By Anne Rosivach
Update: By a vote of 269 in favor to 161 opposed, the U.S. House of Representatives passed bi-partisan legislation on August 1 that will permit the president to raise the debt ceiling by $900 billion and allow the U.S. Treasury to pay its bills through 2013. The bill is expected to pass in the Senate on August 2, the last day that Treasury has said it will be able to pay its debts under the current debt ceiling.
Minutes before the conclusion of voting, the House erupted in applause and cheering as Congresswoman Gabrielle Giffords came to the floor to vote in favor of the bill, which received the support of 95 Democrats.
The bill to raise the debt ceiling calls for $2.4 trillion in spending cuts in two stages over ten years, with $917 billion cuts to domestic discretionary programs effective immediately.
In the second stage, a special joint committee of Congress would recommend further deficit reduction steps totaling $1.5 trillion or more, with Congress mandated by law to vote on the committee's proposals by the end of the year.
The committee would be comprised of 12 members – six from each chamber, equally divided between Democrats and Republicans. The panel's recommendations would be due by November 23 and guaranteed an up-or-down vote in Congress without amendments by December 23.
If the committee's recommendations are enacted, President Obama would be authorized to increase the debt ceiling by up to $1.5 trillion.
If the recommendations are not enacted, Obama can still raise the debt ceiling by $1.2 trillion, but a budget "trigger" would kick in, imposing mandatory across-the-board spending cuts effective January 1, 2013. The cuts would match the size of the debt ceiling increase, and be divided equally between defense and nondefense spending.
The long-term impact on taxpayers depends on the ability of the committee and Congress to reach an agreement by the end of 2011. Taxpayers may see some combination of tax reform and spending cut legislation emerge from the bi-partisan, bi-cameral committee.
The Bush tax cuts expire as of January 1, 2013, the same date that the mandatory spending caps would go into effect. The two events should give Congress some incentive to come up with a plan, but taxpayers and their accountants will have to cope with uncertainty for at least two more years.
If President Obama is re-elected, he has said he will not sign a re-enactment of the Bush tax cuts.