Late Sunday night, congressional leaders on both sides of the aisle reached a tentative agreement to temporarily solve our nation’s current debt ceiling crisis. That deal was announced late by President Obama and both Republican and Democratic leadership. The plan involves a temporary increase in the debt ceiling, but also does not necessarily involve and permanent solutions to the problems are country is facing. Here is a summary:
- An increase in the debt ceiling through 2013
- A bipartisan committee to reduce the deficit by Thanksgiving with a bill going back to the congress
- A deficit reduction program of about a trillion dollars or so
This change will not directly target Social Security or Medicare, but it surely will reduce the budgets of a number of major federal programs. Although President Obama said today that this would not necessarily affect eduction and research, but I would suspect cuts to both education and research are on the table as are cuts to medicare vendors (but not medicare recipients). The big problem is that this compromise does not issue any new taxes or any new revenues, which doesn’t make it seem like a very “balanced” approach.
As reported by the San Francisco Chronicle:
In the end, negotiators settled on trigger that would force automatic across-the-board cuts of $1.2 trillion to agency budgets over the next decade, split half and half between domestic programs and defense. Programs for the poor, including Medicaid, and Social Security would be exempted. But Medicare payments to providers could be hit.
Although, the damage to the economy and the potential downgrade to our country’s bond ratings may have already been done. Bill Gross, the founder and chief investment officer for Pacific Investment Group (PIMCO) said today to CNN’s Ali Belshi that the bond rating agencies may have already made decisions on US bond ratings, which could impact interest rates significantly in the months and years to come. Of course, we can only hope that is not the case, as a downgrade of US debt obligations could mean a severe crisis for the US financial system.
Granted, the politics are not yet done, as some more conservative members of congress are saying that they are not happy with this solution, even when the Republicans got the most benefit from any “compromise” (remember, no new taxes?). In fact, Sen. Mike Lee (R-Utah), a “tea party” member told CNN’s Wolf Blitzer today that he would potentially filibuster the legislation, causing the Senate to require a super-majority to pass the legislation (as is the typical Republican tactic).
Finally, the President today did say that he wants to continue to explore a truly balanced deal, which would have to include increases in revenues including taxes on the wealthiest Americans, the reduction of special tax breaks, and closing some special corporate tax loopholes.
Honestly, if that was what comes out of this deal — the end of certain tax deals, that would be a good thing. However, at this point, it does appear that the richest Americans may continue to contribute the least to this debt crisis. Hopefully that will change soon.