U.S. Sen. Harry Reid, D-Nev., Monday offered a sweeping $2.7 trillion spending reduction plan that calls for major cuts in domestic programs and $1 trillion in defense cuts. Reid's plan also raises the debt ceiling by $2.7 trillion, Reuters reported Monday.
The plan has the endorsement of President Barack Obama, who said it was a more-reasonable approach than a plan formulated by House Speaker John Boehner, R-Ohio.
"Senator Reid's plan is a reasonable approach that should receive the support of both parties, and we hope the House Republicans will agree to this plan so that America can avoid defaulting on our obligations for the first time in our history," said a statement from White House spokesman Jay Carney, USAToday.com reported.
Obama criticized Boehner's plan because it calls for only a short-term increase in the debt ceiling by up to $1 trillion, along with $1.2 trillion in budget cuts, then a second round of debt reduction in 2012, which is an election year.
Reid's plan would cover debt through the 2012 election, and the measure also includes $1.2 trillion in savings that Democrats say Republicans already had agreed to. Other savings are envisioned in programs including agriculture and housing, as well as from lower interest payments, Bloomberg News reported.
Reid's plan would also wind-down the wars in Iraq and Afghanistan, would cut $30 billion from Fannie Mae and Freddie Mac, and change agriculture programs to save $10 billion to $15 billion.
The U.S. Congress has until the end of August 2 to raise the U.S. debt ceiling to enable the government to pay its bills and service any debt coming due.
On Aug. 4, the U.S. Treasury Department is due to pay off $30 billion in maturing short-term debt. In theory, the United States could prioritize debt payments, but U.S. Treasury Secretary Timothy Geithner has warned lawmakers in Congress that the prioritization tactic would still cause investors to shun U.S. Treasury securities, commonly known as Treasuries.
Political/Public Policy Analysis: If it looks like two titans dueling for fiscal supremacy, you're correct. Look for Sen. Reid's team to begin discussions with House Speaker Boehner's team soon. Boehner's plan will call for about $1 trillion in cuts now, then about $1.2 trillion in cuts next year, but would require two votes. The votes will be one point of contention, as will revenue. But with positions staked out, hopefully both sides can get to the important task at hand: finding common ground, and compromising where needed, to arrive at a debt deal.
Based on the announcement of the two plans Monday, on a scale of 0 to 100 percent, the likelihood of a U.S. Government default has been decreased to 25 percent on Monday afternoon, 5 percentage points lower than it was Monday morning.