Daily Tax Update - August 1, 2011: White House & Congressional Leaders Reach Debt Ceiling Agreement

WHITE HOUSE AND CONGRESSIONAL LEADERS REACH DEBT CEILING AGREEMENT:  President Obama announced last night that he had reached an agreement with congressional leaders to avert a government default.  The agreement would raise the debt ceiling by $2.4 trillion in two stages and provide for $917 billion in spending cuts over 10 years.  The agreement would eliminate the need for further increases to the debt limit until 2013.  The agreement includes no tax or entitlement reform measures.  However, the agreement provides for a bipartisan “super committee" charged with identifying an additional $1.5 trillion in deficit reduction, including from entitlement and tax reform.  The committee is required to report legislation by November 23, 2011, and Congress is required to vote on committee recommendations by December 23, 2011.

  • The House is expected to vote later today, followed by a Senate vote.  House Budget Committee Chairman Paul Ryan said, "It’s a good agreement, it’s going to pass."  Senate Minority Leader Mitch McConnell said, "We’re very optimistic we’re going to do well."
  • In announcing the agreement last night, the President said, "The first part of this agreement will cut about $1 trillion in spending over the next 10 years -- cuts that both parties had agreed to early on in this process.  The result would be the lowest level of annual domestic spending since Dwight Eisenhower was President -- but at a level that still allows us to make job-creating investments in things like education and research.  We also made sure that these cuts wouldn’t happen so abruptly that they’d be a drag on a fragile economy.  Now, I've said from the beginning that the ultimate solution to our deficit problem must be balanced.  Despite what some Republicans have argued, I believe that we have to ask the wealthiest Americans and biggest corporations to pay their fair share by giving up tax breaks and special deductions.  Despite what some in my own party have argued, I believe that we need to make some modest adjustments to programs like Medicare to ensure that they’re still around for future generations."  The President continued, "That's why the second part of this agreement is so important.  It establishes a bipartisan committee of Congress to report back by November with a proposal to further reduce the deficit, which will then be put before the entire Congress for an up or down vote.  In this stage, everything will be on the table.  To hold us all accountable for making these reforms, tough cuts that both parties would find objectionable would automatically go into effect if we don’t act.  And over the next few months, I’ll continue to make a detailed case to these lawmakers about why I believe a balanced approach is necessary to finish the job."  The President added, "Now, is this the deal I would have preferred?  No.  I believe that we could have made the tough choices required -- on entitlement reform and tax reform -- right now, rather than through a special congressional committee process.  But this compromise does make a serious down payment on the deficit reduction we need, and gives each party a strong incentive to get a balanced plan done before the end of the year.  Most importantly, it will allow us to avoid default and end the crisis that Washington imposed on the rest of America.  It ensures also that we will not face this same kind of crisis again in six months, or eight months, or 12 months.  And it will begin to lift the cloud of debt and the cloud of uncertainty that hangs over our economy."
  • Senate Majority Leader Harry Reid said yesterday, "Today, I’m relieved to say that leaders from both parties have come together for the sake of our economy to reach a historic bipartisan compromise that ends this dangerous standoff.  The compromise we have agreed to is remarkable for a number of reasons, not only because of what it does but because of what it prevents:  a first-ever default on the full faith and credit of the United States."
  • House Speaker John Boehner said, "We got 98 percent of what we wanted.  It would also guarantee the American people the vote they have been denied in both chambers on a balanced budget amendment, while creating, I think, some new incentives for past opponents of a BBA to support it."
  • The key provisions of the agreement provide for:
    • Immediate enactment of 10-year discretionary spending caps generating nearly $1 trillion in deficit reduction; balanced between defense and non-defense spending.
    • Authorization for the President to increase the debt limit by at least $2.1 trillion, eliminating the need for further increases until 2013. 
    • A bipartisan committee tasked with identifying an additional $1.5 trillion in deficit reduction, including from entitlement and tax reform.  The committee is required to report legislation by November 23, 2011, which receives fast-track protections.  Congress is required to vote on committee recommendations by December 23, 2011.
    • An enforcement mechanism established to force all parties – Republican and Democrat – to agree to balanced deficit reduction.  If the committee fails, the enforcement mechanism will trigger spending reductions beginning in 2013 – split 50/50 between domestic and defense spending.  Enforcement protects Social Security, Medicare beneficiaries, and low-income programs from any cuts.
  • Additional details of the agreement can be accessed here.

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