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Debt Deal: No New Taxes and No Social Security or Medicare Cuts &#8212 Yet

Law creates new super-committee to set future cuts

En español | The deficit deal passed by Congress and signed by President Obama is a mixed bag for older Americans, with Social Security and Medicaid protected from cuts at least for now but many other federal programs likely to be trimmed.

See also: AARP on passage of Budget Control Act of 2011.

Congress went about the mechanics of pulling the nation back from the brink of default. Senators approved the package Tuesday, 74 to 26, just hours before the nation exhausted its borrowing authority. On Monday, with Arizona Rep. Gabrielle Giffords making a dramatic appearance, the House passed the deficit compromise, 269 to 161.

House Speaker John Boehner (R-OH), President Barack Obama, Senate Majority Leader Harry Reid, D-Nev.

President Barack Obama flanked by House Speaker John Boehner and Senate Majority Leader Harry Reid. — Photos by: Jonathan Ernst/Reuters | Alex Wong/Getty Images | Tom Williams/Roll Call/Getty Images

The quickest impact on seniors will be the Social Security checks that arrive later this week. The president had warned that without an increase in the debt ceiling, he couldn't guarantee that the government would have enough borrowing authority to send out checks on Aug. 3.

Now those checks should go out after the measure becomes law. And one of the biggest impacts on the Social Security system — a proposal to make future cost-of-living increases smaller — is off limits in the short run.

The debt deal reached Sunday between Obama and congressional leaders, including Senate Minority Leader Mitch McConnell, R-Ky., would raise the debt ceiling in exchange for more than $2 trillion in spending cuts. The total is much smaller than the $4 trillion in cuts Obama and congressional leaders had first tried to come up with.

"It's inadequate. There's not a lot of dispute about that," says J.D. Foster, senior fellow at the Heritage Foundation. "We have a huge fiscal problem and this doesn't address it that much."

The first installment of nearly $1 trillion in cuts exempts Social Security and Medicare.

Where are the cuts?

But the money will have to come from somewhere. And David Certner, AARP legislative policy director, says that other programs dear to seniors could be affected — like those for nutrition, caregiving and senior job placement. Many of those programs — such as those for elderly housing and home heating assistance — already have waiting lists. Demand continues to rise as the senior population increases and the economy leaves more people in need of federal aid. After the spending cuts, even less money will be available.

"With these kinds of big, deep cuts, it will probably affect all these programs," Certner says. "We don't know exactly how these cuts will be apportioned."

Next: Social Security cuts and Medicare cuts could come later. >>

A second budget-cutting installment will come later in the year. A special congressional committee will be appointed, with 12 members drawn in equal numbers from the House and Senate, Republicans and Democrats. They are charged with proposing $1.2 trillion to $1.5 trillion in further cuts.

Republicans, throughout the deficit battle, have resisted increases in taxes, while congressional Democrats have fought cuts to Social Security and Medicare beneficiaries. Those ideas could be included in the second round of cuts — but only if the committee can get past those entrenched divisions.

Obama on Sunday said no one got everything they wanted out of the deal, including him.

"Despite what some Republicans have argued, I believe that we have to ask the wealthiest Americans and biggest corporations to pay their fair share by giving up tax breaks and special deductions. Despite what some in my own party have argued, I believe that we need to make some modest adjustments to programs like Medicare to ensure that they're still around for future generations."

Once the special committee draws up its package of deficit reductions, Congress will vote on the entire package in December without being able to amend it. If nothing passes, automatic spending cuts of $1.2 trillion will kick in. Half the dollars will come from defense and security spending and the other half from other domestic programs.

Social Security and Medicare cuts could come later

The automatic cuts don't affect Social Security, Medicaid, taxes or veterans benefits. But they would cut Medicare payments to medical providers. Seniors would not see a change in their benefits. But, Certner says, cuts to medical providers could mean seniors have a harder time finding a doctor willing to accept Medicare.

"The deeper you cut payments to providers, the more you create disincentives to treating people on Medicare," he says.

White House press secretary Jay Carney says those cuts are capped. But the prospect of cuts to Medicare and other programs is designed to motivate lawmakers to compromise on their own package of deficit reductions instead of relying on the automatic cuts.

"This is tough stuff," Carney said Monday. "It's supposed to be tough stuff … so Congress doesn't go there."

Congress already is facing a conundrum of cuts to Medicare doctors. Huge cuts in reimbursement rates for doctors are scheduled to go into effect at the end of the year from past legislation. Each time this has happened before, Congress has given the doctor payments a reprieve instead of cutting the rates. But finding money to keep the rates stable could be difficult as Congress makes large budget cuts. "You have crosswinds," Certner says.

"Sometime we are going to have to realize the fundamental problem in Medicare is not that we are overpaying providers," says Foster.

Next: Not another debt ceiling impasse before 2012 elections. >>

Max Richtman, head of the National Committee to Preserve Social Security & Medicare, said “our work is clearly cut out for us,” in preventing benefit cuts in the next round of deficit cutting.

“Americans of all ages and political persuasions know that Social Security and Medicare have not caused this economic crisis and do not support cutting these programs to pay down the debt.  Yet, Washington continues to use these vital programs, and the Americans they serve, as bargaining chips in a quest to balance the budget on the backs of working class Americans and their families,” he said.  

Nation won't face a debt crisis before the 2012 election

One victory Obama did win out of the package is that he won't have another debt ceiling impasse before the 2012 elections. The country won't need another debt ceiling deal until the end of 2012 — the same time that President Bush's tax cuts automatically expire. The White House noted that Obama could cut $1 trillion in deficit spending at that time by letting the tax breaks for the wealthy expire. Republicans in Congress have fought that idea; after the cuts expire, they would need to pass new legislation to reinstate them.

Many lawmakers said Monday that they were relieved to find a way around the country's first default. Economists had warned that if the United States didn't pay its bills, interest rates would rise not only on the government's borrowing but for citizens on mortgages, car loans and credit card debt. Economists also warned that higher interest rates could let the air out of the economy by leading to lower stock and bond prices.

Foster says the credit rating could deteriorate because the debt deal doesn't go far enough in tackling the nation's fiscal problems.

That is exactly what lawmakers have been seeking to avoid.

"You don't want to risk a major meltdown in the financial markets, which could be a risk for seniors and those who have retirement savings they are counting on," Certner says.

Tamara Lytle is a veteran Washington political correspondent.

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