July 26th, 2011
06:54 AM ET

Debt debate cheat sheet

By Lisa Desjardins, CNN

Where are we with the debt debate? After a weekend of no agreement, here's your simple guide to the plans in play right now, even as the playing field changes rapidly:

Key figures

• $14.29 trillion: current debt limit. That's also nearly the value of the European Union's gross domestic product - or everything produced in the EU - last year.

• August 2: the date when the federal government is forecast to hit the debt limit and see all new loans cut off. Falls during "Simplify Your Life Week." Really.

What happens if Congress doesn't act by then?

• $2.4 trillion: the increase in the debt limit that officials think is needed to get the government through November 2012.

• $4 trillion to $9 trillion: the amount of deficit reduction in a longer-term plan.

Plans in the discussion

Starting with those more central to current negotiations:

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1. The Reid plan

Senate Majority Leader Harry Reid, D-Nevada, outlined a blueprint calling for roughly $2.7 trillion in spending cuts over the next decade while raising the debt limit by $2.4 trillion, an amount sufficient to fund the government through next year's election.

Reid's plan would not require any new tax increases or reforms to politically popular entitlement programs such as Medicare, Medicaid and Social Security.

With that, Reid is making a major concession to Republicans, who have sharply resisted increases in taxes or other revenues. He says time is running out and Congress needs a bipartisan compromise.

Specifically, Reid's plan includes $1.2 trillion in immediate discretionary cuts to which he says Republicans already agreed in debt negotiations.

He would add another $1 trillion in savings from "winding down" the wars in Iraq and Afghanistan. Some Republicans say those defense cuts are a problem, though others have pointed to such savings in previous bills. Reid gets another $400 billion in saving on interest on the debt and $40 billion by rooting out waste, fraud and abuse.

Reid's proposal would establish a congressional committee comprised of 12 House and Senate members to consider additional options for debt reduction. The committee's proposals would be guaranteed a Senate vote with no amendments by the end of the year.

Supporters say: We are running out of time. This drops the sticking point over revenues and could clear the way for fast compromise that avoids government default.

Opponents say: The spending cuts in the Reid plan are not substantive enough, they would not truly cut how Congress spends. Long-term, this would not force entitlement reform or any longer-term solutions.

Odds: Without more details, it is hard to say, but the Reid plan has a shot at passage in the Senate. It has nearly zero chance in the House while Republicans push their own separate plan there. See below.

2. The Boehner plan

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House Republicans, led by Speaker John Boehner, unveiled their deficit reduction/debt ceiling bill Monday.

The Boehner plan would raise the debt ceiling in two steps.

Step 1: Raise the debt ceiling now by about $1 trillion and pass immediate, discretionary spending cuts of $1.2 trillion. That's $1.2 trillion over 10 years.

Step 2: Hold a second vote next year, when that $1 trillion extension runs out. The second vote would raise the debt ceiling another $1.6 trillion but would be contingent on a new joint committee of Congress. The committee would produce legislation to cut at least $1.8 trillion from the deficit over 10 years. That committee proposal would go to each chamber of Congress for a vote. The debt ceiling would go up if both chambers pass the committee's proposal and it is enacted.

In addition, the Boehner plan would set up spending caps to limit future government spending. If Congress does not meet those caps, this proposal would then trigger across-the-board cuts.

Also, the Boehner plan requires that Congress vote on a balanced budget amendment to the Constitution after October 1 but before the end of the year. The idea is to give those in favor of a balanced budget amendment time to build support before Congress votes. To move on to the state ratification process, constitutional amendments require passage by two-thirds of each chamber.

Supporters say: This sets up a path to raising the debt ceiling through 2012, as President Obama has urged, and it addresses long-term issues. The Boehner plan makes spending cuts now and pushes fiscal reform for the future via a deficit-reduction commission and votes on a balanced budget amendment.

Opponents say: Opponents on the left say it's dangerous to make the next debt increase (in 2012) contingent upon the results of a commission that may deadlock and a Congress in the middle of an election year. This sets up another potential fiscal crisis just months from now. Conservative opponents say this does not go far enough, that it does not force a balanced budget amendment, does not force entitlement reform and could lead to impasse on a long-term solution.

Odds: Republicans are counting their votes in the House, where this plan has at least even odds, but is not certain to pass. In the Senate, we know the Boehner plan will hit a wall.

3. The "kick the can" short-term deal

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This proposal could take many forms but would raise the debt ceiling for a matter of weeks or a few months, with offsetting spending cuts and/or revenue changes.

It may be as much as $1.5 trillion or as little as a few hundred billion.

Obama has repeatedly said he will not sign such a deal. But in White House talks, House Majority Leader Eric Cantor suggested looking at a short-term bill, famously leading to a pronounced pushback and a musical flourish, Jed Bartlet-style moment. "This could bring my presidency down," Obama said, according to Republicans, "but I will not yield." Both sides agree he ended the meeting at that point.

Supporters say: The two sides cannot agree, and this deal is the best they can do.

Opponents say: It's putting off the tough decisions and barely scratches the surface of the problem.

Odds: We have upgraded chances of this from very unlikely to simply "unlikely." Obama has said he would veto it, but pressure to pass something is mounting.

4. The "fallback": The McConnell and McConnell/Reid plans

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These plans seem to be on the back burner but were the first draft of a "worst-case" plan in case Congress and the White House couldn't reach a specific deal on raising the debt ceiling. In theory, they include relatively simple legislation and could lead to an increase in the debt ceiling in a matter of days.

Specifically, Senate Minority Leader Mitch McConnell proposes a shift in how the government raises debt ceilings, resting the decision and power more with the White House. McConnell's plan would allow the debt ceiling to go up if (a) the president requests a specific increase, (b) the president submits proposed budget cuts in an amount greater than the debt ceiling increase and (c) two-thirds of Congress does not vote against it (that is, if one-third supports the debt ceiling increase).

Reid was working with McConnell to add components to this plan, including $1 trillion to $1.5 trillion in spending cuts and a commission that would propose wider reform.

Supporters say: This "fallback" could save the U.S. from hitting an unprecedented financial wall. It also takes the politics out of debt ceiling debates.

Opponents say: The McConnell plan requires no spending cuts or change in fiscal policy. It demands only proposals, which Congress may or may not pass. Even if the McConnell/Reid spending cuts are included, this idea makes few or no difficult fiscal decisions.

Odds: Unclear

5. The Gang of Six plan

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This is a long-term plan put together by a bipartisan group of six senators: Democrats Kent Conrad of North Dakota, Dick Durbin of Illinois and Mark Warner of Virginia, and Republicans Tom Coburn of Oklahoma, Mike Crapo of Idaho and Saxby Chambliss of Georgia.

Members of the Gang of Six presented a rough outline of debt reduction ideas to a group of 50 senators last week, stirring optimism but not getting enough clear support for passage.

The Gang of Six compromise would save $3.7 trillion over 10 years, according to Conrad, the Senate Budget Committee chairman. The plan would also overhaul the tax system, ending many deductions but lowering tax rates overall. On Medicare, the Gang of Six plan punts. It asks for hundreds of billions in savings from Medicare and health programs but would instruct committees to determine where to find those savings.

Rating agencies: Not enough to raise the ceiling – they must deal with the debt

Supporters say: This is a true bipartisan agreement and compromise. It's a long-term plan that cuts spending, ends unnecessary tax loopholes and includes much-needed tax reform.

Opponents say: There is simply not enough time to properly digest and discuss this plan before the debt ceiling deadline. The devil is in the details.

Odds: Unlikely.

6. Obama's "grand compromise" long-term deal

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This is a set of principles and not a specific plan. Obama has said he wants a "grand compromise" that would reduce the deficit over the next 10 or 12 years by roughly $4 trillion.

The "grand compromise" proposal is conceptual; we do not have a detailed proposal. This is essentially a broad outline for a plan similar to the Gang of Six. Obama has indicated that such a deal would include tax reform and Medicare changes.

Obama's tax wish list

Perils of Obama's grand bargain

Supporters say: This is why we sent members to Congress, to make difficult political decisions that may be tough for them but that are good for the country in the long run. Our debt crisis won't be solved with lollipops and starlight. It will hurt, but lawmakers need to pull the trigger.

Opponents say: No such deal could get the votes to pass. Republicans will block any perceived tax increases, and Democrats will stand against benefit cuts to Medicare. It's simply impossible.

Odds: Unlikely. Its only chance is a sudden resurgence of the Gang of Six plan.

7. Cut, cap and balance

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This plan, passed by the House, would raise the debt ceiling if Congress agrees to do three things: cut discretionary spending by $111 billion next year, cap that spending in future years to a certain percentage of gross domestic product and pass a balanced budget amendment to the Constitution.

Cut, cap and balance is a long-term proposal that aims to force more fiscal restraint upon all future Congresses by changing the spending rules overall. It does not tackle Medicare or Social Security directly, but future spending caps would have serious implications for all federal programs, especially those, like Medicare and Social Security, that are due to run significant deficits in the future.

The cut, cap and balance bill does not contain a balanced budget amendment itself; instead, it directs that such legislation be passed separately.

And the version in the Republican bill is balanced-budget-plus. Cut, cap and balance would raise the debt ceiling only if a balanced budget amendment requires a two-thirds vote of Congress to pass any tax increase.

Side note: Constitutional amendments require a two-thirds vote of each chamber to pass Congress and move to state ratification. But you knew that.

Supporters say: This is the one proposal that forces Congress, now and in the future, to have fiscal restraint. It would guarantee an end to all the red ink.

Opponents say: Congress doesn't need to change the Constitution to correct the government's overspending. And this particular balanced budget amendment, requiring a two-thirds vote to increase taxes in most situations, would handcuff the nation in the event of a recession or many other emergencies. This would force spending cuts that could cripple the government and the economy.

Impact of delay on economy

Odds: Close to zero in the short term. The Senate tabled the bill. That said, this proposal puts a balanced budget amendment back in the spotlight and moves up that idea's long-term chances.

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Topics: Economy • United States

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soundoff (12 Responses)
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