Congress looking at forced reductions to address budget and debt ceiling issues

It’s the budgeting equivalent of the old adage about killing two birds with one stone. Congress returns from Easter recess next week facing two urgent fiscal questions: what to do about raising the federal government’s borrowing threshold and how to pass a budget for the next fiscal year that honors the fiscal austerity of the current political moment?

Increasingly, the odds favor addressing both issues with a single legislative agreement.

The Treasury Department has said the federal government will hit its $14.3 trillion debt limit around May 16, though bookeeping leeway could allow lawmakers to defer action until July. Republicans in both the House and Senate, backed by a few Democrats, have said they will oppose increasing the debt limit without a significant commitment to future spending cuts.

Just a few weeks after reaching a last-minute deal to fund the government through the end of this fiscal year ending on September 30, the Republican-controlled House and Democratic-controlled Senate must also address the bigger challenge of reaching a deal on a budget resolution setting spending targets for fiscal 2012, which starts on October 1. The budget resolution offered by House Budget Committee Chairman Paul Ryan, R-Wis., has no chance of Senate passage and Senate Budget Chairman Kent Conrad, D-N.D., has not yet offered a budget resolution, but his plan would face long odds in the House as well as in the Senate if it could not generate some GOP support.

Congressional aides in both chambers said that the hope is to address the debt limit and the fiscal 2012 budget by approving a bill that would require Congress to meet ratio-based deficit-reduction targets over perhaps the next decade.

Under the plan, failure by congressional committees to hit the targets would trigger automatic reductions.

Democrats said such a proposal can be voted on in one package with a debt-limit increase, and could provide the significant commitment to deficit reduction that picks up enough GOP votes to allow the debt-ceiling increase. The bill could also serve as a vehicle to set fiscal 2012 spending levels.

Such a plan would not include entitlement reform, though a general statement signaling intent to address entitlements is possible.

While such a measure would serve a similar function in both chambers, aides said they expect the House and Senate to take different approaches, which would complicating efforts. Democratic staffers said they hope Senate passage of what will be seen as a bipartisan plan would put pressure on House GOP leaders to move the same measure.

The details of what many are referring to as a “fail-safe” or triggered mechanism on spending reductions would be crucial, and are far from determined. But various groups of lawmakers and policy organizations are pushing plans that follow the general outline of forcing future cuts that could be linked to the debt-ceiling vote. Sens. Bob Corker, R-Tenn., and Claire McCaskill, D-Mo., have offered a proposal to set binding caps to reduce spending to about 21 percent of the nation’s gross domestic product, though the plan has little Democratic support.

A group of former policymakers, including former Senate Budget Committee Chairman Pete Domenici, R-N.M., outlined a package last week to force Congress to identify deficit-reduction targets that stabilize the debt over 10 years. President Obama signaled general support for a plan that caps spending.

The most closely watched fail-safe proposal, however, may come from the bipartisan “Gang of Six” senators. The group, comprised of Conrad and Sens. Mark Warner, D-Va., Dick Durbin, D-Ill., Saxby Chambliss, R-Ga., Mike Crapo, R-Idaho, and Tom Coburn, R-Okla., hopes to release a sweeping plan to cut the deficit as soon as next week. Their proposal, based on a plan offered last year by the heads of Obama’s bipartisan fiscal commission, would seek to cut spending by $3 trillion and increase tax revenue by $1 billion over a decade.

Two Senate sources briefed on Gang of Six talks said they expect the senators to propose multiple “pieces,” that could receive votes at separate points this year.

The sources said that in addition to a long-term deficit-cutting plan, the senators are preparing to recommend a relatively simple process under which Congress commits to meet deficit-reduction targets, to both mandatory and discretionary spending over perhaps a decade. The plan would also set targets for revenue increases. It would impose “draconian” cuts if the targets are not met, one senior aide said. That proposal could then be linked to the debt-ceiling vote.

A key to the proposal would be the exclusion of specific cuts. That will allow Congress to defer fights it cannot complete in the next month or two while committing to future reductions.

It remains to be seen how strict the plan would be – Congress has previously created exemptions to limit the effect of similar approaches, like Paygo. But the plan would at least serve the political and legislative means for passage of the debt-limit increase.

Conrad has said he is holding off on offering a budget resolution to see if the gang reaches a deal soon. If it does, a senior Democratic aide said Conrad could then include a fiscal 2012 budget plan in the fail-safe mechanism that would be voted on in conjunction with the debt limit.

The aides said they expected the gang to unveil their both long- and short-term deficit-cutting plans as soon as the middle of next week.

Spokesmen for Coburn, Durbin, Warner, Conrad, and Chambliss said the senators have not reached an agreement, noting that no proposal is agreed on until a complete deal is reached by gang members. The aides said the group may not offer a plan next week. All declined to comment on the specifics of the potential proposal.

In public appearances in recent days, gang members have made it clear that their long-term deficit-cutting plan would include a trade in which Democrats agree to a long-term effort to trim spending on Social Security benefits while GOP members back efforts to increase tax revenue by ending tax deductions or loopholes. The package will not include any increases in tax rates, according to senators and multiple aides.

The Social Security component would aim to reduce spending on benefits over 75 years. Advocates of some Social Security reform, like Warner, hope to sell the plan by arguing that it will affect only Americans currently younger than 32 or 33 years old. But aides said the specifics of changes in benefits, and the age of those affected, are one of several remaining issues.

The gang is also widely expected to propose ways to cut spending on Medicare and Medicaid, likely including some means-testing to control Medicare costs. But the group has kept a tight lid on specifics.

– by Dan Friedman – National Journal at 26, 2011