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Debt deal really doesn’t reduce deficit all that much

By ALAN FRAM
August 2, 2011

(AP Photo/Jacquelyn Martin)

The compromise debt limit deal may have resolved this year’s most clamorous political battle between President Barack Obama and Congress, but it takes only a modest swipe at the heart of the matter: the government’s relentlessly huge budget deficits.

The legislation, due a Senate vote Tuesday following Monday’s House passage, would save at least $2.1 trillion over the coming decade, according to the nonpartisan Congressional Budget Office, which tallies the price tags of bills for lawmakers. That’s real money, even by Washington standards.

But it’s just a slice of the nearly $7 trillion in red ink expected over the next 10 years — an amount that could grow by trillions more if tax cuts enacted under President George W. Bush are extended beyond their scheduled expiration in 2013.

The debt limit package makes no sea changes that could set the budget on course for better days. It offers little prospect for stemming the growth of Social Security, Medicare and Medicaid — the huge benefit programs that analysts agree are the chief drivers of the government’s burgeoning budget mess.

“It nibbles at the edges of the problem,” said Nigel Gault, chief U.S. economist for the private firm IHS Global Insight. “The bottom line is it doesn’t address the key things that need to be addressed if there’s going to be a comprehensive solution.”

Despite the wish to change Washington frequently voiced by both Obama and his tea party foes, “It looks, ironically, like business as usual,” said Robert Bixby, executive director of the nonpartisan Concord Coalition, which opposes federal deficits. “What’s bold about this?”

The bill falls well short of the $4 trillion “grand bargain” that Obama and House Speaker John Boehner, R-Ohio, were shooting for last month before their talks disintegrated. Many budget experts use that amount as a benchmark, saying a serious assault on the red ink requires at least that much savings.

Both sides blame the other for the smaller package that emerged. Republicans said they wanted to cut spending even deeper and compel congressional approval of a constitutional amendment requiring a balanced budget. Democrats, who largely oppose a balanced budget amendment as political grandstanding that solves nothing, said they wanted to include tax increases aimed at corporations and wealthy individuals.

However, the measure does eliminate the most immediate problem Washington faced — a possible, catastrophic federal default — by extending federal borrowing authority by at least $2.1 trillion. That’s enough to keep the government functioning until early 2013.

At the insistence of Republicans, it also promises at least as much in budget savings. Also at their insistence, it does so without tax increases.

Initially, the agreement would reduce deficits by $917 billion over 10 years by limiting spending by government agencies. That’s a lot of money, though small compared to the $14 trillion that will still be spent by those agencies during the decade.

Just $25 billion of those savings would occur next year — a barely noticeable speck compared with the $3.6 trillion that the government expects to spend in 2012.

Budget analysts express another worry: Money for items that lawmakers declare “emergencies” would be exempted from the spending limits. In the past, Congress has interpreted emergencies broadly to squeeze in extra spending, once even declaring an emergency for the census, which the Constitution has required since the 18th century.

Next, a newly created panel of 12 lawmakers — six from each party — is charged with finding at least $1.5 trillion more in savings over 10 years. Those savings, to be proposed by Thanksgiving with congressional votes by year’s end, could come from both the spending and taxing sides of the budget.

Many in Washington expect this committee to stalemate, with Democrats likely to insist on including tax increases in a deficit-cutting package and Republicans resisting. The type of lawmakers that congressional leaders appoint to this committee — whether they are moderates or ideologues — will give an early signal on its prospects for success.

Democrats hope to gain leverage because Bush’s tax cuts are scheduled to expire in January 2013 without congressional action. Much will ride on how the November 2012 presidential and congressional elections turn out.

“It’s a second chance to do the right thing, find a grand bargain,” the Concord Coalition’s Bixby said of the committee.

If that special committee fails to recommend at least $1.2 trillion in savings or if Congress turns it down, the bill would automatically trigger that amount of savings by slashing programs across government.

Tax cuts would not be allowed. Social Security, Medicaid, veterans’ benefits and many programs for low-income people would be exempted from the cuts. Medicare savings would be limited to 2 percent and could only affect health care providers, not beneficiaries.

That leaves a limited amount of programs that would be targeted by automatic cuts, leaving fears that lawmakers would consider the reductions too painful and pass new legislation easing or eliminating the cuts.

___

Alan Fram has covered Congress and fiscal issues for The Associated Press since 1987.

An AP News Analysis

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5 Responses to Debt deal really doesn’t reduce deficit all that much

  1. griff

    August 2, 2011 at 6:21 am

    Duh?!

  2. Sandune

    August 2, 2011 at 9:48 am

    When do we get into the serious cuts like Iraq and Afghanistan? When do we redo the trade agreements that continue to give away all profits to China? When do we get out of the Bush tax cuts? When do we get a chance to look at the House and Senate budget and compare it to a rational case for spending leaving out all perks and pay offs?

    There must be a way to learn how much money went into the House Members who voted in favor of contracts and bills on corporations bids? It is not illegal for Corporations to fund the Congress but when it changes their vote, the Congress is committing a federal crime. IRS should have a record of the money paid out to the members and a smart investigator should be able to put it together.

    This has nothing to do with the two parties involved because both are equally corrupt. The one problem that has arisen within the Tea Party is that they are in favor of using social issues to control the American People and they will develop a plan based on “The War on Drugs” and focus on sins.

    The Tea Party agenda is to first destroy President Obama by any means possible. Once they repeal Obamacare they will repeal Roe v Wade and make abortions a federal offense. They say the women will not be sent to prison and the doctors will take the full force of the law. Within this law, no form of birth control will be legal. Planned Parenthood will be forced out of existence.

    How they plan to degrade homosexuals will be a slow process starting with banning marriages. What frightens me is that this is exactly what the LDS declares their agenda. Mormons have increased in membership .and their plan is to tackle and ban all abortions, homosexuality, birth control and making multiple marriages legal. They claim Jesus is their guide.

    I saw through their hypocrisy in high school and walked away from my own family. They were Birchers and followers of George Wallace for President. The whole family could have worn the Tea Party hats.

    No. The deal yesterday will solve very little and I was glad to see that several social issues were not made part of the deal cut. In looking at the vote results it seems that the House of Representatives are exactly half voting with the Tea Party and the other half as usual. This is a dangerous condition for all of us.

    I know my two California Senators will vote for any bill that protects individual freedoms. Folks we have work to do here before the Campaign for Candidates gets handed to the Tea Party.

  3. Solomon

    August 2, 2011 at 10:04 am

    This article begins with an absurd false assumption: “It [the debt limit deal] offers little prospect for stemming the growth of Social Security, Medicare and Medicaid — the huge benefit programs that analysts agree are the chief drivers of the government’s burgeoning budget mess.”

    Who are these analysts to whom Fram refers? I haven’t read a serious analysis of the U.S. budget that considers those programs to be even mildly contributing factors in our current budget deficit (to say nothing of the fact that these “huge benefit programs” are not simply government giveaways, but “entitlements,” that is, earned income that is owed to the citizens who have paid into them).

    Social Security and Medicare, whatever issues one may have with them, are currently solvent. SS has never added a cent to the U.S. debt– indeed, it has been running vast surpluses for almost 30 years which has been borrowed against to finance the budget, preventing more federal debt from being held by foreign banks. This has the effect of REDUCING the government’s debt concerns.

    Medicare costs are rising at an alarming rate, but it’s still within the operating capacity of it’s dedicated payroll tax. It’s not even in the top three reasons the federal budget deficit is currently so high. Those are:

    1) Drastically reduced tax receipts due to the economic downturn (caused by reckless behavior by under-regulated financial institutions) combined with increased federal spending on programs for people affected by the near economic collapse (unemployment insurance, food stamps, housing assistance, Medicaid payments, etc.).

    2) The Bush tax cuts, which should expire in 2012.

    3) The exploding “defense” and security budgets, which have increased over 300% since 2001 (largely due to our prosecution of multiple foreign “wars”) and which now occupy well over $1.2 Trillion of annual government expenditures.

    If the Bush tax cuts are permitted to expire, our annual budget shortfall will be immediately reduced by 25-50% (figures vary with the source, but the overall impact is unquestionable).

    Additionally, a “a possible, catastrophic federal default” was never a realistic potential occurrence. Too much of the major banks’ assets and capital depends directly upon U.S.-issued debt (Treasury bills, other government bonds, mortgage-backed securities issue by Fannie Mae/Freddie Mac) for the government to have EVER considered not servicing the debt. There was never any chance that an actual default would happen, because almost every major bank in the United States would have failed just like Lehman Brothers. There’s simply no way Congress was going to allow that to happen.

    It’s hard to take seriously an article that places blame for the “burgeoning budget mess” on programs that haven’t actually increased the U.S. debt by a single cent.

    • b mcclellan

      August 2, 2011 at 7:52 pm

      We are overrun by the law of the chicken house Solomon.
      Too few sacred eggs in the basket ,
      and too many beaks a peckin each others butts while trampling the weave.

      Pop said,
      that hen there is a sacrifice government didn’t earn,
      time to fire up coup-de-ville, all the way to the pin feathers.

      National Strike..

    • woody188

      August 2, 2011 at 11:22 pm

      Did you really expect the AP to reveal the truth?

      I liked the article that blamed voters for the budget woes more than this one because it was so laughable. Those few media companies that are left are sure pushing the wealthy peoples war against the poor and ignorant now.