Ending a rancorous political stalemate, President Obama on Aug. 2 signed the bipartisan debt ceiling bill into law just hours before the nation faced an unprecedented default on its financial obligations. But the two parties are expected to remain sharply divided over tax hikes and spending cuts as they enter the next phase of deficit reduction required by the new law.

The measure — S. 365, The Budget Control Act of 2011 — was passed by the House on Aug. 1 by a vote of 269 to 161 and cleared the Senate the following day by a comfortable 74 to 26 margin.

NAHB sent a letter to House and Senate Republican and Democratic leaders urging them to approve the measure.

“While no plan can be perfect, we believe that the agreement is an important step to getting the nation’s financial house in order and ensuring that the fragile housing market is not further devastated by another economic collapse or economic uncertainty,” the letter said.

Noting that the plan would provide for a joint bipartisan committee of 12 lawmakers to identify additional savings by Thanksgiving, the letter urged lawmakers to “give careful consideration to how those measures will impact the health of the housing sector.”

“What the housing markets needs now is more, not less, certainty with respect to housing policy and access to capital via the mortgage markets,” the letter said.

“Making the right decisions will help stabilize housing prices and give American households the chance to repair their balance sheets and set the stage for more robust economic growth.”

The bill authorizes President Obama to increase the debt limit by at least $2.1 trillion in three steps, with nearly $1 trillion of spending cuts over 10 years to be implemented immediately through discretionary spending caps.

These cuts will have an impact on all federal agencies, including the Department of Housing and Urban Development, and NAHB will be closely monitoring the House and Senate Appropriations Committees as they implement the deal. 

The legislation also requires Congress to vote by Dec. 23 on a package of $1.5 trillion in additional cuts over the next decade, based on the proposals that must be completed by the “joint select committee” by Nov. 23.

Should the committee fail to agree on a deficit-reduction package, across-the-board spending cuts worth about $1.2 trillion will automatically kick in starting in 2013 — with 50% coming from defense and 50% coming from domestic programs — allowing the debt ceiling to be raised by an equivalent amount.

Entitlements largely get a pass: Social Security and Medicaid would be exempted from the automatic spending cuts, and Medicare would only face reductions to providers and insurers, not beneficiaries.

The White House is assuring its supporters that the committee of six Republican and six Democratic lawmakers can raise taxes as part of its deficit reduction plan. Technically, this would be possible through the consideration of tax reform and entitlement changes.

However, the same ideological divide that nearly drove the government into default still exists.

House Speaker John Boehner (R-Ohio) has told House Republicans that the panel “effectively” cannot raise revenues and other GOP leaders have voiced their opposition to any type of tax reform that might emerge from the committee.

While Republicans are warning they are unwilling to raise taxes, Democrats are threatening to take a hard line against cuts to Social Security, Medicaid and Medicare benefits.

At this point, it is considered unlikely that the committee’s proposal will include tax hikes or tax reform. One Republican would have to cross over to the Democrats to make this possible, and that is not likely to happen because those who are appointed to the committee will be expected by their leadership to toe the party line.

It is more likely that the debate that has raged in Washington for the past few weeks will continue through the fall within the select committee.

NAHB will be reaching out to the committee and urging it to support the association’s key housing tax incentives —- including the mortgage interest deduction and low income housing tax credit.

In the meantime, the association will also be closely watching the Senate Finance and House Ways and Means committees, which could decide to move forward on tax reform next year instead of waiting for after the elections in 2013.

To read the legislation, click here and enter S. 365 into the box at the upper center of the screen.

For more information, email J.P. Delmore at NAHB, or call him at 800-368-5242 x8412.