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Debt deal: Winners and losers

Taxpayers and Social Security recipients have avoided pain -- for now -- but government employees and contractors will suffer.

By MSN Money Partner Aug 3, 2011 4:24PM

This post comes from Claes Bell at partner site Bankrate.

 

Like many a heavyweight boxing match, the brawl in Congress over how to close the federal budget deficit and raise the debt ceiling was brutal, drawn-out and largely inconclusive, with the combatants looking to a rematch even before the ending bell.

 

That rematch is inevitable because the debt ceiling deal known as the "Budget Control Act of 2011" actually decides very little, says Marc Goldwein, policy director at the Committee for a Responsible Federal Budget, based in Washington, D.C.

 

"All of the spending cuts, or almost all of them, are sort of unspecified at this point," Goldwein says. "They either come from caps in discretionary spending, which must be decided by House members on an annual basis, or they come from this new super committee, and we have no idea what that super committee is going to recommend."

Goldwein is referring to the Joint Select Committee on Debt Reduction to be formed to determine where funding cuts should occur. If that committee, split down the middle between both houses of Congress and both parties, can't agree by Nov. 23 on a plan that pares at least $1.2 trillion from the budget deficit, a "trigger" will be pulled that automatically makes across-the-board cuts to the federal budget to meet that goal, with some key programs exempted. Post continues after video.

Although it's difficult to assess winners and losers this soon after passage of the new debt ceiling, here's an early take.

 

Winners in the debt ceiling deal:

  • Investors. "The winners are investors, obviously, to the extent that there's not a default or another market scare as a result of us not raising the debt ceiling," Goldwein says. The law provides for debt limit increases until 2013, which should help reassure global financial markets and the millions of Americans who have a portion of their investments in U.S. Treasuries.
  • Taxpayers. Despite initial demands from Democrats that part of the deficit-reduction plan consist of tax hikes on wealthier Americans and corporations, Republican lawmakers shaped a deal that raises no additional government revenue from higher taxes. Instead, all the deficit reduction in the bill comes from spending cuts. Goldwein says that although the super committee does have the authority to raise revenue through raising taxes, that's not a foregone conclusion.
  • Medicare beneficiaries. Because of the committee's broad mandate to find deficit reduction in the federal budget, Medicare and other entitlements could be cut, Goldwein says. But if the committee fails, Medicare is specifically protected in the text of the new law, with the percentage that can be cut from Medicare programs limited to 2% per fiscal year.
  • Social Security beneficiaries. Like Medicare, Social Security is fair game for super-committee cuts, but the new law specifically exempts Social Security from automatic cuts should the group fail to reach an agreement.
  • Beneficiaries of other exempt government programs. Numerous benefit programs for economically distressed families, including Medicaid, Supplemental Nutrition Assistance and unemployment benefits, also are exempt from the triggered cuts.
  • College students who receive Pell grants. The law secures funding for Pell grants to undergraduate students by eliminating federally subsidized student loans for graduate and professional students.

Losers in Congress' debt deal:

  • Defense industry workers. If the debt ceiling deal's trigger is pulled, a big portion of the budget cuts are slated to come from the U.S. defense budget, including funding for the departments of Defense and Homeland Security. That could mean cancellation of numerous defense programs, a harrowing prospect for those working for defense contractors.
  • Government contractors. Defense contractors aren't the only government contractors who could seem themselves squeezed. With nearly every part of the federal budget on the chopping block, government contractors of all stripes will likely see their businesses affected by federal austerity.
  • Beneficiaries of nonexempt state-aid programs. About one in three dollars spent by states comes out of the federal budget, according to a study by the National Association of State Budget Officers. Whatever combination of cuts to programs end up being enacted by Congress will likely squeeze state budgets even tighter than they are now.
  • Government employees. With the federal government in austerity mode, government employees at all levels will not likely be on the receiving end of too many raises, benefit increases or other perks in the federal budget, and many government workers will likely see pink slips as a result of budget constraints.

More on Bankrate and MSN Money:

6Comments
Aug 3, 2011 11:03PM
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Lets see, the debt deal settled nothing except another fight is coming, the investors gained, the poor people got screwed, and the states lost more money. While they were at making a deal they screwed others too.

Well I'm glad they got that all worked out.

 

Somebody is going have to explain me why the biggest tax on my paycheck is mostly Federal taxes? Why the rich have more money and pay less in Federal tax percentage than I do? Or  some corporations have loads of money on their books and don't get an tax increase?

I'm sure glad the Congress, Senate, and the President sure got that debt ceiling raise cause they sure didn't solve anything else by what this article says in part.

 

The only way you can solve debt that is out of control is spend less and make more to pay the debt down. Surely the elected  grown men and women must know this, but it clear by what I've been reading they don't. So maybe that committee should be made up of us poor and working class who do know this lesson all to well; then maybe we will get the debt problem fixed. Heck I'd volunteer to do this committee and don't even want to get paid..... Just need to eat and a place to lay me heap down a night.

 

 

Aug 4, 2011 1:57AM
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Instead of picking and choosing, they should have asked governmetn department to cut their budget by 5%. This would have yielded more results. Furloughs were an option which have not been considered. For jobs not requiring 24 hours duty like nurses. A lot of federal employees could have taken a 5% pay cut for the next 2 years. 
Aug 4, 2011 7:37AM
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It never nauseates me more than to see average Americans want the salaries of other average Americans to be cut rather than re-institute tax levels to where they should be for corporations and the wealthy.
Aug 4, 2011 10:32AM
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A rematch with a committee made up of a smaller group from the larger group that couldn't reach an agreement.  Yup, that makes sense.  More torture on the way!

 

The new super committee needs an advisory group of non-elected officials drawn from the poor, working class, and whatever is left of the middle class.  No wealthy people allowed in this group ... they have lobbyists.

Aug 4, 2011 12:41PM
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The government should live within its means. The electorate should live within its means.

 

No argument there. But when has either entity lived within its means? In an economy that is overwhemingly composed of consumer spending, this country is driven by the borrowed spending of its electorate.

 

The fiddler's finally presented his bill: Interest payments that preclude having the vig for anticipated, customary, and expected spending. At last the profligacy of the post-WWII era has reached its tipping point.

 

WWII was what blew out the horror of the Great Depression. Since then yardsticks used to measure unemployment, inflation, and cost of living have all been cooked repeatedly, to produce a falsely rosy picture of the economy. This is no recession. Today (since 2008) we have the opening era of, what shall we call it? The Greatest Depression?

 

Whatever you call it, it promises to become far more acute before it improves. And, the mechanisms to end it are probably many decades from being realized. To all those not yet 60 years old, all one can say is, "Sorry. It was a helluva ride, but it wasn't built to last."

 

Aug 4, 2011 8:24AM
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Jonny211 nauseates me.  The average American is told to live within their means and the Feds should to.  It is a government of, by, and for the people afterall.  Also, the average investor did not gain from the latest debt ceiling increase...just check the last 3 months for most of the world stock markets.
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