Today, the House is scheduled to consider House amendment to S. 627, the Republican Default Act, as revised late on 7/27. The revised bill is essentially the same as the original bill. Like the original bill, it pushes the country even closer to default by providing only an unacceptable short-term approach that ensures another debt ceiling standoff in a few months and requiring adoption of the GOP ideological agenda as a condition of a second debt ceiling increase in early 2012. The revised bill includes a technical change, which resulted in CBO increasing the estimate of its outlay savings from $851 billion to $917 billion.
The Republican Default Act:
- Creates Two-Step Process: $917 Billion in Outlay Savings Now and At Least $1.6 Trillion in Other Spending Cuts in A Few Months. The bill creates a two-step process. In the first step, $917 billion in outlay savings, mostly from discretionary cuts, are enacted now, in order for the debt ceiling to be raised $900 billion now - which may last until roughly early January. In the second stage, it requires that a “Joint Select Committee” come up with at least $1.6 trillion in deficit reduction and that package be enacted before there could be a second increase in the ceiling. In the GOP materials on the bill, they say there will be no revenue increases -- meaning all of this $1.6 trillion would be in spending cuts.
- Leads to Drastic Cuts in Medicare, Social Security, and Medicaid: In effect, the GOP bill requires at least $1.6 trillion in spending cuts enacted in several months for the needed second increase in the debt ceiling to occur. As the Center on Budget and Policy Priorities has concluded, since the first round of cuts hit discretionary programs hard, it is inevitable virtually all of that $1.6 trillion would come from entitlement programs. The Center also points out how enormous $1.6 trillion in entitlement cuts would actually be - pointing out that, by comparison, that the net entitlement cuts in the Simpson-Bowles plan were only $455 to $575 billion. In other words, the entitlement cuts in this GOP bill would be about three times larger.
- Is An Unbalanced Plan for Deficit Reduction With Republicans Protecting Tax Breaks for Special Interests and The Wealthiest Americans: Republicans are pursuing their ideological agenda of deficit reduction composed of 100 percent of spending cuts and no revenue increases - despite the fact the American public rejects this approach. They are pursuing this agenda in order to protect tax breaks for Big Oil, corporations that ship jobs overseas, and the wealthiest Americans - even when oil companies are raking in enormous profits and the wealthy have enjoyed huge tax breaks already.
- Is A Short-Term Deal That Could Lead to A Credit Downgrade and Higher Interest Rates: This bill is a short-term debt limit increase, ensuring that Congress will go through this exact same standoff again in the next few months. Short-term proposals risk further uncertainty and the potentially damaging downgrade of the U.S credit rating. The markets have made it clear that a short-term extension is not sufficient and could result in very serious consequences. While Democrats support deficit reduction, we support doing it in a balanced way that provides certainty to the economy.
The GOP Bill Would Lead to Drastic, Damaging Cuts in Medicare, Social Security and Medicaid
- In effect, the GOP bill requires at least $1.6 trillion in additional spending cuts to be enacted in a few months, on top of the $917 billion in savings enacted now, for the needed second debt ceiling increase to occur. As the Center on Budget and Policy Priorities has concluded, since the first round of cuts hit discretionary programs hard, it is inevitable virtually all of that $1.6 trillion would come from entitlement programs.
- The Center also points out how enormous $1.6 trillion in entitlement cuts would actually be - pointing out that, by comparison, the net entitlement cuts in the Simpson-Bowles plan were $455 billion to $575 billion. That means that the entitlement cuts in the GOP bill would be about three times larger than those in Simpson-Bowles.
- Since Medicare, Social Security, and Medicaid make up 78 percent of all entitlement spending, it is clear that the only way to find $1.6 trillion in entitlement cuts is to make drastic, damaging cuts in Medicare, Social Security and Medicaid. No other entitlement programs could yield these enormous savings.
The GOP Bill Is Designed to Protect Tax Breaks for Big Oil, Other Special Interests, and The Wealthiest Americans
- In the materials on the GOP bill, Republicans say there are no revenue increases in this bill - maintaining their consistent, no-compromise position that their $2.5 trillion to $2.7 trillion in deficit reduction must be an unbalanced package that is 100 percent spending cuts and no revenue increases.
- Republicans are pursuing this agenda in order to protect tax breaks for Big Oil, corporations that ship jobs overseas, other special interests, and the wealthiest Americans - even when oil companies are raking in enormous profits and the wealthy have enjoyed huge tax breaks already.
- For example, on Tuesday, BP announced profits of more than $5 billion for the second-quarter, with Exxon Mobil expected to show even bigger profits later this week. Furthermore, Fortune magazine is reporting that the 400 wealthiest Americans are paying 18% of their income in taxes on average - down from 30%, according to Steve Rattner, a Wall Street financier - mainly because of the capital gains and dividends tax cuts enacted by President George W. Bush in 2003. [Fortune, 7/25/11]
- Furthermore, the American public doesn't support the unbalanced approach to deficit reduction of the Republicans. For example, in a new Reuters/Ipsos poll, Americans by a three-to-one margin prefer a balanced approach to the Republican unbalanced approach. Specifically, in the poll, 56 percent of Americans said they want to see a combination of spending cuts and tax increases included in a deal to bring down the budget deficit. Just 19 percent said they favor a plan like the House Republicans, which would rely solely on spending cuts to existing programs to reduce the deficit.
Finally, the GOP Bill Is A Short-Term Deal That Could Lead to A Credit Downgrade and Higher Interest Rates
- This bill provides only a short-term debt limit increase, ensuring that Congress will go through this exact same standoff again in the next few months.
- Ratings agencies have stated that even if the House Republican plan is enacted, the U.S. credit rating could still be downgraded, which would lead to higher interest rates and a tax on all American families.
- The markets have made it clear that a short-term extension is not sufficient and could result in very serious consequences. For example, here is what one market expert has said: “‘From the markets' point of view, a two-stage plan is a non-starter because we now know it is amateur hour on Capitol Hill and we don't want to be painted in this corner again,' said Christian Cooper, head of U.S. dollar derivatives trading in New York at Jefferies & Co. ‘There is significant risk of a downgrade with a deal that ties further cuts to another vote only a few months down the road given the significant resistance to do the right thing now,' Cooper said.” [Bloomberg, 7/25/11]
- For another example, S&P stated on July 14, “We may also lower the long-term rating and affirm the short-term rating if we conclude that future adjustments to the debt ceiling are likely to be the subject of political maneuvering to the extent that questions persist about Congress' and the Administration's willingness and ability to timely honor the U.S.' scheduled debt obligations.” [S&P Research Update, 7/14/11]