Republicans had also wanted a deal that would cut the deficit more, though their prescription was different from Obama’s. Instead of taxes, they preferred deeper cuts to domestic spending and changes to entitlements.
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The list of people who want to eliminate the debt ceiling includes Alan Greenspan, three former Treasury Secretaries, most of the nation's prominent economists, and analysts dating as far back as the 1950s.
The deal fell somewhere in between. But by gaining the support of both sides, it did not achieve what many economists believe is necessary for the short- and long-term success of the U.S. economy.
Leaving the fate of the debt ceiling up in the air will cause anxiety among businesses and individuals, potentially crimping hiring, investing and consumer spending.
In many ways, the threat of default in two months is a more serious risk than the Jan. 1 fiscal cliff deadline. If Congress does not increase the debt ceiling, the government will quickly run out of ways to pay the nation’s bills and make interest payments on the nation’s outstanding debt. Any failure by the government to meet its financial obligations could be seen as a default, shaking world financial markets, given the special role that U.S. government bonds play in the global economy.
And while a default would be all but certain to push the economy into recession, growth is likely to be slow — and job-market improvement slight — even without such a cataclysmic event. The unemployment rate, which stands at 7.7 percent, is not expected to fall below 7.4 percent by the end of this year, and not below 6 percent until at least 2016 or later.
In the midst of the recession, the government stepped in with spending programs and deep tax cuts to lift growth and reduce unemployment. A majority of economists say those efforts worked.
But federal stimulus has been winding down. And the spending cuts and tax hikes set for 2013 are expected to be a drag on the economy — with government policy offsetting much of the robust recovery being experienced in the private sector.
Nor does the agreement do what many analysts say is necessary to achieve long-term budget savings and tame the federal debt, which is projected to grow rapidly as a percentage of the economy in the coming decades.
Both Obama and House Speaker John A. Boehner (R-Ohio) have proposed plans to trim just enough from federal deficits during the next decade to stabilize borrowing over that period — though not reduce it. In general, economists worry that when the debt gets too large, it slows economic growth — though defining “too large” is a matter of much debate.
Today, the debt stands at about 73 percent of gross domestic product — the size of the overall economy — and is projected to rise rapidly over coming years. The plans from Obama and Boehner, over the next decade, would each bring the ratio of debt to GDP back down to about where it is today, according to rough estimates from the Committee for a Responsible Federal Budget, a group advocating a big deal to tame the debt.
The Senate package is also projected to come close to achieving that, though not quite as close as Obama’s and Boehner’s plans. And even that relies on allowing the deep sequester spending cuts to happen or replacing them with other spending cuts or tax hikes.
None of the plans under discussion would keep borrowing a decade from now from starting to soar again. Much of the budget is projected to be consumed by health-care spending over the coming three decades.
“We have real problems in Medicare that we’re not addressing at all — such as the fact that health-care costs continue to rise faster than the economy,” said Leonard Burman, a public finance professor at Syracuse University. “The fact is we can’t spend unlimited amounts of money on health care.”
Obama administration officials say they hope their efforts to slow spending through the Affordable Care Act, the 2010 health-care law, will make this problem less severe. Republicans have in the past advocated a broad overhaul of federal health insurance programs. Yet neither side is now proposing a specific plan to deal with those long-run challenges.
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