CHN: Deficit Reduction Negotiations Intensify; Deal Sought by July 1

Congressional negotiators working with Vice President Biden to craft a deficit reduction plan met three times this week, and expect to meet even more intensively during the week of June 20.  They hope to reach agreement on a broad plan to cut the deficit by $4 trillion over the next decade by July 1.  If their plan is satisfactory, there will be enough votes to increase the current limit on federal borrowing before the amount that can be borrowed is exhausted, by about August 2.
The bipartisan negotiating team includes Senators Baucus (D-Mt), Inouye (D-HI), and Kyl (R-AZ), and Representatives Cantor (R-VA), Clyburn (D-SC), and Van Hollen (D-MD).  Details of potential areas of agreement are being kept secret, although an opinion column by former Bush speechwriter Michael Gerson provided a general outline that one can speculate came from Republican sources.  According to the Gerson piece, the deal would include immediate and specific spending cuts, caps on spending for five years, and some Medicare reforms.  Significantly, the agreement might include reductions in tax expenditures – reduced or terminated tax breaks that are in effect revenue increases.  While Republicans have continued to voice loud opposition to revenue increases, apparently there is an opening to consider reductions in tax loopholes or other breaks.

Evidence for a willingness to end some tax breaks came in the Senate on June 16 with a 73-27 vote on an amendment to end a 45 cents a gallon tax subsidy for oil refiners who add ethanol to their gasoline mix.  It isn’t clear what other tax expenditures could be included in the Biden group deal, although they total about $1 trillion a year, and many disproportionately benefit upper-income individuals and corporations.

In other ideas for savings that have surfaced as components of the $4 trillion package, drug manufacturers could be required to provide discounts for prescriptions for patients eligible for both Medicare and Medicaid.  Medicaid patients now receive such discounts.  Savings from extending the discounts to these “dual-eligibles” is said to reach $112 billion over 10 years.  Separate legislation providing for these new discounts was introduced in the House and Senate on June 16, with lead sponsors including Senator Rockefeller (D-WV) and Representatives Waxman (D-CA) and Stark (D-CA).

For advocates of low- and moderate-income people, there remain big unanswered questions about the nature of the cuts in services that would be part of such an agreement.  The Biden group discussed cuts in annual appropriations this week.  Those are likely to take the form of overall spending limits, giving the job of spelling out the specific cuts to appropriators.  Those specific cuts would not be achieved until Congress enacts spending bills for FY 2012, which should be done before October 1.

The Biden group has also discussed entitlement spending, both health-related and other areas, such as federal employee pensions and farm subsidies.  Key religious leaders are calling upon the Administration and Congress to protect low-income programs and people from cuts in an initiative called the Circle of Protection and other advocates have included protections for low-income in their budget positions.  (For example, see the SAVE for All principles signed by more than 1,600 organizations.)

It remains unclear whether the Biden group can come up with an agreement that will attract the necessary votes to pass a debt ceiling increase.  Increasing concerns about a stalling economy have ramped up the pressure on Congress to do something that plausibly helps prevent the recurrence of a downturn.   There is wide divergence on the right and left as to what would help the economy, but at this point only the most extreme members of Congress doubt that failure to increase the debt ceiling would do considerable harm.

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