Last Thursday, the Senate voted, 60-39, along partisan lines to pass legislation raising the nation's borrowing capacity to $14.3 trillion. During debate of the bill, senators rejected an amendment to establish a commission to make recommendations to reduce the deficit, but agreed to an amendment reinstituting statutory pay-as-you-go (PAYGO) rules with some exemptions.

With the expected defeat of the former amendment, the White House had to step in and promise an executive debt commission to win over moderate Democratic senators, but adoption of the latter amendment significantly increases the bill's chances of passage in the House this week.

According to a recent POLITICO article, the vote to raise the debt ceiling came down to a guarantee from the White House that the president would author an executive order creating a debt commission, and promises from House and Senate leaders that each chamber would take up the commission's recommendations. Under the agreement, the Senate would vote on any commission proposals first, but could not offer any amendments. The recommendations would then move to a vote in the House where members of the lower chamber could provide alternatives.

The executive commission will likely resemble the taskforce proposed by Sens. Kent Conrad (D-ND) and Judd Gregg (R-NH), but will include more presidential appointments. It will be an 18-member commission with six members coming from the House and six from the Senate, evenly divided between the two parties. The White House will appoint another six members, but no more than four could be Democrats, resulting in a commission of 10 Democrats and eight Republicans. However, rumors are circulating that the president is going to find few Republican lawmakers willing to participate in the commission, which may raise legitimacy issues down the line.

The PAYGO legislation, which the Blue Dog coalition in the House demanded, requires Congress to pay for new permanent spending or tax cuts with savings or revenues from elsewhere in the budget. If Congress fails to offset a new initiative, automatic spending cuts are triggered. However, the bill includes two-year exemptions for provisions dealing with the alternative minimum tax (AMT) and the estate tax, a five-year exemption for the Medicare “doc fix,” and a permanent exemption for extending the middle-class tax cuts enacted under President Bush. These exemptions will likely add about $1.6 trillion to the federal deficit over 10 years.

Image by Flickr user Andres Rueda used under a Creative Commons license.