So what could happen with that? Well, the committee could fail, in which case a
whole process is then triggered; the committee could come up with something less
than the $1.5 trillion; or they could meet their goal—in fact, the Congress then
subsequently passes their package. If they report $1.5 trillion and the Congress
passes it, then the debt ceiling goes up by that amount as well. If they’re somewhere
between $1.2 trillion and $1.5 trillion, then the debt ceiling is increased to whatever
level that is. If it’s anything less than $1.2 trillion or they fail to do anything
whatsoever, then phase 3, which is sequestration, is triggered.
Before I turn to phase 3, what’s on the table in terms of this joint committee?
Really, everything. It can be additional discretionary, it can be direct spending, it can
be mandatory programs, it can be revenues. As I have read the summary documents
today, it looks pretty much like however they want to configure it and can reach a
majority vote around somewhere between $1.2 trillion and $1.5 trillion. If they fail—
and this is on a very short timeline, and in an intense political environment—then an
automatic sequestration process is triggered, one very much like the old Gramm–
Rudman–Hollings provisions from the late 1980s and on into the ’90s. But there is
one other tripwire before you get to sequestration, and that is that both chambers of
the Congress are required to vote on a balanced budget amendment. And by some
miracle that I don’t think will happen, if they were to vote and send the balanced
budget amendment to the states, then none of this sequestration happens under that
scenario. Highly unlikely, but nonetheless in the package.
So, sequestration. This is where everyone has mutual tension to try to avoid this
outcome. That’s a sequestration of roughly $1.2 trillion, 50 percent of which will
come from defense and the other from nondefense spending. This package—and this
is where a lot of the tension is today—is solely in the spending sphere. There are no
revenues contemplated under the sequestration, solely spending accounts. So,
50 percent from defense. If that were to be triggered, they’re estimating that would
be about $50 billion a year in defense spending, and the remainder would be made up
elsewhere. Now, there are some important safety net programs that are exempted:
Social Security, Medicaid, veterans’ programs, and other essential services. Medicare
is included, but it’s capped at 2 percent, and maybe in the range of the provider cuts.
And that’s it.
What does all of this mean? If you’re looking at this from the perspective of
those who want to protect spending programs, they have the ability in the committee
process to inject any additional revenues in that process. The other thing that a lot of
folks are pointing out is that all of this is scored off of the March CBO baseline, not
the alternative baseline, which assumes an extension of the Bush tax cuts. In other
words, we’ve set into motion and into law a budget framework and a spending
package that has no extension of the tax cuts after 2012. So somehow, somewhere, if
folks want to extend those tax cuts, they will have to create the environment and the
spending and revenue tensions to do that. And that’s no small amount. If you look at
the current services baseline, which is what this package is scored off of, revenues go
to 20.8 percent of GDP by 2021. On the other hand, with the assumption that the
Bush tax cuts continue and the AMT fix is agreed, the baseline would have gone to