Debt supercommittee: Three possible paths for its future

November 14, 2011

The clock is ticking on the deficit reduction committee tasked with finding at least $1.2 trillion in savings, and the bipartisan group’s work product will likely shape the next year’s legislative agenda heading into the 2012 elections.

The group’s mission provides unprecedented power to have its legislative proposal considered before Christmas in the House and Senate, without any amendments or procedural hurdles such as a filibuster — just straight up-or-down votes. There’s one critical catch: The group must first reach a deal that at least seven of the 12 committee members can accept, and they must vote on it by midnight Nov. 23.

Formally created in the August deal that allowed the federal debt ceiling to be increased, the Joint Select Committee on Deficit Reduction has been hung up almost from the start on the key stumbling block of the 112th Congress: taxes. The six Republicans on the so-called supercommittee have been reluctant to give in to tax increases, while the six Democrats have only been willing to agree to cuts to popular entitlement programs if there are accompanying increases in taxes on the wealthy.

Republicans have offered more than $250 billion in what they consider increased tax revenue, but Democrats have dismissed the proposal because it would permanently extend the Bush era tax cuts that would lock in lower tax rates for high-income earners.

“It’s been a roller coaster ride,” Rep. Jeb Hensarling (R-Tex.), co-chairman of the supercommittee, said Sunday on CNN’s “State of the Union.”

Here are three possible outcomes from the final days of negotiating:

1 — Deal

Democrats, led by Sen. Patty Murray (Wash.), the supercommittee co-chairman, are adamant that the final outcome be “balanced,” their code for including large amounts of new tax revenue and cuts to entitlement programs such as Medicare and Medicaid. They are offering nearly $500 billion in cuts to health-care entitlements, along with roughly $250 billion in savings over the next decade to other mandatory spending programs such as agriculture subsidies.

After initially resisting any tax increases, Republicans made an offer that included some tax hikes and a similar level of new revenue based on the sale of federal properties, other accounting maneuvers and assumptions in economic growth based on a revamped tax code. Any deal would appear to require a higher level of tax increases, accepted by Republicans, and a Democratic agreement to dig deeper into entitlements.

Because of the precarious political position this places both parties in, insiders now believe that a simple seven-vote majority will not be sufficient. Instead, they think it will have to be at least eight votes, split evenly, to give the deal enough momentum to then win passage in the GOP-controlled House and the Democratic-run Senate.

If such a deal is reached before Thanksgiving, congressional leaders are not likely to leave the legislation laying around until the Dec. 23 deadline for its floor consideration. Instead, the House would likely come back after the Thanksgiving holiday and spend a week educating its members about the plan, and then hold a vote the week of Dec. 5.

The Senate would follow after the House.

Approval would then give President Obama — who has stayed out of the negotiations — enough borrowing authority so that the federal debt ceiling would not have to be re-visited until the spring 2013.

2 — No deal

If the supercommittee deadlocks, or if its proposal fails in the House or Senate, then a complicated set of automatic spending cuts would take place over the next decade. Formally known as a sequestration and informally as a “trigger,” the automatic cuts would be imposed by whoever wins the 2012 presidential election. Half the cuts would come from defense spending, the other half from domestic programs (benefits for Social Security and Medicare are exempt from the trigger).

On top of more than $900 billion in cuts to federal agency spending already planned, these cuts are considered very punitive. Sen. Carl Levin (D-Mich.), chairman of the Senate Armed Services Committee, dismisses “trigger” as a colloquialism and instead calls it a “nuclear suitcase,” with fallout that would cripple the Pentagon and other domestic programs key to the working class. The Third Way, a centrist Democratic group, estimated that 3,700 agents from the Justice Department would lose their jobs, border patrols would be cut by 25 percent, and more than 2,300 IRS agents would lose their jobs.

Gridlock on the supercommittee would also lead to another crushing moment for Wall Street and other analysts looking for confidence in the federal government’s ability to handle its swelling red ink. “We would view the failure of the committee process as an indication that the likelihood of significant deficit reduction measures being passed by Congress in the period before the November 2012 elections had been reduced,” Moody’s Investor Service wrote in a recent report.

The entire year leading up to the 2012 election would be consumed by more talk of debts, deficits and the pending sequestration. Some Republicans have talked about defusing the sequestration for the Pentagon, but such a move would likely lead to Moody’s downgrading the U.S. debt because it would lead to even higher deficits. In addition, any move to turn off the trigger requires bipartisan cooperation and consultation — two things that have been in short supply this year.

Starting in 2013, whoever wins as president and whoever controls Congress would have to continue grappling with the issue, as the federal government would run up against its borrowing limit early that year.

3 — Punt

In recent days lawmakers have openly talked about approving a partial deficit-reduction plan, with a mandate for regular congressional committees to come back early next year with a large rewrite of the federal tax code that could both increase revenue and lower rates. “There could be a two-step process that would hopefully give us pro-growth tax reform,” Hensarling said Sunday.

Such a plan would allow for the spending cuts to be agreed upon in the next few weeks and whatever savings come from increased revenue would be spelled out by the tax-writing House Ways and Means and Senate Finance committees. Those two panels are represented on the supercommittee by their chairmen, Rep. Dave Camp (R-Michigan) and Sen. Max Baucus (D-Mont.).

This would buy more time for the deeply complex issue of simplifying the tax code.

However, the only way such a move could work would be if both sides agreed to an overall number for increased tax revenue — and if they instituted another trigger, in case Camp and Baucus failed at tax reform next year. Without a formal trigger, the Congressional Budget Office would not formally give the supercommittee’s proposal official clearance for meeting the necessary $1.2 trillion in savings. Additionally, Democrats would not likely agree to spending cuts now with a vague promise for tax revenue next year.

Read more on PostPolitics.com

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Paul Kane covers Congress and politics for the Washington Post.
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