Democrats and Republicans have reached an agreement on the debt ceiling, and both sides will present the deal to their respective caucuses today.
The White House has released a fact sheet explaining the mechanics of the deal. Basically, Congress will have to make some guaranteed cuts now, and then think about how to make more in the future by way of a bipartisan committee.
The committee's recommendations will be fast-tracked for a vote before the end of this year. If Congress fails to agree on how to implement this second round of cuts, then automatic cuts will kick in and do it for us. More specifically, if the bipartisan committee can't agree to the cuts by December of this year, then the automatic cuts (called sequesters) will start in January 2013.
The automatic cuts are the best part of this legislation; they have good effects on the legislative process and will give voters a clear choice in 2012.
These cuts are supposed to spur compromise because the politicians sent to the bipartisan committee must either decide what they want to cut, or have an impersonal, pre-set machine make cuts for them, and both sides stand to lose from quibbling away the opportunity to make careful choices about where to save money (conservatives will worry about cuts to the military and liberals will be concerned about education and infrastructure spending). Not only will this threat ensure that both sides agree to cuts, but it will also, for once, force congressional leaders to be more careful about what they buy, potentially giving us more efficient social programs.
There are two other far-sighted components to the automatic cuts. First, their delayed start keeps them from damaging the recovery (assuming you think there is such a thing as “the recovery”). Second, various entitlement programs were excepted, preventing impoverished citizens from feeling the brunt of the cutbacks.
All of these benefits could come to nothing though, if voters aren't careful about remaining engaged with our nation's finances. Because the threatened automatic cuts are just part of a law like any other, Congress could undo them. This is why the timing is smart for democratic reasons in addition to fiscal ones. The American people will get to see the handiwork of Congress and then listen to the candidates debate the wisdom of those concrete proposals. Further debt ceiling negotiations are pushed off until after the election so that brinksmanship won't enter into the discussion on the way to November.
The decisions of the debt committee will be a clear and achievable starting point for the debate between Barack Obama and whoever challenges him.
If Americans like what the bipartisan committee comes up with, they can make sure to elect a fiscal hawk who will veto attempts to play games with any agreed upon cuts. Both candidates will have to justify any deviations from the status quo, which represents an equilibrium point, for now, on the spending issue.
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