together and undertake balance reduction.”
- “This committee has a chance to look at tax reform,” Jarrett added.
- But the Supercommittee also has the ability to make further cuts to social programs including Medicare, Medicaid, Social Security, Food Stamps, Temporary Assistance for Needy Families (TANF) and other programs that target the low-income population, as part of the $1.5 trillion cap on cuts.
Deadlock is a possibility
- The committee only needs to have a simple majority, or 7 out of 12, approve the recommendations it sends to Congress for approval. There is a possibility that the 50% democrat and 50% Republican committee can deadlock, though Furman said there are incentives put in place to discourage a stalemate.
- In the event the Supercommittee cannot agree, a triggering and enforcement mechanism will kick in that calls for across the board 50/50 cuts, half from domestic and half from military spending, to get to a $1.2 trillion dollar deficit reduction.
- “The goal is for the enforcement mechanism to never happen though,” Furman added.
- If the Committee is able to come to an agreement by November 23, Congress then has until December 11, 2011to approve the Committee’s slate of spending cuts.
Social Security, Medicare and Low-Income Programs exempt under stalemate“Trigger”
- If the Committee cannot agree, triggering the enforcement mechanism, social programs such as Medicare, Social Security and other low-income programs ARE EXEMPT from cuts.
- If by the off-chance Congress does not approve the Supercommittee’s plan, that same trigger would come into play again, ushering in the automatic cuts across the board on all programs. However, again, if triggered social programs are EXEMPT from being cut.
There was a lot of misinformation about what was in the package,” Jarrett said of the deal. “As people see it and can digest what was in it, people are realizing that the president did a lot to help people.”