After a weekend of frantic negotiations, Congress will finally vote to raise the country's debt-ceiling, thus averting a forced default by the United States of America.
This was a manufactured crisis--Congress could have voted to raise the debt ceiling anytime, and then worked out the details of deficit reduction over many months. But once the deficit-reduction plan was linked to the debt-ceiling hike, it became a real crisis, and Americans should be thankful that Congress finally got a deal done.
So what does the deal mean for average Americans?
Aside from averting the crisis, not much. It's a step in the right direction, but there will be a lot more negotiation--and budgetary pain--to come.
The deal calls for a reduction in projected spending by as much as $2.4 trillion over the next decade. This is made up of about $900 billion in caps on discretionary spending (including military spending), plus another $1.2-$1.5 trillion of future spending caps to be determined by a bipartisan deficit-reduction committee. To put this in perspective, the government is expected to spend more than $46 trillion over the next decade, so the reductions are slightly more than 5% of this.
The first round of cuts will not touch the big entitlement programs like Medicare and Social Security that make up most government spending. The second round of cuts, however, will likely hit Medicare.
Importantly, the specifics of the cuts has yet to be determined. And calling them "cuts" actually creates a misleading impression: Really what they are are caps in the rate of increase of spending.
Also, although the Republicans managed to block the inclusion of what they described as "job-killing tax hikes," the deal very much includes what might similarly be described as "job-killing spending cuts." Although the impact of these cuts of the next couple of years is likely to be small, there's a more direct relationship between spending and jobs than there is between taxes and jobs. So those concerned about the country's high unemployment rate should not be celebrating the fact that the deal doesn't contain any tax increases.
Reasonable Americans should also breathe a deep sigh of relief that the so-called "Tea Party" representatives in Congress did not get their way. The Tea Party's way, as presidential candidate Michele Bachmann frequently asserted throughout the crisis, was to block a debt-ceiling increase and thus force America to default.
Although the Tea Party deserves credit for forcing America to finally confront the unsustainable financial situation we've gotten ourselves into, forcing the country into default would have been reckless and unconscionable. Thankfully, this did not happen.
The debt deal is not law yet: To become law, it will have to be approved by both the House and Senate. Those votes are expected to take place later on Monday.