Democrats and Republicans yesterday hammered out an agreement to reopen the federal government and raise the public debt ceiling. That’s good news.

The bad news is the agreement is only for 90 days—until January 15.

But there’s more good news and bad news in this agreement that comes after a two-week government shutdown. First the good news...Read more

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Debt Deal: Good News and Bad News

Thu Oct 17, 2013

Democrats and Republicans yesterday hammered out an agreement to reopen the federal government and raise the public debt ceiling. That’s good news.

The bad news is the agreement is only for 90 days—until January 15. 

But there’s more good news and bad news in this agreement that comes after a two-week government shutdown. First the good news:

  • No U.S. government default on its debt obligations.  With the economy still on shaky ground a blow to the nation’s Triple A credit rating could have reverberated around the globe.
  • Even better news: the deal ends threatened debt default as a negotiating tactic. Default isn’t going to happen, period.
  • Communication lines have re-opened between Republicans and Democrats. The silent treatment clearly didn’t work to address policy differences so the two parties are again on speaking terms—no small accomplishment in these hyper-partisan times.
  • The Affordable Care Act (ACA) will not be restructured. This is good news not because the ACA is perfect and doesn’t need to be fixed—far from it. But the uncertainty around repealing or de-funding the law’s central pillars, like the Individual Mandate, has been lifted. The debt battle showed that President Obama will not accept fundamental changes to his signature legislative achievement—the issue that sparked the shutdown in the first place.
  • Income verification for ACA subsidies. D’s and R’s agreed that the government will verify the income eligibility of those who apply for taxpayer-financed subsidies to purchase insurance on the exchanges. This is aimed at HHS’ decision in July to allow an “honor system” for 2014 subsidies. In any event, IRS had planned to have taxpayers “reconcile” subsidies with income reported on 2014 tax returns.

Now the Bad News:

  • The philosophical chasm between Capitol Hill liberals and conservatives, and to some extent among Republicans, persists. This debt deal only “kicks the can down the road,” as the saying goes. Congressional Democrats and the White House have won an important battle, but partisan warfare will continue.
  • The tactic of threatening default in order to de-fund Obamacare served mainly to distract from the biggest issue—skyrocketing U.S. government debt, now headed above a mind-bending $17 trillion.  With the exception of last year’s “sequester,” little has been done to reduce budget deficits and get the public debt on a sustainable trajectory.
  • Yet another committee. Yesterday’s debt deal creates a new “negotiating committee” to develop a longer term budget plan by December 13. Seriously.  Friday the 13th?
  • A triumph of hope over experience, it’s hard to imagine the new committee coming up with a budget reduction plan that could be adopted in this Congress.
  • Other big issues on ice. With all the noise around the debt ceiling and the government shutdown you’d think no other issues were on the table. Alas, immigration reform, climate change, tax reform and yes, ACA amendments, remain urgent action items.

While it’s possible that lawmakers will become like your favorite football team and immediately turn their attentions to the next game, in all likelihood the debt deal winners and losers melodrama, coupled with the need to stay focused for the next few months on the budget deficit and public debt, will leave little energy for other priorities.

Moreover, 2014 is just around the corner, when one-third of Senate seats and all House seats are up for election. Expect most other legislation to wind up on the back burner.

So where are we? Default has been avoided; the government is re-opened. The best news is the immediate crisis has been averted.

But the basic problem has not been solved. The much-needed longer term solution for America’s fiscal imbalances remains elusive. The worst news is that nothing that happened in Washington DC this week suggests that a compromise can be found anytime soon.