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The suddenly white-hot issue of deficit caps — now a central front in the battle over raising the debt ceiling — will be the subject of a hearing Wednesday in the Senate Finance Committee.
Panel Chairman Max Baucus (D-Mont.) announced the hearing on the issue Thursday morning. It will include testimony from former Sen. Phil Gramm (R-Texas), who was part of the bipartisan Gramm-Rudman-Hollings deficit reduction plan in the 1980s.
Baucus has said he backs the idea of a deficit cap as part of a plan to increase the federal debt ceiling. Republicans generally want spending caps instead, although they also are pushing for a balanced budget amendment to the Constitution.
In order to reach a deal, the two parties would have to agree on where to set the deficit cap and what the consequences would be for breaching the cap. The two parties aren’t that far apart on the deficit itself — Democrats and Republicans alike are eyeing roughly $4 trillion in deficit reduction over a decade, although President Barack Obama’s latest proposal would extend that period to 12 years.
But they are very far apart on what the trigger should look like.
Obama’s proposal includes automatic spending cuts and tax increases if his debt fail-safe is breached. Republicans want any cap to affect only spending, not taxes.
Majority Leader Harry Reid (D-Nev.) also backed the idea of a deficit trigger Wednesday in a conference call with reporters.
Democrats are under increasing pressure to do something about the deficit within their own Caucus, after Sens. Joe Manchin (D-W.Va.) and Joe Lieberman (I-Conn.) signed on to the strict spending caps proposed by Sens. Bob Corker (R-Tenn.) and Claire McCaskill (D-Mo.).
The “gang of six” is also believed to be looking at triggers as part of its plan to achieve $4 trillion in deficit cuts over the next decade.
The advantage of deficit caps for politicians is obvious — it allows them to avoid talking about the specific, often politically painful cuts that would be required to meet those targets. But Republican aides have noted that past deficit caps were frequently ignored by Congress and have argued that’s why an amendment to the Constitution is required instead.
The trigger issue also is expected to be a major piece of the bipartisan deficit negotiations to be led by Vice President Joseph Biden.
They don’t have long to reach a deal. The $14.3 trillion debt limit is expected to be reached by May 16, although the Treasury can delay that until early July through a series of accounting maneuvers.