Weather Break: Understanding the debt ceiling deal

Now that default has been averted and the agreement to raise the federal debt limit has been signed into law, attention here in Oklahoma has shifted, at least temporarily, from politics back to the weather (or, from the debt ceiling to the sweat ceiling). Although the full implications of the agreement will not be understood for months, or years, it is clear that the deal to lower the deficit will have far-reaching consequences for federal and state budgets and the economy. For those looking for concise analysis of  the agreement’s  fiscal and economic implications, here are a few pieces worth reading:

• Good short summaries of the basic mechanics of the deal are provided by this White House fact sheet and by the Center for American Progress; the full bill and accompanying materials can be found here.
• In a statement by Robert Greenstein, the Center on Budget and Policy Priorities argues that “the deal places the nation on a disturbing policy course and sets what may become important precedents that are cause for serious concern.” The Center is especially worried that the deficit reduction framework set up by the agreement paves the way for cuts of “an unprecedented depth” to discretionary spending programs and makes a balanced approach that includes additional revenues an unlikely outcome.
• Lawrence Mishel, President of the Economic Policy Institute, criticizes the agreement for prioritizing deficit reduction at the expense of job creation, arguing that “the spending caps do not allow the budget to meet our nation’s basic needs for public investment, regulation and other domestic needs.” Deep spending cuts beginning in 2013 could kick in at a time when unemployment is expected to remain between 8 and 9 percent.
• While progressives are generally critical of the agreement, Talking Points Memo’s Brian Beutler points out four “silver linings”, in addition to four major problems, with the debt deal. Beutler praises the agreement for backloading the spending cuts past next year, thus giving the economic recovery more time to take hold; putting defense spending and Medicare providers on the line for automatic cuts while protecting Social Security, Medicaid, and programs for the poor if the Joint Select Committee on Deficit Reduction gridlocks or Congress fails to pass its recommendations; and establishing a process that could favor the expiration of the Bush tax cuts at the end of 2012.
• From the right, Ed Feulner, President of the Heritage Foundation,  strongly criticizes the agreement for relying too heavily on cuts to defense spending; leaving the door too far open to tax increases, and missing the opportunity to advance the cause of a constitutional Balanced Budget Amendment.  Meanwhile, the Cato Institute’s Michael Tanner and Bruce Edwards challenge whether the reductions in discretionary spending will end up amounting to real cuts and question whether any real entitlement reform will emerge from the work of the Joint Select Committee.
• On the Health Affairs blog, Joseph Antos looks at what the agreement might mean for Medicare and other health care programs. On the discretionary spending side, Antos warns that public health programs, the National Institutes of Health, the Agency for Health Research and Quality, and others will be under the budget axe – but not until 2013. Meanwhile, Medicare providers, whose payment rates are already being squeezed by the Affordable Care Act and other legislation, are a likely target of cuts under the second round of deficit reduction put in place by the agreement.
• In a post on the Off the Charts blog, the Center on Budget and Policy Priorities’ Nick Johnson argues that the debt limit deal will likely hit hard on state budgets.  Johnson points out that “the debt limit deal will likely lead to well over half a trillion dollars in cuts in non-security discretionary funding over the next decade”, while noting that fully one-third of non-security discretionary spending flows through state governments in the form of funding for education, health care, human services, law enforcement, infrastructure and other services. In addition, there’s a significant chance that the Joint Select Committee will propose reductions in federal funding for Medicaid – although if their proposal fails and automatic across-the-board cuts kick in instead, Medicaid will be exempted.
• A Stateline article provides a survey of state reactions to the debt agreement – most of which involve uncertainty and anxiety. According to Michigan’s budget director, “We’ve always known that big reductions were coming. Now, it’s just a matter of figuring out where they’re going to come and how quickly.”

The Joint Select Committee has only until November 23rd to issue its proposal for the next $1.2 trillion or more of deficit reduction, and Congress is required to vote on Committee recommendations by December 23rd. Chances are that come winter, we will again have high political drama in Washington to divert us from our next round of extreme Oklahoma weather.