Reid unveils his debt limit plan 

Senate Majority Leader Harry Reid's just unveiled his own plan to resolve the debt limit impasse. His claims to have met all of the Republicans demands reminded me of one of those genie movies where the protagonist's wish ends up being granted in way that technically meets his request, but not in the way he meant it.

Reid says his plan meets the Republican demand for a dollar for dollar trade off in spending cuts to debt limit hikes, and does so without raising taxes. Yet in reality, it doesn't do anything to address the central complaint of Republicans or the rating agencies -- i.e., the long-term debt problem driven by entitlement spending.

How does Reid achieve these $2.7 trillion in savings?

First, he claims $1.2 trillion in discretionary spending cuts, only he won't specify where they come from other than they include defense and non-defense spending. (The Weekly Standard's John McCormack asked Reid how much lower the 2012 budget will be under his proposal, and Reid said, “You know, I’m not much of a numbers wonk. Get that from my staff, okay?”)

Also, he assumes $1 trillion in savings from winding down the wars in Iraq and Afghanistan -- which was going to happen anyway. The rest of the monet comes from $400 billion in interest savings and $100 billion in mandatory savings -- yet without touching Medicare, Medicaid, or Social Security.

Instead, he assumes $40 billion in savings from cutting "fraud and abuse," $30 billion in unspecified Fannie Mae and Freddie Ma Reforms, $10 billion to $15 billion in unspecified agriculture reforms and $15 billion from spectrum sales.

It also creates a bipartisan joint Congressional committee for future deficit reduction.

Given that Reid continuously cited the rating agencies, I asked him why his plan doesn't do anything to address the underlying problem they're worried about -- the long-term debt to GDP ratio trajectory.

“That’s why it seems there’s acceptance all over this Capitol with my idea of a joint committee," Reid said. "I understand it’s going to be in the proposal that Boehner is going to send over to us.”

Reid then insisted that the only way to achieve the long-term deficit reduction being sought by the agencies is through tax increases.

“Everyone should be aware that the only way to reach those numbers is with revenues," Reid said. "That’s why we talk about the need to do something with revenue. Everyone knows that the president has said and we have said we will not touch entitlements until there’s some movement on revenues. What does that mean? It means taxes.”

In all truth, however, from what we know about Boehner's plan at this point, it doesn't do much that's substantially different from the Reid proposal. It also includes $1 trillion in discretionary cuts and creates a bipartisan joint committee to find new deficit reduction. The difference is that Boehner makes a further extension of the debt limit contingent on the committee's plan being enacted, whereas Reid wants the full debt limit increase now. It's unclear how much difference there is in the nature of the discretionary cuts, but on the surface this doesn't seem like an unbridgeable gap. The question is whether the rating agencies are serious about their warnings about downgrading U.S. debt without credible plan to address the nation's longer-term debt burden. Because both Boehner and Reid punt on that front.

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Philip Klein

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