Congress continued to work toward producing a package that would raise the debt limit by the Treasury Department’s August 2nd default deadline after a vote on a bill sponsored by Speaker John Boehner was put off at 10:30 pm Thursday night until sometime on Friday. By all accounts, the Speaker’s legislation would be historic as it would provide for more than $900 billion in future spending cuts (outlined below) in exchange for a $900 billion increase in the Debt Ceiling. The additional borrowing authority that would be granted to the Treasury Department would cover government expenses into early 2012.

A group of mainly first-term members of the House Republican Caucus has refused to provide their support for this bill because they are concerned it does not provide enough in the way of cuts and does not require the passage through Congress of a Balanced Budget Amendment to the Constitution. All 51 of the Senate Democrats and two Independents have indicated they do not support the Boehner bill as it is currently written and their support will not be gained by making changes to appease conservatives in the House Republican Caucus.

The likely, but by no means certain, outcome of this legislative process is House passage of a modified Boehner bill which will quickly be taken up and defeated in the Senate. At that time, a package of cuts and reforms put together by Senator Majority Leader Harry Reid (outlined below) will be passed by the Senate and sent back to the House. All of this may occur before the end of today. While the House may not accept the Senate bill in total, the similarities between the House package and Senate package lead many, including the President, to believe that a compromise can be reached by Tuesday.

If the House is unable to pass any type of package, expect the Senate leaders on both sides of the aisle to negotiate with the President and send a final bill to the House which will rely on a bipartisan vote to pass.

Comparing House and Senate Proposals

Debt Limit Increase

On Monday, July 25th, Speaker Boehner and Majority Leader Reid introduced their proposals. That evening, President Obama and Speaker Boehner both addressed the country to give their perspective on the status of the negotiations. Below is a summary of the proposals introduced by Speaker Boehner in the House and Majority Leader Reid in the Senate. Speaker Boehner Plan:

  • Approves an immediate increase of the debt limit by up to $900 billion of which $400 billion would be available to the Treasury Department immediately, and an additional $500 billion would be made available subject to the failure to enact a joint resolution of disapproval. If all $900 billion is approved, the Treasury Department has stated it would have enough funding to continue borrowing through the end of this year and at least the first few months of 2012. 
  • The President would also be able to request a second increase of the debt limit by $1.6 trillion, if the recommendations of a joint committee created to reduce the deficit by at least $1.6 trillion are passed by Congress and signed into law by the President.

Majority Leader Reid Plan:

  • Authorizes a $2.4 trillion increase to the debt limit immediately, which is expected to allow the government to continue borrowing until after the 2012 election.

Discretionary Spending

Speaker Boehner Plan:

  • Sets specific spending limits on appropriations for fiscal years 2012 through 2021. Complying with the caps as modified would reduce spending by $917 billion over 10 years from the Congressional Budget Office’s March baseline levels. 
  • In order to comply with the legislation’s annual spending caps, a process of automatic cuts in discretionary spending would be triggered, which was the same sequestration mechanism in place in the 1997 budget agreement.

Majority Leader Reid Plan:

  • Also sets specific appropriations caps for fiscal years 2012 through 2021. The year-by-year totals in the Reid plan are very similar to those in the Boehner plan, and would reduce spending by $751 billion over 10 years from currently expected baseline levels.
  • Adherence to annual spending caps would be enforced through a process of automatic cuts in discretionary spending that would operate very much like those in the Boehner plan.
  • Additional savings include $1 trillion from winding down operations in Iraq and Afghanistan, and $400 billion in interest savings ($220 billion from Iraq and Afghanistan wind down).

Savings From Mandatory Programs

Speaker Boehner Plan:

  • Creates a 12-member joint committee of Congress that includes three Republicans and three Democrats from each chamber, and co-chairmen named by Boehner and Reid. The joint committee would be charged with reporting back to both chambers by November 23 with recommendations to reduce the deficit by an additional $1.8 trillion over 10 years. The committee proposal would not be subject to amendment or a Senate filibuster and would be given expedited consideration in both chambers thereby allowing a vote by December 23.

Majority Leader Reid Plan:

  • Cuts the deficit by $100 billion over 10 years by reducing “waste and fraud” in entitlement programs, improving IRS enforcement, reducing agriculture subsidies, selling broadcast spectrum and finding savings from Fannie Mae and Freddie Mac.
  • The plan would create a 12-member joint committee similar to that in the House plan to recommend ways to reduce the deficit, but the debt-limit increase would not be contingent upon enactment of its recommendations.

Revenues

Speaker Boehner Plan:

  • No revenue increases are included in the proposal, though the deficit reduction committee created by the act may consider revenue increases to achieve its deficit-reduction target.

Majority Leader Reid:

  • No increase in revenue is included, but the committee it creates is explicitly authorized to consider an overhaul of the tax code as part of its deficit-reduction actions.

Balanced-Budget Amendment

Speaker Boehner Plan:

  • Both chambers would be required to vote after October 1 but before the end of year on an amendment to the Constitution that would require a balanced budget.

Majority Leader Reid:

  • Does not require a vote on a balanced budget amendment.

Next Steps

We will continue to monitor this situation closely and will bring you updates as developments occur and the process moves forward.