Debt-ceiling plans face CBO fire: Does either cut as much as promised?

Either one of the competing plans from Congress's top two leaders could help resolve a potential US debt crisis. But now the question is if either one can overcome skepticism about whether it can pass and whether it will work.

One new hurdle comes from official government bean counters, who say reductions in future deficits won't be as big as advertised.

The nonpartisan Congressional Budget Office (CBO) said Wednesday that a plan from Senate majority leader Harry Reid (D) would cut federal deficits by about $2.2 trillion over 10 years – whereas Senator Reid earlier in the week had touted $2.7 trillion in savings.

A day earlier, the CBO said a rival plan pushed by House Speaker John Boehner (R) would reduce deficits by $850 billion over the next decade, compared with Mr. Boehner's initial announcement that the plan specifies $1.2 trillion in budget savings over that time.

The news helped push Boehner back to his drawing board to revise his plan in a bid to gather needed support from his own party.

Some Republicans are rebuffing Boehner's plan, arguing that neither the House speaker nor Reid is cutting federal spending enough to restore fiscal health. On the other side, many Democrats want to reduce future deficits partly through increased tax revenues – a goal that Boehner rejects and that Reid has abandoned as impractical.

In many ways, the two plans are similar, but one key difference has opened another major rift within Congress. Republicans are ready to embrace Boehner's idea of addressing the debt problem in a two-step process, while Democrats want to vote on the issue only once before the 2012 elections, as Reid's plan calls for.

Despite all the disagreement, and the CBO's scrutiny, pressure is rising for both sides to find common ground and bring the issue to a conclusion. The US Treasury has warned that unless Congress votes to raise the current cap on federal borrowing by Aug. 2 (a vote lawmakers are linking to the deficit-cutting plans), the government will be unable to pay all its bills.

A default on US Treasury debt would be possible, and the downgrading of America's credit score all but assured, with negative consequences for interest rates and the economy.

In a closed-door meeting Wednesday, Boehner lobbied fellow Republican lawmakers in the House to support his plan.

An editorial in The Wall Street Journal echoed the speaker's case. "What none of these [Republican] critics have is an alternative strategy for achieving anything nearly as fiscally or politically beneficial as Mr. Boehner's plan," the conservative editorial page pronounced.

Backers argue that the Boehner plan would lead to more rigorous pressure to restrain federal spending than the Reid plan.

Many analysts now see one of these competing plans, or some new hybrid of the two, as the most likely way to resolve the debt impasse by Aug. 2.

For his part, Reid responded to the CBO news Wednesday with a positive spin, saying it shows that "the Senate draft bill achieves $1.3 trillion more in deficit reduction than the Boehner plan."

But an analysis by the Committee for a Responsible Federal Budget, an independent organization focused on fiscal discpline, sees the two plans as "more similar than they are different."

Both plans called for $1.2 trillion in discretionary spending cuts to be determined up front, and neither calls for higher taxes. Both would put in place a process designed to help additional budget savings occur despite the partisan divides that often contribute to gridlock.

Boehner has said his proposal would result in $3 trillion total deficit reduction over the decade, as the initial cuts are followed by additional spending restraint via a special process this fall.

Although Reid's plan offers a one-step path toward raising the nation's debt limit, his plan also involves deciding on additional spending cuts later this year.

Both plans envision a bipartisan group of 12 lawmakers to map out the later spending cuts.

One important difference relates to enforcement. Boehner's plan would make a future rise in the debt limit contingent on further moves to reduce future deficits by $1.6 trillion, while the Reid plan lacks such a mechanism to ensure that the intended savings actually occur.

The Committee for a Responsible Federal Budget argues that the ideal approach for getting public debt under control over the next decade would be to set a specific target for the ratio of national debt to the size of the overall economy, to ensure that legislation actually achieves the goal of stabilizing and reducing US debt.

Even if one of the two plans, Boehner's or Reid's, reaches President Obama for his signature, major uncertainties about America's fiscal future will remain.

Neither plan offers concrete ideas on how to tame the rising cost of health-care programs, mend Social Security, or reform the nation's complex tax system.