‘Line’ Items: Harry Potter Edition

In Need of Magic – The Harry Potter saga has come to a conclusion with the blockbuster release of the final movie in the series. Sadly, an end the debt-limit drama is not yet in sight. With only two weeks before the August 2 deadline in which the Treasury Department says it can no longer hold off default, some serious legislative magic will be required to avoid our own “Deathly Hallows.” President Obama is still pushing for a “big deal” of $4 trillion in deficit reduction (an idea seconded by CRFB President Maya MacGuineas in a CNN commentary), but such an enchanting solution becomes the stuff of fantasy the closer we get to the deadline. CRFB has prescribed its own recommendations for the right spell that should come out of the debt limit talks. And since Washington is talking about nothing else, we also wrote a tell-all life story of the debt ceiling so everyone can better understand what we are up against.

Conjuring Up a Deal – Absent agreement very soon on a long-term, comprehensive deficit reduction package, the best hope for averting default now appears to be a scheme being concocted by Senate Majority Leader Harry Reid (D-NV) and Minority Leader Mitch McConnell (R-KY) that would enable a series of increases to the debt limit while also allowing Congress to vote against the increases. The sleight of hand worthy of Dumbledore would allow President Obama to put forth three increases that Congress can vote against through a “resolution of disapproval” that the President could then veto, allowing the increases to move forward. Reid and McConnell are negotiating further provisions to make such an option more palatable and substantive, such as including $1.5 trillion in discretionary spending cuts that both sides agree on and a congressional deficit commission that would recommend $2.5 trillion in further deficit reduction through entitlements and the tax code, perhaps by the end of the year, which Congress would have to vote either up or down without amendments through an expedited process.

More Political Theater on Tap – Before any debt-limit agreement is reached, Washington will see more theatrics as both sides posture and appeal to their bases in what may make the Battle of Hogwarts look tame. On Tuesday, the House will vote on the “Cut, Cap and Balance Act,” which would increase the debt limit by $2.4 trillion in exchange for enacting deep budget cuts, capping federal spending at 19.9 percent of GDP by 2021 and congressional approval of a balanced budget amendment. The measure stands no real chance of passing the Senate, which may vote on a balanced budget amendment this week. See our one-stop resource for more on ideas to improve the budget process to promote fiscal responsibility.

S&P Says Averting Default Alone Won’t Do the Trick – Bond rating agency Standard & Poor’s put the AAA credit rating of the U.S. on “CreditWatch” last week, saying that the rating could be lowered within 90 days “if we conclude that Congress and the Administration have not achieved a credible solution to the rising U.S. government debt burden and are not likely to achieve one in the foreseeable future.” S&P suggests that agreement on a plan with about $4 trillion in deficit reduction in the medium-term would prevent a diminished rating.

IPAB Hexed – Some lawmakers have labeled the Independent Payment Advisory Board (IPAB), which won’t issue its first report until 2014, as the new Voldemort. The panel-that-cannot-be-named was created in the health care reform law to issue recommendations to curtail Medicare costs that must be implemented unless blocked by Congress. Both the House Budget and Energy and Commerce Committees held hearings on IPAB last week where some legislators expressed concerns that the board would usurp power from Congress. House leaders are planning a floor vote in the fall to repeal it. CRFB has defended IPAB as one of the most promising cost-control features of the health reform law and provided ideas for strengthening it. 

Business Leaders Join the Fight – Nearly 500 business leaders and organizations signed on to a letter last week calling on the U.S. to avoid a default and to “agree to a plan to substantially reduce our long-term budget deficits with a goal of at least stabilizing our nation's debt as a percentage of GDP.”

Coburn Readies His Wand – The closest thing to the Order of the Phoenix in the deficit debate has been the bipartisan Gang of Six senators. Although last week there was some hope that Sen. Tom Coburn (R-OK) would rejoin the group after leaving earlier this year and that the senators would unveil a comprehensive fiscal plan that could influence the current talks, this has not come to pass. However, Coburn will unveil his own proposal today that promises to reduce the deficit by some $9 trillion. Once the details are available, CRFB will add the plan to its handy interactive tool that allows users to compare the various budget plans out there.

Key Upcoming Dates

July 18

• Senator Tom Coburn (R-OK) will unveil his $9 trillion deficit reduction plan at a 2:30 pm press conference.
• The group No Labels will hold a rally in front of the U.S. Capitol Building calling for a bipartisan solution to the fiscal crisis at 3:30 pm.

July 19

• House votes on H.R. 2560, “The Cut, Cap and Balance Act.”

July 21

• Leading economic indicators for June released by The Conference Board.

August 2

• Treasury Secretary Geithner says that the U.S. will default on its obligations by around August 2 if the statutory debt ceiling is not increased before then.

October 1

• Fiscal Year 2012 begins for the federal government.