Now that the House “approved a budget agreement intended to head off a potential government default” 269 to 161, and that the Senate will likely pass the bill tomorrow, the crisis has ended exactly how the bond market predicted it would: no default.
The next obvious question is whether the deal is a good or a bad one.
The only good thing about this agreement seems to be that it prevents a default. Otherwise, it seems like the Republicans should have taken the President’s initial offer of an 83/17 spending cut/tax increase.
The best part of the bill is that it mandates $900 billion in savings over ten years by capping discretionary spending. The next best component is that the spending cuts do not phase in until 2013. This measure effectively prevents the government from pulling the rug out from under a tepid economic recovery.
That said, the bipartisan, bicameral Congressional committee the agreement forms to find another $1.5 trillion in additional deficit reduction is a bit less exciting. While the idea of forming a bipartisan committee to find more areas of debt reduction is a good one, the amount under consideration seems unbalanced.
Theoretically, all $1.5 trillion of debt reduction component could come from tax increases. As such, the prospect of a debt reduction deal in which 62.5% of $2.4 trillion in debt reduction comes from tax increases is completely unacceptable. This country has a spending problem, not a taxation problem.
If the agreement set aside $1.5 trillion in spending cuts, and assigned $900 billion to the bipartisan committee, it would be a much better agreement, because it would first and foremost cut spending.
The worst part of the agreement is that it would exempt Social Security, Medicaid, and unemployment insurance. These programs are precisely why America’s fiscal house is not in order. With this bill, Congress continues shamelessly to kick this problem down the road.
Greater men (and women) would confront this sacred cow and deal with it.
Then, of course, the agreement authorizes the President to add at least an additional $2.1 trillion to the federal debt until 2013. If $2.1 trillion in additional debt does not scare you, the open-ended phrase “at least” should.
Add me to the list of Republicans and Democrats who are not impressed or fooled by this agreement.