Monday, August 01, 2011

A Debt Limit Deal In the Works

I know that everyone's holding their breath over a handshake agreement on raising the debt ceiling and proposing spending cuts.

It should come as no surprise that the CBO has scored the latest proposal close to the previously announced Reid and Boehner plans.

Once again, it's heavily backloaded with cuts. It gets a staggered raise in the debt limit in exchange for $917 billion in cuts that are delineated over 10 years and possible additional cuts that may get superimposed. It seems to mirror the Reid deal in dollar value but like the Boehner plan, doesn't count the military as part of the reductions.

The agreed-upon plan would see $21 billion cut in 2012, $42 billion in 2013, and rise to $156 billion cut in 2021 to total out $917 billion in cuts over a 10 year period. Most of that is once again backloaded in the final years of the deal. There's another $1.2 trillion that might get added to that amount, but that isn't broken out in the deal because it's based on what a panel of Congress members will decide. That too will likely be backloaded in a similar fashion.

Once again, the CBO has to assume that the AMT doesn't get adjusted and that the Obama-extended Bush tax cuts are also allowed to expire (because that's the assumptions that the CBO must take in to account when figuring out revenues and spending on these bills - it must assume that the law will not be changed from as it in effect upon passage of the bill under consideration).

Raising the ceiling was never really in doubt beyond all the outrageous hyper hyperbole - and the two conferences would get something through, even if it was an interim measure. That's why I didn't really get worked up over the looming deadline, and I'm not particularly surprised that the deal is so heavily backloaded. When those spending cuts never materialize down the road, the country will be in as bad or worse fiscal shape - especially if the expiration of the Bush tax cuts once again gets put off and/or the economy doesn't turn around and we see significant economic growth.

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