A Deal Is Born

...Pending congressional approval.

Apparently a deadline, real or otherwise, was the necessary component for putting a deal together on the debt ceiling. At 8:40 Sunday evening President Obama appeared on television and announced that leaders of both parties had come to a tentative agreement on the budget ceiling debate. The president was quick to emphasize that the deal was based on the approval of both parties in both houses of Congress. Senate Majority Leader Harry Reid and House Speaker John Boehner were tasked with rounding up sufficient votes from their respective colleagues. Both parties planned to meet among themselves Monday morning.

"Now listen, this isn't the greatest deal in the world but it shows how much we've changed the terms in this town," Boehner was reportedly telling House members on a phone conference taking place during the president's speech. "[But] we've got 98 percent of what we wanted," he emphasized. Earlier in the day, the Senate failed to cut off debate on an alternate package offered by Harry Reid. The vote was 50-49 which fell far short of the 60 votes required to break a filibuster. And although Reid kept his options open for a second vote, his office issued a statement later Sunday afternoon indicating the senator has signed off on a debt ceiling proposal "pending caucus approval." On Sunday night, Reid joined Republican Senate leader Mitch McConnell on the Senate floor to announce an agreement had been reached.

The details offer a bit of bitter medicine for both sides to swallow. The debt ceiling will be raised by $900 billion in return for spending cuts of $917 billion. The first $400 billion increase will come immediately in order to beat the Tuesday deadline for ostensible default. That takes the country through September.  Congress will have the power to disapprove the next $500 billion of debt ceiling increases, but the president can veto it. Thus it would take a two-thirds vote to over-ride that veto and prevent it from kicking in.

After that, an additional $1.6 trillion in cuts will be worked out on a "bipartisan basis" in order to trigger an additional increase in the debt ceiling. If the newly formed congressional committee fails to come up with cuts of at least $1.2 trillion, across-the-board cuts would be automatically triggered and slash funds from programs both sides cherish.

Which programs? Defense spending to satisfy Democratic concerns, and some combination of domestic programs to satisfy Republican ones. Any cuts to Medicare would be limited to 3 percent, and those cuts would ostensibly come from providers, not beneficiaries. Off the table completely are any changes in how the cost-of-living adjustments to Social Security are calculated. Tax hikes are also off the table, as are any reductions in Medicaid, veterans benefits, or military pay. But a pledge to vote on a Balanced Budget Amendment is very much alive.

The congressional committee itself will be composed of six Republicans and six Democrats, with three members of each side coming from the House and the other three members from the Senate. The legislation they propose will be announced by November 23rd. A vote would take place on the package by December 23rd, and it would be an up-or-down affair with no amendments allowed. If the $1.2 trillion in cuts fail to materialize, the president can still request a $1.2 trillion increase in the debt ceiling, which Congress would have to disapprove, again with a two-thirds majority vote to prevent it from happening. The president can also get another increase in the debt ceiling if Congress passes a balanced budget amendment to the U.S. Constitution. That vote will ostensibly take place by the end of the year.

Reactions? The Congressional Black Caucus wasted no time making its feelings known, characterizing the deal as a "sugar-coated Satan sandwich." "We all may not be able to support it or none of us may be able to support it," said Nancy Pelosi. House Rep. Tom Graves (R-GA), who told Fox News he would likely oppose the latest offer, countered. "We need a balanced-budget amendment sent to the states," he warned. "This is the time. If we're going to get it done, we've got to do it now," he added. The president also weighed in, reiterating his desire for tax hikes on Americans making more than $200,000, saying he would push for a "special committee" to come up with such increases.

Will the deal go down? While it is likely to be a tougher sell in the House, due in large part to the strong convictions of Tea Partiers, the real key likely remains, not how many votes each side can garner from its respective members, but how many they can get from the other party. Thus, even as Mr. Reid and Mr. Boehner will do their utmost to convince Senate Democrats and House Republicans respectively to jump on board, both men may need members of the opposition party to reach the threshold number of votes for approval in both chambers. CNN is reporting that the Senate will vote first this afternoon, and if that vote survives an expected Republican filibuster, it will move to the House for a vote tonight.

All well and good---as far as it goes, along with the political analysis of who the winners and losers are. But once again, Americans must remember that it is not the debt ceiling that constitutes the major threat to the American economy, but the debt itself. Although Moody's has not weighed in on this particular proposal, last Friday the ratings agency noted that the "limited magnitude" of the current debt reduction proposals "would likely lead Moody's to adopt a negative outlook on the AAA rating," of the United States. "The chances of a significant improvement in the long-term credit profile of the government coming from deficit reductions of the magnitude proposed in either plan are not high." Deal or no deal, that outlook remains the same. It is an outlook which, were it to come to pass and the country's credit rating is lowered, it would make a virtual mockery of the deal currently on the table.

That is the big picture. And it will remain the big picture until both parties in Congress and the president get their respective acts together and address it.