Debt supercommittee faces super-sized challenges
The new bipartisan congressional committee created to reduce the federal deficit will hold its first meeting Thursday, and if it is to fulfill its mandate, it must come up with enough savings to buy every team in the National Football League.
And then buy the whole league over and over again — 35 times. The mission is to lower the federal deficit by at least $1.2 trillion over the next 10 years, enough money to cash out Oprah Winfrey 400 times over.
The dollar figures tossed around in Washington’s debate over spending have grown so large that for many people they no longer have much meaning.
But a little context helps put into perspective just how major a task the group — dubbed the “supercommittee” — will face.
Reaching that almost unimaginably huge sum would be, in fact, mathematically easy — the supercommittee will begin its work armed with various commissions’ recommendations for ways to save that much and more. But it would be politically difficult, requiring tough choices and even guesses about how the committee’s actions might affect the economy. And here’s the paradox: Even if the 12-member panel can agree on how to reach the number, it will have made only a small dent in the rapidly growing federal budget, which is expected to include $44 trillion in spending over the next decade.
The Congressional Budget Office says that during the next 10 years, Washington probably will spend $4.69 trillion more than it collects in taxes — that’s four times the committee’s mandate. So even if the supercommittee is super-successful, the deficit will still be growing when the panel is done.
Appointed by House and Senate leaders as part of the August deal that allowed the nation’s legal borrowing limit to rise, the six Democrats and six Republicans on the committee have until Nov. 23 to come up with a plan to reduce the deficit.
Their goal is to cut $1.5 trillion over the next decade. But if they can’t come up with at least $1.2 trillion in savings — or if Congress does not adopt their recommendations by the end of the year — government spending will automatically be cut by $1.2 trillion over the next 10 years, split evenly between defense and domestic programs.
The threat of that kind of across-the-board cut, particularly to the nation’s military, is designed to compel agreement on a more strategic approach.
So just how much is $1.2 trillion, exactly?
It’s enough to paper over the District of Columbia with a stack of dollars 70 bills thick.
For the sake of comparison, if the nation keeps funding Medicare at its current levels, it will spend $4.7 trillion on the retiree health program over the next 10 years.
Without changing how it funds the military, it will spend $7.86 trillion on defense.
“On the one hand, it’s a big number — in any sense of the word,” said Ed Lorenzen, senior adviser to the Committee for a Responsible Federal Budget. “You’re talking about significant policy shifts when you look at a number like that. But, on the other hand, you have to look at what the debt would be even if you achieve it.”
The stated goal is to reduce the deficit as a percentage of gross domestic product. An August report from the Congressional Budget Office projected that the deficit will indeed shrink as a percentage of the economy, from 8.5 percent this year to 1.2 percent in 2021. And the supercommittee’s actions are expected to help — by 0.7 percent.
A larger proportion of the CBO’s estimate is based on the assumption that Congress will allow certain tax provisions, including tax cuts enacted during the George W. Bush administration, to expire on schedule at the end of 2012.
Congress has extended the Bush tax cuts once, and it is not clear whether the supercommittee will choose to address a second extension or have lawmakers fight out that issue separately.
Extending all the tax cuts would mean about $4 trillion in lost revenue over the next 10 years. Allowing them to lapse for those making more than $250,000 a year but extending them for everyone else, as President Obama recommends, would cost about $3 trillion — saving a quarter of the cost.
Examining how any one proposal would affect the deficit is tricky, by necessity involving best guesses about how quickly the economy will grow far into the future and how lawmakers not even elected yet might choose to address policy choices.
“For people who are supposed to be very exact, we know enough to know we can’t be exact,” said Steve Bell, senior director of the Economic Policy Project at the Bipartisan Policy Center. “What helps is to get a sense of the relative size of these things. Because when you start talking about numbers four years from now or 10 years from now, one thing you know is that they’re wrong.”
Democrats insist that there’s no way to close the gap between what the government takes in and what it spends without addressing how much it collects in tax revenue.
They’ve proposed closing tax loopholes and subsidies — perhaps as part of a more far-reaching tax approach that would broadly lower rates.
But the specific items they mention most often, including ending subsidies for oil and gas firms and a tax benefit for those who buy corporate jets, would result in relatively small savings — on the order of $50 billion over 10 years.
Ending other tax breaks, such as one that exempts from taxation health benefits offered by employers, would result in far larger savings — more than $1 trillion over the 10 years for the health-plan tax break. But they would hit people harder in an ailing economy and would be difficult for either party to enact.
Republicans say there’s no way to close the gap without significantly curbing the rising costs of entitlements, especially Medicare, which have been growing quickly as the population has aged and the health-care costs have increased.
But large-scale savings would come only by reducing benefits and shifting costs to retirees — also a difficult prospect for any elected official.
Both parties agree that the best way to close the deficit would be to expand the economy, resulting in higher tax collections and less demand for expensive government services.
There is no reason why the committee could not take up measures designed to create jobs and improve the economy.
They could include elements of a job-creation proposal that President Obama will announce this week, or competing ideas to cut taxes and eliminate regulations that Republicans say are a better way to create jobs.
In truth, the supercommittee’s mandate is so broad that it could make far-reaching changes to all kinds of government programs — some that cost trillions and others that save similar amounts. Its only charge is that its proposals would reduce the deficit by at least $1.2 trillion.
“If they want to, they can make vast and enormous changes,” Bell said. “It’s the broadest mandate I’ve ever seen.”
Or, they could nibble around the edges.
If the committee cannot agree on $1.2 trillion to $1.5 trillion in savings, it could shoot for a lower goal. The automatic cuts that would be triggered would be reduced by the amount the panel comes up with.
But committee members have not been predicting failure. They say $1.2 trillion is only a starting point.
“The goal is to have a predictable path toward job growth and deficit reduction,” said Rep. Chris Van Hollen (D-Md.). “On both ends, I think we should be ambitious.”