House Speaker John Boehner (R-Ohio), Senate Majority Leader Harry Reid (D-Nevada) both released competing plans in order raise the debt ceiling before the August 2 deadline.
Under a system of deficit spending, America borrows funds by issuing bonds for purchase to pay for day-to-day government expenditures.
Currently the Department of the Treasury must be authorized by Congress to issue more debt and unless this debt limit is raised, the government will legally be unable to issue more bonds to pay for expenditures and the interest accrued from previous bond issues.
House Republicans, Senate Democrats and the Executive Branch have deftly avoided taking on responsibility for increasing the federal debt by authorizing the heavy borrowing that increasing the debt ceiling would entail.
Speaker Boehner’s plan is a two-phase proposal. The first phase is to cut discretionary spending by $1.2 trillion over the next ten years while raising the debt ceiling by $1 trillion in order to give the government some breathing room at least through 2012.
The second phase involves creating a committee who would be tasked in finding an extra $1.8 trillion in cuts in the next decade.
According to the Wall Street Journal, this committee would go after reforms of entitlement programs such as Medicare, Medicaid and Social Security in order to cut costs as well as an “overhaul” of the current tax code.
The plan would also include an amendment to the constitution that would require a balanced budget to be passed every year.
Senator Reid’s plan includes a $2.7 trillion cut in spending over ten years–which would come in part from $1.2 trillion in discretionary spending, though it does not include entitlement programs at all.
Another $1 trillion is counted on the assumption that the wars in Iraq and Afghanistan wind down. The rest would come from $30 billion in reforms to Fanny Mae and Freddie Mac, financial aid programs.
The President agreed with Senator Reid’s plan after tossing out a raft of bipartisan compromise proposals last Saturday.
“Senator Reid’s plan is a reasonable approach that should receive the support of both parties, and we hope the House Republicans will agree to this plan,” White House Press Secretary Jay Carney said.
Speaker Boehner and those who have sided with his plan have called Senator Reid’s plan “full of gimmicks” because the entitlement programs are the biggest contributors to the federal deficit.
Recently, however, Boehner’s plan has come under attack from House Republicans. The House Republicans have said that the only way the plan could pass is if there are more cuts or a decrease of the debt ceiling increase. Boehner himself called his plan “less than perfect.”
Despite the dispute over the various plans, there could be “enormous consequences” in not choosing a plan according to Carney.
Experts speculate if a plan is not chosen by the August 2 deadline, there could be the possibility of the United States faulting on its loans–which could affect checks from the government to seniors and veterans as well as sparking financial crises all over the country.
Polls such as the most recent Washington Post-ABC News poll show that the American people are displeased with Democrats, Republicans and President Obama almost equally.
