Debt Deal Puts Off Hard Choices for Now

Democrats and Republicans finally come to an agreement, but they still haven't bridged their divide.

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For what seems like an eternity, Republicans and Democrats have been locked in an ideological battle over the future of government spending. Republicans insist on deep cuts as part of any deal to raise the debt ceiling, putting tax hikes of any kind off limits. Democrats want some type of new revenue in the deal. On Sunday night, the two sides finally reached an agreement—they agreed that they'd eventually agree on something five months from now.

The basics of the deal have been banging around the corridors of Congress for weeks. It would raise the debt ceiling through 2013, while enacting about $1 trillion in discretionary spending cuts over 10 years. Defense would be cut by $350 billion. A further $1.5 trillion in cuts by the end of the year would be drawn up by a bipartisan committee of lawmakers, and could include cuts in entitlement programs like Medicare. Tax increases could also be included as part of a so-called tax reform. As details about the deal trickled out on Sunday, it was mostly interpreted as a surrender by liberals and a victory by the Tea Party. Arizona Rep. Raul Grijalva, chairman of the Congressional Progressive Caucus, claimed the deal was "a cure as bad as the disease." Democratic senators grumbled that Obama never really used his bully pulpit in the fight. But, in a way, it's not really a victory for either side—it just sets up yet another showdown on the ideological divide on Dec. 23, when Congress would have to vote on the committee's recommendations.

In fact, while Democrats and Republicans cheered their agreement, they seemed to disagree about what was in it. President Obama said the second wave of debt cuts could include revenue-boosting tax reform. "At this stage, everything will be on the table," Obama said. But House Speaker John Boehner insisted that tax increases were not, in fact, on the table. "It's all spending cuts," Boehner told Republican lawmakers in a conference call Sunday night. "The White House bid to raise taxes has been shut down."

The discrepancy has to do with how the Congressional Budget Office estimates the cost of legislation, which can sometimes turn a tax cut into a tax hike, at least on paper. The GOP said the deal will use current law as a baseline to estimate how much the legislation cuts the deficit—and the current law includes the expiration of the Bush tax cuts in 2012. If the committee makes any changes to the income tax code, it'll also likely have to resolve the expiring Bush tax cuts. So a small tax increase would count as a deficit-busting tax cut, because it would cancel the tax hike scheduled to go into effect at the end of 2012, or so Boehner's office argued.

Right now, it isn't clear who is right. Democrats insist that revenues will be part of the mix. But some budget analysts agree that including broad reform to increase tax revenues would be difficult under the current framework. Maya MacGuineas, president of the Committee for a Responsible Federal Budget, says that you could still look at corporate tax reform or eliminating some tax deductions under this deal, but the types of comprehensive tax reform envisioned by the president's fiscal commission would be all but impossible. "If revenues are off the table, then serious structural entitlement reforms are too," MacGuineas says. "Then you're left with the low-hanging fruit. "Of course, even if Democrats are right, there's no guarantee that the committee would find new tax revenues as a way to reduce the deficit. It may well be that the parties will be as deadlocked on the issue in November, when the committee has to present its findings, as they are now. As a little extra incentive for the committee to consider taxes, Obama hinted that if tax revenues aren't part of the committee's plans, he could veto any extension of the Bush tax cuts, ensuring that tax revenue is raised sometime in 2012.

The last sticking point before the deal could be sealed was the so-called "triggers," the consequences if Congress can't agree on the second set of cuts. In a theoretical world, the full set of spending cuts could already have been drawn up and written down. But that's not how Congress works in the current standoff culture. Rather, the time that could have been spent with Congressional hearings and debate to consider the nature of the spending cuts has been spent with secretive closed-door negotiations and fire-breathing press conferences. With the Treasury Department's Aug. 2 deadline looming, the plan would try to force the parties to work together by enacting a set of onerous spending cuts if Congress don't follow through. Those $1.2 trillion in spending cuts would be split between cuts to military spending and cuts to social programs, including Medicare, although not Medicaid or Social Security. But the triggers only would enact cuts, not revenue increases, and the deal has left many liberals howling that it gives Republicans too much leverage.