CHN: Disappointing Reports of Deficit Plans from Super Committee Democrats and Republicans

After weeks of behind-closed-doors discussions among the dozen members of the Joint Select Committee on Deficit Reduction, last week reports began to emerge about a proposal unveiled by a majority of the panel’s Democrats and another plan put forward by its Republicans. Neither plan has been made public and reports are that both were discussed without benefit of details in writing.  But this much seems reliable:  the Democratic proposal offered $1.3 trillion in revenue increases, far less than the earlier bipartisan Bowles-Simpson and Gang of Six plans, and Republicans were quick to reject even that much revenue.
Both plans would reduce the deficit by much more than the minimum $1.2 trillion called for in the Budget Control Act (the deficit reduction law passed in August).  The plan offered by a majority of the Democrats on the Committee would save about $3 trillion over 10 years in addition to the $900 billion in appropriations cuts already scheduled.  The Republican plan would save $2.2 trillion, with almost no tax increases but including $640 billion described as new revenues (some seeming much more like benefit reductions – see below).

Spending Cuts in the Democrats’ Plan: The plan presented by Senate Finance Chair Max Baucus (D-MT) on behalf of a majority of the Democrats on the Joint Select Committee  [although publicly opposed by one of its members, Rep. James Clyburn (D-SC)] included $1.3 trillion in spending cuts in addition to the $900 billion in appropriations cuts already agreed to.  The $1.3 trillion in cuts include $475 billion from Medicare and Medicaid, $425 billion from other mandatory programs, and $400 billion from other discretionary programs (annual appropriations), according to an analysis by theCenter on Budget and Policy Priorities.  As reported, the nature of the proposed spending cuts is causing anger and disappointment among many advocates.  The cuts to Medicare are said to include $200 billion in beneficiary cuts.  Since most Medicare beneficiaries have relatively low incomes (half have incomes below $21,000), higher payments or reduced services will compromise older people’s ability to cover their health care and other needs.

A big part of the other mandatory spending cuts comes from cutting Social Security benefits over time by reducing the cost of living increases based on inflation calculations.  This change (a proposal called the “chained Consumer Price Index (CPI)”) would shrink Social Security payments more and more over the coming decades; someone now 65 would receive $1,400 a year less when they reached age 95 than they would if the calculation did not change.  Reducing inflation adjustments is opposed by many groups concerned about seniors, including the National Committee to Preserve Social Security and Medicare.  The chained CPI would also affect other spending and revenues determined by inflation calculations.  Other savings in this category are likely to include reductions in farm subsidies and cuts to federal employee retirement benefits, but the full details are not known.

Little is known about the additional $400 billion in discretionary programs, although some accounts reported that it includes additional military savings beyond what will be achieved in the $900 billion in appropriations cuts already scheduled over the next decade.

Republican Proposals to Cut Spending:  Republicans on the Joint Select Committee countered with their own plan, at least 70 percent of which were spending cuts.  CQ reported that the Republicans also included the chained CPI, estimated to save $185 billion by reducing Social Security benefits.  In addition to Medicare and Medicaid cuts, the Republican plan also is likely to cut food stamps (Supplemental Nutrition Assistance Program, or SNAP) and other nutrition programs.

The Democrats’ Revenues Plan:  As noted, the plan included $1.3 trillion in revenues.  However, not all the sources of the revenues would be specified.  It was reported in CQ that several hundred billion dollars in new revenues would be listed as a first step, but that the rest would come in a second step as tax-writing committees came up with a tax reform plan.  Some Democrats had discussed forcing Congress to act on the second stage by triggering automatic tax increases affecting the highest earners if no agreement on tax reform generating the required new revenue were accomplished.  It is not known whether the plan included such triggers.  Without such a mechanism, the ultimate amount of revenues could of course be far less than the $1.3 trillion called for.

In addition, the proposal includes job creation initiatives.  These are almost certain to include tax reductions (extending employee payroll tax cuts that would otherwise expire and certain incentives for businesses).  These tax reductions will make the net increase in revenues smaller.

The Republican Revenue Proposals:  Almost none of the $640 billion in new revenues discussed by the Republicans on the super committee come from new taxes.  Some would come from higher co-payments and premiums for Medicare, which would increase the negative impact on Medicare beneficiaries of modest means.  There would be higher user fees and revenues from sales of broadband spectrum.

What’s Ahead: The Joint Select Committee must propose a plan to Congress by November 23.  If Congress can vote on it by December 23, debate will be limited, with no filibuster or amendments possible.  Getting to such a vote seems very difficult right now.  Coalitions of advocates including the SAVE for All Campaign have urged Congress to walk away from any deal that hurts low-income and vulnerable people and that does not include substantial revenues and military savings.  They are very disheartened by Democrats putting cuts that will hurt low-income people on the table, only to see their package rejected by the Republicans, who are likely to adopt every spending cut proposal but little or none of the revenues.

There will be another public hearing of the Joint Select Committee on November 1 at 1:00 p.m. EST.  This hearing will focus on previous deficit reduction proposals, with testimony from Erskine Bowles and former Senator Alan Simpson and Alice Rivlin and former Senator Pete Domenici, whose proposals each recommended far more revenue than the $1.3 trillion included in the Democrats’ draft.  Bowles and Simpson, co-chairs of the bipartisan National Commission on Fiscal Responsibility and Reform, included $2.2 trillion in new revenues in their plan.

Also expected soon, as reported in the Wall Street Journal, is a letter to the Joint Select Committee by about 100 Members of Congress from both parties, calling for deficit reduction of $4 trillion by 2021.  Whether those hundred or the dozen on the super committee can agree to anything specific is anyone’s guess.

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