Debt Ceiling Agreement Reached

Only days before the nation would face an imminent default, President Barack Obama and the Democratic Senate reached an agreement with Senate Republicans on the debt ceiling.

This deal was not his preferred choice, said President Obama, but it will “allow us to avoid default and end the crisis Washington imposed on the rest of America,” President Obama said in a speech late Sunday evening.

The New York Times reports:

Under the framework that negotiators were discussing today, half of those cuts would come in defense spending, while the other half would be a combination of other domestic spending, like discretionary programs and farm subsidies. Cuts to Medicare would not make up more than 3 percent of the non-military cuts. While many Republicans are loath to risk such cuts to defense, some of the more Tea Party-influenced freshmen members are less concerned with that than with getting big spending cuts overall while avoiding tax increases at all costs.

And negotiators agreed that any deal would not include language that could lead to a new formula for the annual cost-of-living adjustments for Social Security beneficiaries, a change that could save more than $100 billion in the first 10 years. While many economists have long said the existing formula overstates inflation, many Democrats oppose any change that would reduce benefits from current law. Dropping the proposal from the White House-Congressional talks reflected in part the influence of Representative Nancy Pelosi, the Democratic minority leader, whose negotiating hand has been strengthened, since she will have to deliver a significant number of Democrats votes for House passage of any solution, given the likelihood that Mr. Boehner will face a significant loss of Republican votes.

The debt ceiling will be raised by at least $2.1 trillion, according to the White House. The deal stipulates that law makers will cut $900 billion “by capping discretionary spending” in the next ten years, and eventually cut about an additional $1.5 trillion.

The agreement does not make any explicit mention of increased taxation, and progressives fear that it will only worsen an already difficult economic downturn.