Competing Proposals and the Deadline Looms Closer



July 26, 2011

Boehner and Reid release competing proposals; Obama continues to call for balanced plan
House Speaker John Boehner (R-OH) and Senate Majority Leader Harry Reid (D-NV) yesterday released separate proposals to increase the statutory debt limit and reduce the deficit, neither of which include tax revenues.

Speaker Boehner’s plan, which would raise the debt ceiling by $2.6 trillion and reduce the deficit by $3 trillion in a two-step approach, was met with mixed reactions by House Republicans. House Ways and Means Chairman Dave Camp (R-MI) called the plan “a good option,” but supporters of a balanced budget amendment to the U.S. Constitution criticized the plan for not including a balanced budget and tax limitation amendment.

President Barack Obama and Majority Leader Reid both rejected Boehner’s proposal, with the president issuing a warning that a short-term increase would prolong uncertainty and “force us to once again face the threat of default just six months from now,” and Reid calling the plan a “nonstarter” in the Senate. President Obama did however praise Reid’s proposal.

The Reid plan would provide $2.7 trillion in budget savings and lift the debt ceiling by $2.4 trillion through 2012. House Republicans quickly decried Reid’s plan as “full of gimmicks” in terms of its projected spending cuts. The competing proposals from both sides of the Capitol set up a risky confrontation just a week before the federal government could default on its debt, calling into question the likelihood of a deal before the August 2 deadline.

Sources: Independent Sector, Congress Daily, Congressional Quarterly, The Hill, BNA Daily Tax Report

Highlights from the Statutory Debt Limit and Deficit Proposals

Speaker Boehner’s Proposal

  • Raise the debt ceiling by $2.6 trillion (Proposal assumes that this would avoid the need for another increase until 2013).
  • Reduce the deficit by $3 trillion through a two-step approach that includes no new revenue.

o   The first step would immediately raise the debt limit by $1 trillion and put a 10-year cap on discretionary spending that would save $1.2 trillion.

o   The second step would create a special joint 12-member Congressional committee tasked with cutting an additional $1.8 trillion from the deficit.

If that package were approved by Congress, the president would be authorized to request a second debt limit increase (estimated at $1.6 trillion) to avoid another debt ceiling increase until 2013.

The House is expected to take up the first step of Boehner’s proposal as early as July 27.

Majority Leader Reid’s Proposal

  • Raise the debt ceiling by $2.4 trillion through 2012.
  • Reduce the deficit by $2.7 trillion over 10 years.

o   The deficit reduction piece includes $1.2 trillion in yet to be identified discretionary program spending cuts

o   $1 trillion in savings from winding down the war effort

o   $400 billion in interest savings and at least $100 billion in mandatory program spending adjustments

§  Includes a revenue/tax  trigger

§  Prohibits Medicare/Medicaid/Social Security cuts in its $100 billion of mandatory program spending adjustments.

Like the House plan, Reid’s proposal does not include any tax increases, but does have a revenue / tax trigger.

Senator Reid is hoping that the Senate can move on his proposal as soon as July 27.

Sources:  Patton Boggs, Independent Sector and Congressional Quarterly.

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