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How does the debt deal affect you?

A lot is still undecided, but it's pretty clear that income taxes will not rise and that Social Security will not be cut.

By doubleace Aug 1, 2011 12:55PM

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.


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.
Social Security and Medicare

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.

More on MSN Money

Aug 1, 2011 11:02PM
I wish these damn politicians and reporters would get it straight, Social Security, the retirement program, is NOT AN ENTITLEMENT!  It is owned by the Amercian people and is a contract with the people and the government.  Congress has forgotten that by using it as their personal piggy bank to pay for all the "Entitlement programs" that have nothing to do with the retirement portion.
Aug 1, 2011 6:04PM
Why doesnt  the congress get a cut in their pay.
Aug 1, 2011 8:26PM
My first proposal for cutting the deficit? Cut the salaries of our Senators, Congressmen, and others to bare necessities and to forbid lobbyists from providing any benefits to our government officials. 
Aug 2, 2011 9:37AM
everyone is forgetting one thing...each one of the elected senators & representatives gets a huge amount each year to run their congressional u see anyone saying that they are cutting their up their free lunches, their free postage for the junk mail they send you...cancelling the "fact finding tours"/vacations for themselves & their families...i think not...if we as americans had any backbone we would all sign a petition to downside our elected elite and have only 1 representative per that is truely cutting government waste...make these people operate like the rest of us & 2 weeks vacation per year...they accomplish so little every year & talk about what they are going to do...i always tell my children & grandchildren...don't tell me what you will do, show is cheap...
Aug 1, 2011 4:52PM

"They" say cuts to the mililtary, cuts in Medicare payments to the Doctors (if you can find one).Where are the cuts to Congress -both House and Senate- pay?  Where are the cuts to the Presidents' pay?  You can bet when BO said he couldn't guarantee Social Security checks, he COULD guarantee that Congree would get paid!  Does the first lady need travel with such a large staff?  Reducing the deficit means RANK DOES NOT HAVE PRIVILEGE!

Aug 2, 2011 6:42AM
Aug 1, 2011 1:39PM
If the budget simply had no increases for the next 10 years the CBO would rate the legislation as a 9.5 trillion dollar cut. This is due to all the automatic increases involved with baseline budgeting. This great sacrifice by Washington means the budget will still increase by over 7 trillion dollars in the next decade. Washington just doesn't get it.
Aug 1, 2011 4:13PM
What does it cost to buy a U.S.A. senator??
Aug 1, 2011 1:48PM
No matter what the government does, if it has to do with money, it always seems to come back and bite me in the a**.
Aug 2, 2011 1:12PM

In this day and age, few if nearly anyone, gets medical benefits for free. However, our members of Congress receive lifetime benefits! all free of charge! If they are serious about helping America, they should begin by paying in part for their medical benefits and give up the lifetime benefit.

Next, everyone, no matter their income, should be paying taxes. Stop the loopholes, Every single income could be taxed a flat 10% and we would all be better off.Stop the write-offs and loopholes completely. Now all are on a level playing playing field, and should be.

Finally, all businesses should be paying taxes. No exceptions!

Aug 1, 2011 3:25PM

All of this political  bickering has created so much uncertainty that likely most businesses were taking a cautious wait and see attitude.   Is it any surprise that business activity level growth dropped in July?   The morons in Washington are arguing about getting more revenue while their bickering pushes us closer to a double dip recession.   Their relentless immaturity created a worse situation.   Our government is dysfunctional.   At least part of the current issue has been self inflicted even if we finally get an agreement on the debt ceiling.   We all lose from the lack of cooperation.    


We are going to go through this again in September when we have to vote on the next fiscal year budget.   I bet the government shutsdown in certain areas because of the gridlock that will occur once again.

Aug 1, 2011 8:57PM
Did I read that right?  The average military employee makes $122,000 /year in salary and benefits?  Why on earth did my parents tell me to go to college?  I guess I should have joined the Marines.  I have total respect for what our servicemen and women do, but that's a HUGE chunk of change!
Aug 2, 2011 11:56AM
This budget deal is a bad joke at best! No new revenue streams to support government expenses? The idiots in DC cannot even do basic math! The politicians have once again proven that they should not be trusted since they are out of touch with the reality of the everyday working people, the middle class, the elderly, the ill and most of the nations citizens. I am profoundly disgusted with this deficit reduction plan at the expense of most of us. I think we need to remove the overly generous benefit package which the lousy politicians receive for life and we pay for - share the pain right? 
Aug 2, 2011 9:27AM
You hear those in Washington D.C. argue that cuts alone will not balance the budget.  Kind of funny that making cuts won't balance the budget but yet raising the debt ceiling won't have any effect on the budget either.  Simple truth; they are trying to cover themselves.  A 15% across the board; coupled with a cap on spending for each and every department; would balance the budget in due time.  Oh and I must mention; we must stop paying any kind of monies to any foreign nation and also stop making payments to the U.N. and kick them and their diplomats out of New York.  Security costs for New York and more importantly for the Nation would drop dramatically. It is just like your home budget; even though they argue it is not.  I had two hospital bills that took me two years to pay off; but I cut on my other spending; paid them a little each month; and after two years they are paid in full.  I assure you if I could do it; it can be done in D.C. just as easily.
Aug 1, 2011 3:19PM

Moody's Investors Service and Standard & Poor's Ratings Services. The jackasses that helped bring us the housing mess.  What do they know about anything? Who cares

what rating they give, it is irrelevant, they are irrelevant.

Aug 2, 2011 12:33PM
The US government no longer reflects the will of it's citizens and has lost legitimacy to rule.  We need to declare class war, take back our country and implement a true direct government that is now possible via technology.  All current major power holders need identified and removed.  We can once again legalize small business, open air markets and the American dream which is now an unobtainable nightmare.
Aug 2, 2011 9:44AM
All the money I have says the "Super" commitee will do just like what the government did now, and just mess around to the last second. When the time comes they will go with cutting 50% of the defense fund and cuts on everything just like they said they would do in the article. The government is too scared to make any real decisions if it could hurt them from being in office so they stay neutral on everything.
Aug 2, 2011 12:13PM



Did you read this:

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.
Aug 2, 2011 12:20PM
Right on USA Joe.  Also middle class means even people with a small business or making 250k.  There are tons of loopholes for the million $/year and over guys to end up paying a pathetically small amount of taxes (some documented right here on msn in multiple articles).  Each tax dollar the billionaires don't pay is one more dollar for suckers like us to pay.  Some middle incomer support the GOP and are waiting for their tax breaks to kick in - don't you get it?  The tax cuts already happened!  You're not in the inner circle.  You got suckered. 
Aug 2, 2011 1:12PM
When will the American people wake up to see that these politicians are destroying our country. I guess the present  administration idiots in power is smiling all the way to the bank after this piece of  poor legislation was passed. They are lying to the American public.  Goodbye America hope to see you soon. King Obama when will you start the recovery to help the American people.
I guess you need to go back to the Kool Aid stand to learn the basis on how to run a Government.       
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