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  • Senate Deal Fixes Nothing

    Lauren Victoria Burke/WDCPIX.COM

    Lauren Victoria Burke/WDCPIX.COM

    The Senate announced a deal today to protect the status quo in Washington. As pundits debate the political winners or losers of this deal, one thing is awfully clear: The American people are once again on the losing end. The Wall Street Journal reports:

    Senate leaders on Wednesday struck an 11th-hour agreement to avoid a U.S. debt crisis and fully reopen the federal government, putting lawmakers on track toward ending a stalemate that worried investors world-wide and provided striking evidence of congressional dysfunction.

    To truly avoid a spending and debt crisis, today and in the future, Congress should cut spending and enact entitlement reforms that put the budget on a path to balance. But, far from avoiding a U.S. debt crisis, the deal fails on two main fronts.

    First, it locks in Obamacare’s implementation with no relief in sight for those Americans who are seeing their premiums increase, their working hours cut, and their job opportunities diminished.

    Second, the deal does not address the existing massive entitlement programs—Social Security, Medicare, and Medicaid—which, together with Obamacare, remain on track to consume half of the U.S. budget by the end of the decade.

    According to the Congressional Budget Office (CBO), the debt subject to the limit would grow by $7 trillion over the decade on the current trajectory—from nearly $17 trillion today to more than $24 trillion by 2023. During this time period, Obamacare adds $1.8 trillion in spending.

    Debt Ceiling Suspension. Based on news reports, the deal would raise the debt ceiling without any offsetting spending cuts through a suspension to February 7, 2014. This means that the deal fails to place any fiscal restraint on lawmakers, allowing them unrestricted borrowing authority until a set date.

    Higher Spending on the Horizon. The deal also leaves the door open for further attempts at undoing the non-defense discretionary spending cuts, a priority for President Obama and his allies. The deal would fund federal agencies through a continuing resolution until January 15, setting up another battle on sequestration.

    Defense Cuts. Uncertainty also persists for the Pentagon over the continuing application of sequestration. While the deal did not reprogram the sequestration cuts, it is said to provide additional flexibility. What that means for defense is still unknown. If the flexibility extends to permitting the Administration to exchange non-defense reductions for further reductions in defense, the military would be at risk of suffering even greater cuts to the enrichment of domestic programs.

    Extraordinary Measures. Also, because the Treasury would be able to access its toolbox of extraordinary measures again to borrow under the debt limit after February 7, the actual borrowing deadline will come even later. Treasury’s toolbox contained $260 billion in additional borrowing authority after Washington hit the debt suspension date of May 19, 2013.

    Obamacare Verification. The deal will reportedly include language requiring the Obama Administration to verify the income of subsidy applicants on Obamacare exchanges. This requirement was included in the Obamacare statute. This summer, the Administration announced it would put applicants on the “honor system” for 2014—one of several delays announced for the law. More recently, the Administration announced it would in fact engage in income verification of all applicants next year. Thus the CBO, when scoring similar provisions in September, concluded that enacting a verification regime

    would not affect direct spending or revenues. A program is currently being put in place to verify income and coverage qualifications for the tax credits and subsidies, and that program appears…to be in accordance with section 1411 [of Obamacare]. Accordingly, we expect that the Secretary would certify before the beginning of 2014, when premium tax credits and cost-sharing subsidies would first be paid, that the requirements…are satisfied.

    While helpful in reaffirming anti-fraud protections and encouraging the Administration to follow the law as originally written, the provision will not rein in the trillions in projected spending on Obamacare’s new entitlements over the next 10 years.

    While lawmakers cheer about finding a another 11th-hour deal that continues the damaging status quo in Washington, the U.S. government proceeds steadily on a course of weaker economic growth and fewer opportunities for Americans today and in the future. And the Groundhog Day cycle continues.

    The following Heritage experts contributed to this blog: Baker Spring (defense) and Chris Jacobs (Obamacare).

    Posted in Capitol Hill, Economics, Front Page, Obamacare [slideshow_deploy]

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