President Barack Obama and congressional leaders reached an agreement on a two-stage deal to raise the federal government's debt ceiling, with potential for an automatic round of future budget cuts that could include Medicare payments to providers and subsidies for Medicare Advantage plans. The arrangement, which requires approval by both houses of Congress and the signature of Obama, would cut more than $2 trillion from federal spending over a decade.
Without legislation in place by Tuesday, the Treasury will not be able to pay all its bills, raising the threat of a default that administration officials say could inflict catastrophic damage on the economy.
In announcing the deal, Obama said there will be no initial cuts to entitlement programs like Social Security and Medicare. But he said both could be on the table along with changes in tax law as part of future cuts.
That was a reference to a special joint committee of lawmakers that will be established to recommend a second round of deficit reductions, to be voted on by Congress before year's end as part of an arrangement to raise the debt ceiling yet again. That is expected to be necessary early next year.
That would be followed by creation of the new congressional committee that would have until the end of November to recommend $1.8 trillion or more in deficit cuts, targeting benefit programs such as Medicare, Medicaid and Social Security, or overhauling the tax code. Those deficit cuts would allow a second increase in the debt limit.
If the committee failed to reach its $1.8 trillion target, or Congress failed to approve its recommendations by the end of 2011, lawmakers would then have to vote on a proposed constitutional balanced-budget amendment.
If that failed to pass, automatic spending cuts totaling $1.2 trillion would automatically take effect, and the debt limit would rise by an identical amount.
Social Security, Medicaid and food stamps would be exempt from the automatic cuts, but payments to doctors, nursing homes and other Medicare providers could be trimmed, as could subsidies to insurance companies that offer an alternative to government-run Medicare.