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United States

Aug 1, 2011

The US debt deal nobody likes is done ... almost

Less than 48 hours before the US government runs out of money, a tentative deal to avoid default has split both parties down the middle and a vote still has not been scheduled.

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The debt ceiling brinksmanship game in Washington is over, but the crisis is not. Less than 48 hours before the US government runs out of money, a tentative deal to avoid default has split both parties down the middle and a vote still has not been scheduled.

President Barack Obama announced the deal in a televised address several hours ago, and that leaders of both parties in both chambers of Congress were on board. However, the votes for both parties will be messy and even the president said this wasn’t the deal he wanted.

Neither side has given much ground in the initial cuts, just $1 trillion in non-entitlement programs such as defence and research. The second part of the deal will establish a commission to sort out the tough cuts in the coming months. Everything will be on the table. If that commission does not reach an agreement for significant reforms by November, including taking the axe to the Bush tax cuts for the highest income brackets and Medicare, an automatic trigger will impose “cuts that neither party will like”.

The man with the hardest job of selling it, Republican Speaker John Boehner, told his members this was still just a framework, but would “prevent a job-killing national default”, giving them the language they can use to explain their support for a plan this Democratic president would sign.

The tentative deal as it stands allows both sides to keep their 2012 election talking points by not making any tough decisions now. Democrats can say the GOP want to cut Medicare and Medicaid. Republicans can say Democrats want to increase taxes. They were sent to Washington at the last election to make those tough choices, but instead they’re punting to the next Congress. For Washington, that’s business as usual.

With no revenue increases or entitlement reforms in this deal, all the upcoming hard choices will be imposed on a handful of commission members, made up from both parties and chambers. However, the last deficit commission’s recommendations were ignored, so a grain of salt is necessary.

The initial cuts, far smaller than the $4 trillion envisaged at the White House weeks ago, have not been decided. However, the smaller cap they have to reach will make it easier for both sides to reach agreement.

The announcement brings to an end a week of bitter duelling press conferences and symbolic votes with no chance of going anywhere. The next vote, at the earliest tomorrow, will be the real deal. If it doesn’t pass the Senate in the next 24 hours, or if the House wants any changes, then parliamentary rules will run out the clock. This time there are no second chances.

It was considered a brilliant idea several sessions ago to force a cooling off period on any introduced bills before they can be voted on. Too many congressmen had no idea what was in the bills and complained that rushed deals left them unable to explain voting for “poison pills” they didn’t have time to read. However, in practice Washington operates on deadline, going from crisis to crisis no matter how long they’ve had to debate.

Even without all the details, several congressmen have blasted the tentative deal. Head of the Democratic Black Caucus Emanuel Cleaver called it a “sugar coated Satan sandwich”.

Tea Party Republicans are also not expected to support any deal. Freshmen Tea Party-aligned senators Rand Paul and Marco Rubio insist US has enough revenue to pay the interest and can shutdown parts of the “bloated government”, therefore the default deadline is meaningless. They demand a Balanced Budget Amendment, a new addition to the constitution that would prevent any borrowing except in exceptional circumstances such as national emergency or by a super-majority vote of congress. A separate symbolic vote for a Balanced Budget Amendment is likely to be included in the final deal, even though nobody expects Boehner will secure those Tea Party votes for the deal itself.

Democrats have already lost the policy argument for not cutting spending during a struggling economy, or the need to increase revenue, mostly due to Obama’s own speeches. All they’re talking about now is how low they’ll be forced to kowtow. The GOP’s demands once considered unthinkable to Democrats are now uncontested. The president’s threats to veto any plan than required a second vote, a deficit commission, or a Balanced Budget Amendment haven’t been heard in days. Indeed, they’re part of this plan.

Yet, despite, losing the one point he threatened to veto over, the president has said this deal, particularly the commission’s November trigger, will ensure the US does not have to face this crisis again in another six months.

The international scorn directed at Washington has not been lost, at least to the media covering these negotiations. Journalists are talking about the need for fundamental structural reform of US parliamentary rules to prevent this pattern of moving from crisis to crisis. Some have even suggested this may provoke the emergence of a new third party willing to make those tough decisions.

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