A Tentative Debt Deal?

ABC News is reporting a few details of a possible debt ceiling agreement that has yet to be confirmed. Among the features of the possible compromise:

A debt ceiling increase of up to $2.1 to $2.4 trillion (depending on the size of the spending cuts agreed to in the final deal).

They have now agreed to spending cuts of roughly $1.2 trillion over 10 years.

The formation of a special Congressional committee to recommend further deficit reduction of up to $1.6 trillion (whatever it takes to add up to the total of the debt ceiling increase). This deficit reduction could take the form of spending cuts, tax increases or both.

The special committee must make recommendations by late November (before Congress’ Thanksgiving recess).

If Congress does not approve those cuts by December 23, automatic across-the-board cuts go into effect, including cuts to Defense and Medicare. This “trigger” is designed to force action on the deficit reduction committee’s recommendations by making the alternative painful to both Democrats and Republicans.

A vote, in both the House and Senate, on a balanced budget amendment.

We here at OB&B think this is a very agreeable compromise as it gives the GOP the bulk of their requirements while giving the Democrats very few of theirs. We also see it as highly similar to Speaker Boehner’s two-tiered plan, with which we largely agreed.

For starters, we are pleased to see the inclusion of a vote in both chambers on a balanced budget amendment. We believe any balanced budget amendment will fail in the Senate, however this can and should become a focal point in the 2012 election in context of elections in the Senate. Senate failure would mean the GOP would have a recurring theme to work in a national campaign strategy towards the Senate to ensure future passage of a BBA.

Additionally, we are content with the ceiling limit of 2012. While the President and Democrats have stated they don’t want additional debt ceiling debates before the 2012 election, we believe this issue will remain foremost in the minds of the electorate as a new ceiling limit will become an issue for the presidential winner in 2013. We believe this issue will continue to haunt the president and will certainly remain topical in presidential debates. Far from being over, the debate on government debt seems to be just beginning.

The certainty that this debate will continue can be found in the “triggers” with the establishment of a committee for further debt reductions. We are satisfied that the penalty of across-the-board cuts will keep the pressure on the committee to find a workable agreement, and therefore keep the issue fresh in the minds of the electorate. While Democrats can tell their base that tax increases are not off the table, the GOP can tell theirs that they haven’t agreed to tax increases at all. We think it’s a fairly smart move for the GOP in that voters will see which party wants to raise taxes with 1.3% economic growth and who doesn’t.

All in all, this potential deal seems to us to be the best possible compromise at this time. The GOP only controls 1/3 of the budget equation as the Senate and President also have their powers. The Democrats have agreed to cuts and we’ll get an opportunity for more as well as a balanced budget amendment vote. This deal, if accurate, should be viewed as a victory for fiscal conservatives.

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