CHN: Super Committee Cannot Leap Over Ideological Chasm; President Warns He Will Not Allow Gutting of Automatic Cuts

November 22, 2011

Monday, November 21 was the day the Joint Select Committee on Deficit Reduction had to provide details of its plan to the Congressional Budget Office so its costs and savings could be estimated.  Unable to agree on a plan, the Committee’s co-chairs Senator Patty Murray (D-WA) and Rep. Jeb Hensarling (R-TX) released a statement acknowledging that.

The so-called “super committee” was granted special powers in the Budget Control Act, requiring legislation that could pass the Committee with a majority vote to proceed on a fast track through Congress, unencumbered by amendments or procedural delaying tactics.  But that expedited path would only be possible if the Joint Select Committee could get to “yes” by November 23.  They could not.

Evenly split among Democrats and Republicans as well as House and Senate, the Joint Select Committee foundered because the Committee’s Republicans were dogged in using the deficit reduction goal to shrink domestic programs while even further reducing the tax burden of upper-income individuals and corporations.  Democrats on the Committee were willing to compromise by cutting programs, and made a number of counter offers that reduced the amount of revenue increase they sought.   But they were not willing to agree to a further major tax cut for the rich paid for by an even larger tax increase hitting low-to-middle-income people the hardest.  The amount of tax revenue left over for deficit reduction ($250 billion over ten years) was unacceptably small, forcing large cuts in basic programs like Medicare, Medicaid, Social Security, and other domestic programs including nutrition, education, housing, and more.  This was the approach of one of the last Republican proposals offered, put forward by Senator Patrick Toomey (R-PA).  That plan made all the Bush tax cuts permanent, left the estate tax at current very low levels, and then cut tax rates even lower.  The top income tax rate would have been cut from 35 percent to 28 percent.  Although all income tax rates would be reduced, the largest percentage gains would go to those at the top.  Rate reductions similar to Toomey’s would increase the average millionaire’s after-tax income by 4.4 percent, while families between $50,000 – $75,000 would gain 1.7 percent.  An average millionaire would gain $92,000 in one year, over and above the value of the Bush tax cuts – ten times the gain by families at the middle.  (See Center on Budget and Policy Priorities analysis.) The Toomey plan was rejected by the panel’s Democrats.

Under the Budget Control Act, if the Joint Select Committee could not advance a proposal to reduce the deficit by at least $1.2 trillion over 10 years, automatic cuts of that amount would be triggered.  Those automatic cuts, known as “sequestration,” are now slated to take effect beginning in January 2013.  By law, specific percentage cuts are applied to a number of categories of federal spending.  By far the largest cuts affect discretionary (annually appropriated) programs.  As estimated by the Congressional Budget Office, defense programs will be cut by $454 billion over ten years, a 10 percent cut in 2013 declining to an 8.5 percent reduction in 2021.  Non-defense appropriations (including subsidized housing, education, public health, job training and other services for adults and youth, WIC, Head Start, environmental and transportation programs) would be cut by $294 billion, with percentage cuts from 7.8 percent in 2013 down to 5.5 percent in 2021.  Low-income mandatory programs (Medicaid, TANF, SNAP/food stamps, SSI etc.) are exempt from the automatically triggered cuts.  But cuts of 2 percent per year will be applied to most Medicare spending, adding up to $123 billion, plus another $31 billion in reduced premiums for Medicare Part B.  Other non-exempt mandatory cuts will total $47 billion, and $169 billion is estimated in savings from reducing debt service costs.
Powerful players have objected to the size of the defense cuts.  Senator John McCain (R-AZ) voiced his intention to offer an amendment to the upcoming defense reauthorization bill to reduce the sequestration’s defense cuts.  Senator Kyl (R-AZ), a Joint Select Committee member, said on Meet the Press (Sunday, November 20) that he would support shifting the automatic cuts away from defense while leaving the $1.2 trillion deficit reduction target in place, inevitably resulting in even deeper domestic cuts.

President Obama, in a statement after the deficit reduction committee did not agree on a plan, said he would oppose efforts by Congress to back out of the sequester.  As quoted in the Washington Post, the President said “There will be no easy off-ramps on this one. We need to keep the pressure up to compromise, not turn off the pressure,” he said. “The only way these spending cuts will not take place is if Congress gets back to work and agrees on a balanced plan to reduce the deficit by at least $1.2 trillion. “They’ve still got a year to figure it out.”
Human needs advocates had said from the outset that a bad plan from the Joint Select Committee on Deficit Reduction would have been worse than no plan.  There were any number of bad plans offered during the course of their negotiations, from Democrats as well as Republicans.  But Democrats ultimately held firm to their demand for a balanced package that included tax increases on millionaires in order to reduce the extent of service cuts.

At the outset of the Joint Select Committee’s work, advocates had held out hope for a good plan – one that would front-load initiatives to create jobs.  Deficit reduction cannot occur with a weak economy and high unemployment.  Now, although the prospects for adequate job creation measures are dim, Congress must extend federal unemployment benefits now slated to expire at the end of December if it does not wish to make a very fragile economic situation far worse.  Respected independent economists have long rated Unemployment Insurance as being among the most effective policies for boosting the economy and jobs.  The Congressional Budget Office this month confirmed this, estimating that one-year extension of UI would produce up to $1.90 in economic growth for every dollar spent.  In contrast, reducing taxes on business income would generate at most only 60 cents for every dollar spent.  Failure to continue the payroll tax cut also expiring at the end of this year is also thought by economists to be a bad blow that would cause further loss of jobs.

Without being folded into a super committee plan, unemployment benefits will be harder to extend.    Advocates hope Congress will recognize that failure to do so will be a dangerous self-inflicted wound.

Categories: Budget and Appropriations, Economy