In the wake of the breakdown in negotiations over the weekend between President Obama and House Speaker John Boehner (R-OH), the House and Senate leaders have each drafted and rallied support for competing fallback plans. Both Speaker Boehner and Senate Majority Leader Harry Reid (D-NV) unveiled their proposals today and are preparing their respective chambers for votes on them in the coming days.
Speaker Boehner’s plan involves at least a $2.5 trillion increase to the debt ceiling, which would be authorized in two separate increments. The first installment would be for up to $1 trillion, would become available immediately, and would ensure that the debt ceiling is not breached until February 2012. It would be offset by a $1.2 trillion reduction in discretionary spending levels over the next decade. Boehner’s plan also creates a 12-member special committee tasked with reporting legislation to Congress by November 23, 2011. The committee would identify at least $1.8 trillion in additional deficit reductions from entitlement reforms or further discretionary cuts. Their deficit reduction package would then be subject to votes in both the House and Senate and, provided it is passed, the debt limit would be increased by an additional $1.6 trillion, which would extend through the end of 2012. Finally, Boehner’s plan would require the House and Senate to vote on a Balanced Budget Amendment to the Constitution later this year. President Obama has threatened to veto the plan, citing the market uncertainty and further politicization of the debt ceiling issue inherent in a vote for a second installment.
In contrast, Majority Leader Reid’s plan authorizes up to a $2.7 trillion increase in the debt ceiling immediately upon enactment. Offsetting cuts include $1.2 trillion in cuts to discretionary spending, $1 trillion in savings from winding down the wars in Iraq and Afghanistan, $400 billion in savings on debt interest, and $100 billion in cuts to mandatory spending programs. Similarly to the House plan, it would create a 12-member bipartisan special legislative committee that would recommend further additional spending cuts subject to Congressional approval. However, unlike the House plan, the debt ceiling increase would not be contingent on passage of the special committee’s proposal. Reid’s proposal authorizes enough of a debt ceiling increase to sustain through the end of 2012 (a requirement of President Obama) while matching dollar-for-dollar the debt limit increase with deficit reductions without including new revenues (a requirement of House Republicans). President Obama’s spokesman today gave support to the Reid proposal.
With eight days remaining until the August 2nd deadline, the two parties and two chambers seem to be acting without coordination. All three major credit rating agencies have warned about the possibility of downgrading the U.S. credit rating, and investors are getting jittery. With no clear resolution to the debt ceiling issue in sight, President Obama is scheduled to address the nation tonight.