American Society of Hematology

What is Going on in Washington: Debt Ceiling & Budget Negotiations Continue

Published on: July 21, 2011

August 2 is the deadline by which Congress must agree to raise the debt limit or the country will risk defaulting on its debt obligations. Negotiations on this issue continue to overshadow most other issues on Capitol Hill as the Republican leadership in the House does not want to raise the debt ceiling without agreeing to spending cuts, but no new taxes.

House Action
In a largely party-line vote on Tuesday, the House passed its own deficit reduction framework. Dubbed the “cut, cap, and balance” plan (H.R. 2560), the plan combines a deficit reduction framework with current-year spending cuts, additional spending caps, and stipulation for the preparation of a balanced-budget amendment to the Constitution prior to a debt limit increase. The bill has little likelihood of passing in the Senate and sparked a vehement White House veto threat.

Senate Action
Meanwhile, Senators continue to mull options on a deficit reduction and debt limit increase plan. The Senate will vote this weekend on the House-passed “cut, cap, and balance” plan. The Senate is expected to reject the House plan, allowing Senate leaders to move to a fallback compromise plan being negotiated by Senate Majority Leader Harry Reid (D-NV) and Minority Leader Mitch McConnell (R-KY).

Although the details of this plan remain fluid, the Reid-McConnell compromise bill would largely give the President the power to raise the debt limit in three stages. As first proposed by McConnell last week, the proposal would effectively allow the president to request $2.5 trillion in new debt limit authority in three installments over the next year and a half. But the plan would not guarantee any spending cuts to accompany those increases, a deeply unsettling prospect for many House conservatives. Instead, it would establish a legislative committee to come up with deficit reduction measures of its own, including plans to reduce the costs of entitlement programs.

Under one scenario, the Senate would move through a series of procedural votes next week and send the Reid-McConnell bill to the House, meaning that critical House votes might occur in the last few days before August 2. That would leave little time for negotiation if the House rejects the Senate plan. The Reid-McConnell plan is unpopular in the House, particularly among conservatives — more than 80 of whom have signed a letter urging House leaders not to bring it to the floor. Still, no other plan has gained significant traction on its own. While the House has shown little interest in the fallback plan being engineered by Senators Reid and McConnell, some House Republicans have shown renewed interest in the idea of a short-term debt limit increase, which House Majority Leader Eric Cantor (R-VA) proposed last week after opposing such a strategy for months. Although President Obama previously has rejected the idea of a short-term deal, Administration officials have indicated that the President would support a short-term extension, but “would only back such an extension for a few days if a long-term budget deal is imminent.”

Concerns from moderates and House conservatives over the initial outlines and the absence of specifics of the Reid-McConnell plan have presented an opportunity for the newly revived group of senators (the so-called “Gang of Six”) to drum up support for its own deficit plan, which was outlined earlier this week.

The outline released by the Senate Gang of Six would cut the deficit by $3.6 trillion over 10 years—with 74 percent of savings in spending cuts and 26 percent tax increases. Discretionary federal spending would face considerable cuts under the proposed Senate plan. The proposal offers few details and leaves it up to congressional committees to determine how to achieve deficit savings, directing the committee overseeing federal health and education programs, including the National Institutes of Health (NIH), to find cuts of $70 billion over 10 years.

The plan also calls for improved Medicare spending efficiency but no structural changes and the elimination of health overhaul law provisions for long-term care coverage. Significantly, the plan also would protect Medicare physician payment from cuts for the next 10 years. In June, ASH joined with 111 state and medical specialty societies and the American Medical Association (AMA) in sending a letter to the president and congressional leaders urging reform of the broken Medicare physician payment formula as part of any deficit reduction plan. This formula, known as the Sustainable Growth Rate (SGR), is set to trigger a drastic cut of 29.5 percent on January 1 unless Congress passes legislation to override it.

While a number of Senators have expressed support for the Gang of Six proposal, Senate leaders, top committee chairmen and some conservatives and liberals alike remain wary of the group’s approach. Members of the Senate group are trying to persuade Senator Reid to incorporate elements of it into the Senate compromise. A bipartisan letter in support of the plan had drawn 33 signatures by Wednesday evening, far short of the 60-vote supermajority needed to pass any proposal in the Senate.

Votes Likely on Balanced Budget Amendment
Both the House and Senate are also still expected to vote in the near future on a balanced budget amendment to the Constitution (H.J.Res. 1 and S.J.Res.10). H.J.Res.1 and S.J. Res. 10 would limit spending to 18 percent of gross domestic product (GDP) and require a balanced budget each year as well as a two-thirds vote of each chamber to increase taxes. The Coalition for Health Funding, of which ASH is a member, has developed flyers that have been distributed to House and Senate offices that describe what the balanced budget amendment to the constitution might mean for Americans' health and well-being, including the impact that the spending cuts mandated by such an amendment will have on federal public health agencies such as the National Institutes of Health (NIH). While the balanced budget amendment is expected to pass the House, it is unlikely that it will pass the Senate with the necessary two-thirds vote.

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