How did we get
to this point?
The raising of the debt ceiling is one of those peculiar features of the American political system, right up there with the Senate filibuster and the presidential Thanksgiving-turkey pardon. Every so often (89 times since 1939) Congress has had to vote to raise the debt limit, even though it already voted for the spending obligations that brought the country to the edge of its borrowing power. Usually, the vote is a formality following some posturing by the opposition party (see Sen. Barack Obama, 2006.)
At a news conference Friday, President Obama said he still wants to achieve a budget deal that helps reduce the federal deficit. (July 15)
Which federal programs would you choose to pay?
But not this year. Congressional Republicans, fired with the tea party fervor that helped them reclaim the House last fall, see raising the $14.3 trillion limit as a Rubicon to be crossed only if Obama tosses billions in spending overboard. And they have refused to pair those cuts with a small proportion of higher tax revenue to help right the fiscal ship.
The Treasury Department says the country will reach its borrowing limit Aug. 2, leading to a default that Federal Reserve Chairman Ben Bernanke says would be a “calamity.”
What are the options on the table?
Three main paths forward have emerged. For weeks, Vice President Biden negotiated with Republicans on a deal to save more than $2 trillion over the next decade. There was tentative agreement on cutting farm subsidies, federal employee pensions and the budgets of most federal agencies, as well as at least some Pentagon cuts. The two sides agreed on slicing $100 billion from Medicaid and were negotiating cuts to Medicare — higher premiums for the wealthy, restrictions on the supplementary Medigap policies many seniors purchase, and cuts in payments to hospitals and other providers.
More recently, Obama met with House Speaker John A. Boehner (R-Ohio) to discuss a bigger deal — a “grand bargain” that would save $4 trillion. Obama was open to raising the Medicare eligibility age from 65 to 67 and cutting Social Security payments by recalculating cost-of-living increases.
But both of these deals foundered on House Republicans’ opposition to including increased revenue as roughly 20 percent of the mix. In the smaller deal, revenue would include ending oil and gas industry subsidies and the loophole that lets hedge-fund managers have their earnings taxed at the 15 percent capital-gains rate. The larger deal pushed by Obama would have also included a broader increase on taxes for the wealthy.
The third, and increasingly likely, option is a fallback proposed by Senate Republican leader Mitch McConnell (Ky.). Congress would allow Obama to raise the debt limit in three increments totaling $2.5 trillion. It would also vote on resolutions disapproving of the debt increases, letting Republicans formally blame the increases on Obama.
To get House Republicans behind the deal, McConnell and Senate Majority Leader Harry M. Reid (D-Nev.) are revising it to include $1.5 trillion in cuts to government agencies and a new bipartisan committee to produce a framework for long-term debt reduction. Obama signaled Friday that he could live with the McConnell-Reid fallback.