The debt deal that’s taking shape, and its drawbacks

Posted at 07:26 PM ET, 07/14/2011

By Ezra Klein

(Alex Wong - GETTY IMAGES)My colleague Lori Montgomery reports that Harry Reid and Mitch McConnell are working together on a three-part deal that would get us past the debt ceiling:

Senate Majority Leader Harry M. Reid (D-Nev.) is working with McConnell on this approach. Aides said the two are discussing a strategy that would pair McConnell’s debt-limit proposal with at least $1.5 trillion in spending cuts identified through bipartisan talks that Vice President Biden has led in recent weeks.

The deal also could create a committee of 12 lawmakers who would be assigned with identifying trillions of dollars in additional savings. The panel’s recommendations would be fast-tracked to votes in the House and the Senate and would not be subject to amendment, a process similar to the one Congress uses for closing military bases.

Congressional Democrats welcomed the approach, as did rank-and-file Republican senators. The Obama administration has reacted more cautiously, but views the approach as a last resort.

This looks a lot more plausible than McConnell’s proposal, in part because it puts Democrats in a structurally worse position on two fronts:

1. It creates a fast-track process for spending cuts but not, as far as I know, tax increases. That is to say, it creates a new process in which it’s much easier to cut spending, but no easier to raise taxes. And process matters for outcomes.

2. A $2 trillion deal is not sufficient to get deficits down to manageable levels. In a year or two, we’ll need another $2 trillion, and if growth doesn’t pick up, even more than that. If this deal uses up most of the spending cuts that Democrats can accept, it means the next deal, which will also rely heavily on spending cuts because Republicans are better at refusing tax increases than Democrats are at refusing deals, will require spending cuts that go much deeper into the bone of Democratic priorities.

Think of it this way: The $4 trillion deal that the White House offered Boehner was 3:1 spending cuts to tax increases. If we move to a two-deal scenario in which the first deal is $2 trillion in spending cuts and then there’s a second $2 trillion deal that is, let’s say, 3:1 spending cuts to tax increases, the final deal is actually 7:1 spending cuts to tax increases, which means the spending cuts will have to go very, very deep.