Analysis: Debt deal takes minor swipe at red ink

[August 02, 2011]  WASHINGTON (AP) -- 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.

[Associated Press; By ALAN FRAM]

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

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