U.S. deficit deal could head off debt-limit fight

As Washington gears up for a fight over the debt ceiling, lawmakers are considering an approach that would allow them to say they are adopting fiscal discipline over the long term even as they vote for increased borrowing.

The approach, outlined in several proposals circulating on Capitol Hill, would set specific savings targets and require automatic spending cuts and possibly tax increases if the goals are not met.

Contentious fights over taxing wealthy Americans and overhauling health programs for the poor and elderly would be left to a later date.

This path would give lawmakers political cover as they vote to allow the government to borrow above its current $14.3 trillion limit, a move strongly opposed by the Tea Party movement and other fiscal conservatives who want to see government spending slashed.

Lawmakers and Washington pundits say it could head off a looming showdown over raising the debt limit that could stretch out for weeks after the limit is reached in mid-May.

"It ... enables you to build some trust between the two sides and get past the debt limit and get that monkey off the market's back," said Joe Minarik, a budget expert at the Committee for Economic Development think tank who helped craft a plan pitched to lawmakers privately this week.

Republicans say they won't vote to raise the limit without steps to get the debt under control, but Democrats are likely to object to steep spending cuts.

With the 2012 election season already underway, compromise may prove elusive if lawmakers take on taxes, healthcare or other divisive issues in the midst of what is expected to be an acrimonious debate on raising the debt ceiling.

"The likelihood of getting a huge package of legislation in place immediately would be difficult," Chris Van Hollen, the top Democrat on the House of Representatives Budget Committee. told Reuters.

'Bad spending practices'

Budget reforms have accompanied at least five debt-limit votes in the past, according to the office of Representative Eric Cantor, the No. 2 Republican in the House.

"Republicans will not agree to raise the debt limit without binding budget reforms and immediate spending cuts that will guarantee we don't continue these bad spending practices in the future," Cantor said.

So far, Cantor has not said specifically what conditions he would like to see attached to a debt limit vote.

The "Savego" plan developed by Minarik and other budget experts associated with the Bipartisan Policy Center think tank would sidestep deep differences, at least for now, about how to balance the budget.

Issues such as whether to raise taxes on the wealthy, as President Barack Obama has proposed, or whether to partially privatize the Medicare health program for retirees, as Republicans want, would be put to one side.

The tough decisions would come after the debt limit vote, when lawmakers would have to decide each year exactly how to find the needed savings.

Like several other deficit-reduction plans that have been unveiled over the past six months, the Savego plan would impose automatic cuts on discretionary programs like housing and defense if lawmakers exceed agreed-upon limits.

But it would also require lawmakers to find savings from Medicare and other government-run health programs which normally lie beyond the reach of the annual budget cycle.

Lawmakers would have to find additional savings from a third category, which includes the tax code and other non-health benefit programs, such as crop subsidies.

The plan stops short of calling for mandatory tax increases, which would likely alienate many Republicans.

A similar approach is being considered by a group of six Republican and Democratic senators who are trying to craft a deficit-reduction plan that is acceptable to both parties, according to a budget expert who has worked with the group.

The so-called "Gang of Six" is expected to finish their work in early May, when Congress returns from a two-week recess, several budget experts and lobbyists said.

White House officials note the Savego plan is similar to their own proposal.

[Source: By Andy Sullivan and Tim Reid, Reuters, Washington, 21Apr11]

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