Policy Priorities

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BUDGET WATCH: THIS WEEK...

July 22, 2011

Cut, Cap & Balance" Threatens to Blow Holes in Safety Nets

Late Tuesday, the U.S. House of Representatives passed a deficit reduction plan known as "Cut, Cap and Balance" on a 234-190 vote. The Act would threaten a number of crucial supports for children. Specifically the Act would:

  1. Make deep cuts in spending for fiscal year 2012, as outlined by the House passed budget. If spending were to exceed these limits, there would be an automatic, across-the-board cut to selected programs to bring down spending. Veteran’s benefits, Medicare, Social Security, and interest on the debt (which represent about two-thirds of all entitlement spending) would be excluded from the cap, so the necessary cuts would disproportionately fall on programs affecting children and low-income Americans – programs like school lunches, student loans, SNAP/food stamps and unemployment insurance. While past deficit reduction bills have exempted low-income programs from these cuts, this bill does not;
  2. Lock in these deep cuts over the next 10 years by writing spending caps into law, limiting spending to a percentage of GDP, as dictated by the House passed budget; and
  3. Require that any vote to raise the debt ceiling by August 2nd be accompanied by the passage of an additional piece of legislation, a balanced budget amendment (BBA) that is unlikely to win support of 2/3 of both the House and Senate. For more information on the dangers of a balanced budget amendment, download our fact sheet.

A vote on the "Cut, Cap, and Balance Act” is expected in the Senate later this week, where it has little chance of passing. The president has already issued a veto threat for the legislation.

Meanwhile, negotiations continue as the August 2nd deadline for default grows closer, and several new proposals have materialized. President Obama continues to meet with congressional leaders, and there are reports that he is working on an alternative plan with the speaker.

Following tense negotiations between the White House and GOP leaders last week, Senate Minority Leader Mitch McConnell (R-Ky.) proposed plan that would make the president act to raise the debt limit by as much as $2.5 trillion in three installments. The first, an increase of $700 billion, would come immediately. The next two, worth $900 billion each, would come this fall and in June of 2012. On each occasion, President Obama would be required to submit to Congress an explicit request for an increase, along with a menu of proposed spending cuts equal to the requested increase.

Because August 2nd is rapidly approaching and congressional objections to all other proposals to raise the debt limit remain, Sen. McConnell's plan had been considered the most viable option available until a new proposal was released Tuesday by a bipartisan group of senators known as the “Gang of 6”. Led by Sens. Mark Warner (D-Va.) and Saxby Chambliss (R-Ga.), the group includes Sens. Dick Durbin (D-Ill.), Kent Conrad (D-N.D.), Tom Coburn (R-Okla.) and Mike Crapo (R-Idaho). Because this is the only bipartisan plan to date, it has attracted considerable attention, despite limited details. It includes substantial unspecified savings from Medicaid and Medicare, as well as revenue raisers.

With less than two weeks before action must be taken to raise the debt limit, and given that important details have yet to be fleshed out, there is now talk about a short term increase in the debt ceiling until a more comprehensive deal can be worked out. Things are changing rapidly, so stay tuned to CDF’s Budget Watch for updates!

Click here to view past Budget Watch updates.