by Jonathan Berr | November 17, 2011 2:27 pm
When the congressional supercomittee tasked with finding more than $1 trillion in deficit reductions over 10 years first met in August, Senate Majority Leader Mitch McConnell (D-Kent.) declared that “failure is not an option” for the dozen-member bipartisan group. He couldn’t have been more wrong.
Failure, as anyone with common sense will tell you, is always an “option.” That’s especially the case in Washington, where partisan gridlock this summer nearly caused the U.S. to default on its obligations and triggered an unprecedented downgrade of the debt of the world’s largest economy. The supercommittee process was designed to find $1.2 trillion in deficit reduction over the next decade or else $1.2 trillion in mandatory spending cuts — $500 billion in defense spending alone — would be triggered. That, of course, is an option that neither Democrats nor Republicans want, which should — in theory — encourage them to compromise.
Sadly, that has not happened.
As the Nov. 23 deadline approaches, numerous media reports indicate that members of the bipartisan panel are scrambling — with no breakthroughs yet — to make a deal. Worse still, decisions on hard issues about the debt and deficit are being delayed. The New York Times recently reported that members are “looking for an escape hatch that would let them strike an accord on revenue levels but delay until next year tough decisions about exactly how to raise taxes.”
Democrats and Republicans are at odds over many issues. The Obama administration continues to push for higher taxes on the wealthy, while Republicans would sooner gnaw off a limb than force anyone to pay more to the government, especially during a week economy. Supercommittee member Sen. Pat Toomey (R-Penn.) is trying to strike a middle ground between the two disparate factions.
Under his plan, which Republicans say would raise $290 billion over the next 10 tears, the value of some tax deductions favored by the wealthy would be scaled back and loopholes will be closed. The estate tax, which Republicans have wanted to abolish for years, would be retained, though the top tax rate would be reduced to 28% from 35%. It also maintains the preferential treatment for dividend income and capital gains established under the Bush administration. Some critics are crying foul.
“Consequently, the proposal seems designed to make only a modest revenue contribution toward deficit reduction and then to take revenues off the table for the larger rounds of deficit reduction that must follow,” according to the Center for Budget and Policy Priorities. “Moreover, even while yielding modest savings, the revenue component would make the package less balanced by conferring large new tax cuts on the wealthiest Americans while forcing low- and middle-income Americans to bear most of the plan’s budget cuts as well as its tax increases.”
Toomey’s plan, though, will have to serve as a blueprint for any deal. The Republican, who is backed by the Tea Party, is the former head of the Club For Growth, a think tank that promotes fiscal conservatism. His views on economic policy carry weight in his party.
The sad part about the supercommitee process is its pointlessness. The ills of the federal budget are no mystery to anyone with basic math skills or a memory because many of the same ideas were discussed by The National Commission on Fiscal Responsibility and Reform chaired by former Republican Sen. Alan Simpson and Democrat Erskine Bowles. Congress could have saved itself lots of time if it simply adopted its recommendations.
It’s also obvious that Social Security, Medicare and Medicaid spending is surging out of control. According to the Congressional Budget Office, it will rise to about 17% of GDP in 2035 from 10% today. Many of the most cherished tax breaks such as the mortgage interest deductions are simply unaffordable. That tax break, which critics argue encourages people to buy bigger homes than they can afford, will cost Uncle Sam around $100 billion in 2012.
“Fierce opposition greets any attempt to raise revenues or reduce spending,” wrote Alice Rivlin, a Democrat who served on the commission, in her final statement last year. “The only feasible way to control the debt is for both parties to agree on a compromise plan reflecting tough choices.”
As the supercommittee members know, that’s easier said than done.
Follow Jonathan Berr on Twitter @jdberr
Source URL: http://investorplace.com/investorpolitics/debt-supercommitee-doomed-from-the-start/
Short URL: http://invstplc.com/1fzbSAD
Copyright ©2014 InvestorPlace Media, LLC. All rights reserved. 700 Indian Springs Drive, Lancaster, PA 17601.