With Congress in recess until after the elections, a plan to replace the fiscal cliff with a comprehensive debt deal will have to get done during the lame duck session. With less than five weeks to work with, Congress might look to the Bipartisan Policy Center's new Framework for a Grand Bargain for recommendations on how Congress could avoid the fiscal cliff, while ensuring it is committed to a debt deal in a limited time frame.
Their proposal does not specify the level of spending cuts or revenue increases that would need be achieved in a deal. But the framework does propose some interesting changes to the budget process, which could help promote agreement on a final plan. Their legislation has four key components:
- Requires the 113th Congress to produce a deficit reduction package that would reduce the deficit by $4 trillion over ten years compared to the current policy baseline.
- Allows the package to move through Congress under "accelerated regular order," under which a simple majority of members present would be required to pass debt legislation.
- Stops the fiscal cliff (including the tax cuts, the sequester, the expiration of the AMT patch, and the physician payment cuts) and replacing it with a "legislative backstop" that would go into effect if Congress failed to achieve a deal in 2013. The legislative backstop would include $4 trillion of savings over ten years, half of the savings from changes to mandatory programs and the other half from cuts to tax expenditures.
- Enacts a initial downpayment -- a mixture of tax increases and spending cuts to offset some of the sequester and demonstrate a credible effort toward deficit reduction.
A framework would at least buy time to ensure that Congress is committed to enacting a budget reform plan in 2013. This is similar to the approach taken by the Gang of Six, and its success will depend on how credible that framework is to the public and financial markets. Repealing the cliff without any replacement would likely result in another downgrade by credit agencies, which is why the downpayment and legislative backstop are so important.
The full recommendations in the "Framework for a Grand Bargain" can be found here.