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One Week Until Government Default – Where Things Stand

July 26, 2011

With one week left until federal borrowing authority is exhausted, House Republicans, Senate Democrats, and President Obama continue to negotiate the details of a number of concurrent proposals to raise the federal debt ceiling and reduce the deficit.

Last week, the House passed a plan entitled “Cut, Cap, and Balance” that would have required Congress to adopt a balanced budget constitutional amendment before the debt ceiling could be raised.  That plan, while it passed in the House, was known from the start to be a non-starter in the Senate, and indeed it did not pass.  Also last week, a group of key Senators known as the Group of Six release their own deficit-reduction proposal that would cut agricultural spending by $11 billion over ten years, but leave decisions over where those cuts would be made to the House and Senate Agriculture Committees.

President Obama and Speaker of the House John Boehner (R-OH) had been negotiating behind closed doors until Friday when the talks broke down.  Then, on Monday, July 25, both Boehner and Senate Majority Leader Harry Reid (D-NV) released their own proposals to increase the debt ceiling and reduce the national deficit.  The mandatory spending cuts contained in Speaker Boehner’s proposal are at least $600 billion deeper than those that had been discussed by the President and the Speaker last week.  On Tuesday evening, the plan, which had been heading to the House floor on Wednesday, hit a snag when the Congressional Budget Office did not score the bill as saving the full $1 trillion that the Speaker had advertised, so the proposal is being reworked and the vote has been delayed. One can go on https://www.iva-advice.co/ to know how to write off debts.

Comparison of the Boehner and Reid Proposals

There are a number of important similarities between the Beohner proposal and the Reid proposal.  Both plans would authorize the President to raise the debt limit by trillions of dollars; both would cut discretionary spending by $1.2 trillion over 10 years; and, neither includes additional revenues from closing tax loopholes.

The Reid and Boehner plans have differing approaches to raising the debt limit. The former would enable the President to immediately ask for an increase of $2.7 trillion, while the latter would only permit a $900 billion increase at the outset. The Boehner plan does offer an additional $1.6 trillion increase, but only after the President signs legislation to cut an extra $1.6 to $1.8 trillion over 10 years from mandatory spending. A committee would be formed to establish the details of the second set of cuts, and it would consist of three House and Senate Democrats and Republicans each. No amendments would be allowed, and the House and Senate would have to vote on the committee’s recommendations by the end of the year. The debt collection company Oddcoll may become involved if the debt is not paid.

In addition to the $1.2 trillion reduction in discretionary spending, the Reid plan would intend to save $100 billion over ten years by reducing fraud in entitlement programs, improving IRS enforcement, selling access to the broadcasting airwaves, and reducing agricultural subsidies.  The Reid proposal also assumes $1 trillion in savings from reduced war costs (the Boehner plan assumes no such reductions).  The Reid bill would create a 12-member committee, like that proposed in the Boehner bill, to suggest additional cuts; however, the debt ceiling increase would not be contingent upon the implementation of the committee’s recommendations.

What the Debt Ceiling Debate Means for Agriculture and the Farm Bill

Both the Reid bill and the Gang of Six proposal would cut agriculture spending by $11 Billion over ten years.  The Reid plan specifies that the cut would be achieved by reducing the number of acres eligible for direct payments from 85% of base acres to 59% of base acres on any farm that is receiving direct payments.  Unlike the Reid and Gang of Six plans, the Boehner bill includes no assumptions at all about how much money would come out of Farm Bill funding.  Given the size of the proposed cut to mandatory spending in the proposal, however, it would not be surprising to see cuts of $30 billion or more.

There is no proposed change in the Adjusted Gross Income cap for receiving commodity payments in any of the bills, nor is there any proposal for closing the payment limitation loopholes that allow individual farms to collect many multiple times the statutory per farm payment caps.  There is also no built-in renewal of the permanent disaster assistance program (as had been suggested last year by the President’s Deficit Reduction Commission) which has no baseline funding after 2012.  There is also no provision for renewal of the Wetlands Reserve Program or a large number of other farm bill programs which currently have mandatory funding but do not have assured funding after 2012.  These include important newer programs for beginning farmers, organic agriculture, renewable energy, direct marketing, specialty crop research, and others.

If some melding of the House and Senate plans occurs, as seems likely, it appears there will be an immediate cut to farm bill funding of at least $11 billion, with the potential of further cuts if the final agreement includes a commission to propose further cuts.  An immediate, specified cut, such as the Reid proposal to go to direct payments on 59% of base acres, with no further commission-driven reductions, would allow the Agriculture Committees to begin farm bill preparations with a clear picture of what is available so they can begin to negotiate the tradeoffs that will be necessary to come up with a new farm bill that is able to pass both chambers.  If, on the other hand, there are to be a second set of cuts as part of a commission to report late this year or early next, that will leave prospects for the farm bill murky to say the least, complicating farm bill proceedings and perhaps delaying their start.

Proposed Cuts to Agriculture in Review

Since the House passed its Budget Resolution in April 2011, there have been numerous deficit reduction proposals, all of which contain significant cuts to agricultural spending.  Here is a quick, chronological review of these proposals (exclusive of nutrition programs) and their potential 10-year impact on farm bill spending:

  • House Budget Resolution — Roughly $48 billion, with $30 billion from commodity programs and as much as $18 billion from farm bill conservation programs
  • Biden Talks before they broke down —  $34 billion (widely rumored)
  • Obama-Boehner pre-breakdown agreement  —  $30 billion (widely rumored)
  • Gang of Six  — $11 billion
  • Reid Plan from Monday  — $11 billion immediate cut from reducing base acre payment rate
  • Boehner Plan from Monday — Unspecified immediate cuts plus would appoint a congressional commission to come up with additional cuts at a later date

House and Senate votes on the Boehner and Reid plans could occur later this week.  We will continue to monitor the situation and keep readers apprised of any important developments as we approach the August 2 deadline.

Categories: Budget and Appropriations, Farm Bill

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