Pass the Deal — But Start Preparing Now for the Next Round

Published August 1, 2011

National Review Online

Fittingly, the “deal” that has emerged from the protracted, months-long stand-off on the debt limit isn’t so much a deal as it is a (very) temporary truce between the parties. Because, while its passage will result in some real and desirable spending reductions in exchange for a bump up in allowable federal borrowing, it also purposely sets the stage for new confrontations in the months ahead—confrontations that will bring to the surface all of the reasons this battle has been so heated, and which weren’t resolved at all by what the House and Senate are likely to pass in the coming hours.

Here are the basics of what was agreed to yesterday by the White House and by House and Senate leaders. If passed, the Budget Control Act would establish new caps on discretionary spending (appropriations) through 2021. In 2012 and 2013, separate caps are to be put in place for “security” and “non-security” appropriations (“security” funding includes the Department of Defense but also appropriated spending for homeland security, veterans affairs, intelligence, and foreign aid). After 2013, there’s one cap on all such appropriated spending. These caps would save about $741 billion over ten years, according to the Congressional Budget Office. In addition, the legislation would make other minor changes in some student loans and program-integrity efforts that would save about $20 billion. Throw in lower federal interest payments from the smaller deficits that result from the spending cuts, and these provisions would save $917 billion over a decade—basically the same as the House-passed version.

In exchange for these spending reductions, the debt limit would be raised in two steps, by $900 billion.

So far, so good.

Of course, the president and his allies had made it clear for weeks that a $900 billion jump in the debt limit was not sufficient to get their support because it would mean another debt-limit showdown early next year. That would be inconvenient for the president in an election year. So the rest of the package that emerged yesterday is an elaborate mechanism aimed at giving the president the debt-limit increase he wanted without violating House Speaker John Boehner’s demand that any increase in the debt limit must be matched by an even larger spending reduction.

The result is a convoluted process that will leave no one happy, including conservatives.

It starts with a new twelve-person special congressional committee charged with coming up with another $1.5 trillion in deficit reduction. If seven of the twelve members endorse a deficit-cutting plan, it will get an up-or-down vote in both the House and the Senate, with no amendments.

If the Congress fails to pass such legislation (either because the committee never came to an agreement, or one or both houses voted it down), then automatic cuts would get implemented over the years 2013 to 2021 to achieve additional deficit reduction—up to a maximum amount of $1.2 trillion. These cuts would be imposed in equal parts on “security” spending and on domestic spending (which includes both appropriated “non-security” accounts plus some selected entitlement programs, like farm support payments and Medicare—although any cuts in Medicare would be limited to provider payments and could not exceed 2 percent of total program spending).

The agreement also specifies that any plan endorsed by the special joint committee will be measured against CBO’s March 2011 baseline—a “current law” baseline that assumes the Bush tax cuts will expire after December 2012.

To understand these joint-committee-automatic cut provisions, they have to be assessed in terms of political leverage. Which side gets the upper hand from this process, once it is set in motion?

For starters, it’s clear that both sides will find it exceedingly hard to live with the automatic cuts that will go into place if no plan comes out of the joint committee, or if the plan that does come out is defeated in the House or Senate. Keith Hennessey estimates that the automatic 2013 cut in defense could reach 10 percent. That’s not responsible, and most Republicans would find it extremely difficult to swallow.

Indeed, the Democrats are hoping that enough Republicans will balk at this prospect that the joint committee will be able to recommend a “balanced package”—meaning something with tax hikes. But as Hennessey notes, the automatic cuts in domestic spending would be nearly as deep as they would be for defense—perhaps 8 percent in 2013. And so it’s not clear who would feel the most pressure. Are rank-and-file Democrats really ready to go along with automatic, across-the-board cuts in education, labor, and health programs? Moreover, the president is the commander-in-chief. No one will get more blame than he will get if the military is hamstrung, and the country more vulnerable, from the cuts that would be imposed by political gamesmanship.

It would have been far better for the GOP to give the president a second debt-limit increase without this process. He would have owned the debt, and real entitlement reform with this president is a long shot, to say the least. But that’s no longer an option. With the clock ticking, conservatives should accept the deal as the best that can be gotten at this point and begin immediately to prepare for the next fight.

And, as Hennessey notes, the key to winning the next round is pretty simple: under no circumstances should the GOP appoint members to the joint committee who are willing to entertain tax increases. If the Democrats on the committee insist on tax hikes as a condition for approval of a plan, then the Republicans should be prepared to let the clock start ticking toward the automatic cuts that would go into effect next year. If Republicans stand firm again, there’s a good chance they will come out ahead in the next battle, just as they did this time.

James C. Capretta is a fellow at the Ethics and Public Policy Center. He was an associate director at the Office of Management and Budget from 2001 to 2004.

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