How does the debt deal affect you?

This post comes from Lynn Mucken of MSN Money.

Straight to the point: What does the debt agreement painfully assembled by our political leaders actually mean to you?

According to The Washington Post and The New York Times, the deal reached Sunday night would raise the nation's borrowing authority in stages:

• $400 billion immediately, followed by $500 billion this fall.
• Another increase of at least $1.2 trillion, enough to get into 2013.

The agreement would cut spending by $900 billion over the next decade and create a congressional "supercommittee" -- six Democrats and six Republicans -- that would be required to come up with at least $1.2 trillion in additional savings by November. If the committee failed to reach an agreement, automatic across-the-board cuts of $1.2 trillion would go into effect -- split equally between domestic programs and defense. Medicaid and Social Security would be exempt, but Medicare payments to providers could be hit.

The deal also requires a congressional vote on a balanced-budget amendment by the end of the year.

Taxes

There would be no increase in taxes -- for now.  In an editorial, The Wall Street Journal observed:

One reason to think tax increases are unlikely, however, is that the 12-member committee will operate from Congressional Budget Office's baseline that assumes that the Bush tax rates expire in 2013. CBO assumes that taxes will rise by $3.5 trillion over the next decade, including huge increases for middle-class earners. Since any elimination of those tax increases would increase the deficit under CBO's math, the strong incentive for the members will be to avoid the tax issue. This increases the political incentive for deficit reduction to come from spending cuts.

However, Ezra Klein in The Washington Post says there is a loophole:

Make no mistake: The Joint Committee could raise taxes in any number of ways. It could close loopholes and cap tax expenditures. It could impose a value-added tax, or even a tax on carbon. The Congressional Budget Office would score all of this as reducing the deficit under a current-law baseline. The only thing that wouldn't reduce the deficit is going after part of the Bush tax cuts. That means they're likely to go untouched in this deal.

Democrats managed to protect the two biggest entitlement programs -- Social Security and Medicare -- against cuts to recipients (Medicaid and food stamp spending also escaped).

However, cuts in payments to Medicare providers could still be in play -- although no more than 3% of the nonmilitary cuts -- and that could have severe repercussions if more doctors and hospitals declined to accept Medicare insurance.

Wrote Igor Volsky on the Think Progress health blog:

Hospitals and doctors will complain about the possibility of future cuts, but as a general sense, it's difficult to feel much sympathy for providers who will see an increase of revenue as a result of the coverage provisions in the Affordable Care Act. They, after all, can rejoice that Medicaid is exempt from the reductions -- a great victory given that providers are already underpaid for their services and any additional cuts would further undermine access for beneficiaries. There just isn't any real meat on the Medicaid bone.

Military spending

The requirement that 50% of all spending cuts come out of defense if the supercommittee fails to agree on cuts could have a brutal effect on the civilian economy in big cities such as San Diego and small ones like Manhattan, Kan.

According to USA Today, "16 of the 20 metro areas rising the fastest in the per-capita income rankings since 2000 had military bases or one nearby." Why? The average military compensation in 2010 was $70,168 in pay and $52,095 in benefits.

While Klein theorized that Republicans might go for tax increases if faced with drastic military cuts, New York Times columnist Paul Krugman doubts that will happen:

Republicans will supposedly have an incentive to make concessions the next time around, because defense spending will be among the areas cut. But the GOP has just demonstrated its willingness to risk financial collapse unless it gets everything its most extreme members want. Why expect it to be more reasonable in the next round?

The US bond rating

It appears that the U.S. will not default on its debts, but reaction to the agreement by bond ratings services is expected to be "not enough debt reduction."

Here's what Stephen Bernard wrote on Dow Jones Newswires:

Though Moody's Investors Service and Standard & Poor's Ratings Services said they would not immediately comment on the tentative debt deal, past comments from the ratings agencies indicate the U.S. government's perfect credit rating could still be in jeopardy.

S&P had repeatedly said since putting the U.S. rating on review for possible downgrade that it wanted to see a deficit-reduction plan that was around at least $4 trillion. The tentative deal … calls for a $2.4 trillion reduction to deficits over the next 10 years.

If S&P determines the deal falls short of meaningfully changing the trajectory of U.S. deficits, it could still cut the government's triple-A rating. S&P had previously said a downgrade would likely be into the AA range, which means the U.S. could still see its rating cut between one and three notches.

A rating cut, depending on its severity, could have a negative effect on banks, funds, finance companies, broker/dealers and life insurers, according to Standard & Poor's.

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