Debt deal reached; major cuts coming

President Obama announced Sunday night a hard-fought deal with congressional Republicans to slash the federal deficit by $2.7 trillion over 10 years and lift the nation's debt-ceiling limit to avoid a catastrophic default. The pact includes no tax increases sought by the president.

With the nation's reputation and credit rating hanging in the balance, Obama said bitterly divided U.S. leaders had finally struck a deal to "end the crisis Washington imposed on all of America."

"We're moving forward together," Senate Majority Leader Harry Reid, D-Nev., declared. Immediately afterward, Minority Leader Mitch McConnell, R-Ky., said "there is now a framework" for a deal.

In an unscheduled appearance in the White House briefing room, Obama said $1 trillion would be cut from U.S. spending immediately and a special committee of lawmakers would seek further deficit reduction measures by November. Obama cautioned that the rank-and-file members of both parties still needed to approve the deal hammered by leaders just two days before the nation was set to face default.

"We're not done yet," he said.

Of that, there is no doubt.

The most fervent conservatives and liberals in Congress were sure to find problems with the compromise package. While some Republicans balked at any efforts to lift the debt limit, some of Obama's Democratic allies accused him of caving to the GOP and embracing cuts in federal programs important to the poor and elderly.

House Minority Leader Nancy Pelosi, D-Calif., said she needed to review the details and expressed concern that House Democrats might be asked to back the deal if sizeable chunks of Boehner's GOP conference defect.

House Speaker John Boehner, R-Ohio, quickly declared victory. "Now listen," he told his GOP caucus in a conference call, "this isn't the greatest deal in the world. But it shows how much we've changed the terms of the debate in this town."

The climax to weeks of talks came on a day negotiators worked toward a deal to raise the debt ceiling through the 2012 election and create a two-step process to achieve at least $2.7 trillion in deficit reduction over 10 years.

The final sticking point dealt with the magnitude of defense cuts ordered under the plan's deficit-reduction roadmap. Republicans wanted lower cuts than Democrats.

Meanwhile, Boehner and his staff - led by chief of staff Barry Jackson - scrutinized every last word and policy implication of the proposed deal as he prepared to speak with his caucus.

In what appeared to be a coordinated appearance, Obama strode into the White House briefing room a few minutes later and thanked voters who heeded his call to lobby Congress for a compromise. "The American peoples' voice is a powerful thing," he said.

National Journal learned of refinements to the outline of a deal reached Saturday, a breakthrough that set in motion Sunday's seemingly endless round of conversations between the White House, Reid, Pelosi, Boehner and McConnell. Since then, a number of changes were made to the framework the White House and congressional negotiators hammered out.

The modifications include:

• Deficit reduction through domestic discretionary savings: The deal now stipulates $917 billion in cuts over 10 years.
• Deficit reduction target for special congressional committee: The current goal is $1.8 trillion in deficit reduction over 10 years. The language currently on the table requires the committee to use current law as the baseline for deficit reduction. Current law assumes expiration of all Bush tax cuts in 2013 as well as a 50 percent reduction in the $1,000 child credit and no adjustment to the Alternative Minimum Tax. Since many of these tax cuts are likely to remain, the special committee, the GOP argues, will have to look to spending cuts to meet its deficit-reduction targets.
• Fallback cuts if the special committee fails: If the committee fails to send a report to Congress by Thanksgiving with the $1.5 trillion in cuts, a slightly smaller amount of cuts, $1.2 trillion, would be carried out automatically. Half the savings would come from defense spending, the other half from non-defense discretionary spending and some entitlement spending. Exemptions currently exist for low-income programs, Social Security, and Medicaid. Medicare cuts would affect providers only.
• Balanced Budget Amendment implications: As currently drafted, the agreement says Congress must vote in the House and Senate this year on a balanced budget amendment to the Constitution. In addition, next year's debt limit increase is tied to deficit reduction from the special committee or sending a balanced budget amendment to the states for ratification. This language would appear to give Democrats a choice - cut spending themselves or send the balanced budget amendment.
• Tax reform: It is not required that the special committee overhaul the tax code. In the negotiations, President Obama has made it clear he will veto any extension of the Bush tax cuts for the wealthy (families earning more than $250,000), unless the committee eliminates costly tax subsidies as part of tax reform.