Wednesday, Jun 19, 2024

Supercommittee Fails on Deficit Cuts

The special 12-member congressional committee created this summer to come up with a bi-partisan plan to cut the national debt over the next decade by $1.2 trillion, conceded failure Monday. This set the stage for the economic policy debate which is expected to dominate next year's presidential campaign. Democrats and President Obama were quick to launch fresh attacks on Republicans for refusing to consider significant tax increases, especially on higher income families and individuals. Republicans, blamed Obama for being out of touch with the supercommittee while it was in the midst of negotiations, and for insisting, along with the Democrats, on imposing major tax increases without trying to fix the deep flaws in the overly complex and unfair federal tax system. Republicans responded to Democrat criticisms by pointing out that they were willing to accept an increase in tax revenues as part of a broader reform that would bring down rates across the entire federal tax system, thus stimulating overall economic growth. But the Democrats rejected the offer, and seemed to be more intent on framing a populist class warfare issue for next year's president campaign than solving the core deficit problem.

Committee members admitted defeat by issuing a joint statement hours before a midnight deadline that had been set when the committee was created this summer. Significantly, none of them appeared personally before news cameras to explain their failure. Their joint statement said that they were “deeply disappointed” by their inability to reach agreement, but that they still held out hope for progress in the months ahead.


“Despite our inability to bridge the committee’s significant differences, we end this process united in our belief that the nation’s fiscal crisis must be addressed and that we cannot leave it for the next generation to solve,” said the statement which was signed by Congressman Jeb Hensarling, the Republican co-chair and Senator Patty Murray, the Democrat co-chair. “We remain hopeful that Congress can build on this committee’s work and can find a way to tackle this issue in a way that works for the American people and our economy.”


Hensarling later wrote in a Wall Street Journal op-ed that the work of the committee was hampered by the fact that Obama and the Democrats had taken all of the new government spending called for by Obamacare off the table, and refused to agree to anything that would trim what has become the fastest growing parts of the federal budget, Medicare and Medicaid spending. They even rejected prior proposals by fellow Democrats to keep health care spending under control.


Henserling pointed out that the tax increases on the wealthy which the Democrats in the committee were insisting upon would not have generated nearly enough new income to make a significant difference in the growth of the federal deficit. It was much more of a political talking point than a serious deficit cutting proposal.




He did give the Democrats on the supercommittee credit for acting “with honor and integrity, and negotiating in good faith,” and concluded that, “ultimately, the committee did not succeed because we could not bridge the gap between two dramatically competing visions of the role government should play in a free society, the proper purpose and design of the social safety net, and the fundamentals of job creation and economic growth.”


His implication is that when the American voters go to the polls next year, they will have the opportunity to determine the way this country confronts its deficit problem by choosing between those two visions. He also pointed out that the deep spending cuts, especially in the defense budget, triggered by the failure of the supercommittee to reach an agreement, will not take effect until 2013, at which point there may be a new political reality in Washington.




The creation of the supercommittee was proposed as a last resort to reach bi-partisan agreement on an immediate increase in the federal debt ceiling which threatened to shut down the federal government. The agreement increased the debt ceiling by an amount equal to the targeted deficit reductions.


At the time, there was a great deal of skepticism that such a bi-partisan deal could be reached after Obama and House Speaker John Boehner were unable to do so after weeks of secret negotiations on what would have been a much more comprehensive debt reduction plan, cutting $4 trillion from the deficit over the next decade. Subsequent efforts by groups of Republican and Democrat lawmakers and the White House to agree on a smaller deficit cutting plan also failed.


That led to the creation of the supercommittee, which was instructed to reach an agreement, under threat of the automatic spending cuts if they failed to do so. About $1 trillion in savings was identified and agreed to this summer in the form of limits on spending that Congress appropriates annually. The supercommittee was tasked with finding the rest of the required deficit reductions, with the threat of the imposition of $1.2 trillion in across-the-board budget cuts as an incentive to compromise. The 12-member panel was given extraordinarily broad power to act. If a simple majority of supercommittee members agreed on a plan, the House and Senate would have been forced to take it up for a vote without the ability to make any changes to the plan.




In the wake of the committee’s failureDefense Secretary Leon Panetta warned that the impact of the automatic spending cuts on the Pentagon starting in 2013 could be devastating.


“In my four decades involved with public service, I have never been more concerned about the ability of Congress to forge common-sense solutions to the nation’s pressing problems,” Panetta, a former House budget committee chairman, said in a statement. “The half-trillion dollars in additional cuts demanded by sequester would lead to a hollow force incapable of sustaining the missions it is assigned.” He added that if the added cuts were implemented, they would, “tear a seam in the nation’s defense.” Combined with the current reductions, the Pentagon would be looking at nearly $1 trillion in cuts to projected spending over 10 years.


On the domestic side, education, agriculture and environmental programs would face automatic cuts of around 8 percent. Social Security, Medicaid and many veterans’ benefits and low-income programs would be exempted from any cuts, and for Medicare, the automatic cuts would be limited to 2 percent.




Republicans were particularly concerned about the impact of the defense spending cuts on national security. They argued that the debt accord reached by Obama and congressional Republicans last summer had already inflicted enough damage on the military budget by making $450 billion in cuts to Pentagon budgets over the next decade.


“Our military has already contributed nearly half a trillion to deficit reduction. Those who have given us so much have nothing more to give,” said House Armed Services Committee Chairman Howard “Buck” McKeon, in promising to introduce legislation to prevent the cuts.


Senate Minority Leader Mitch McConnell said it was imperative for Obama “to ensure that the defense cuts he insisted upon do not undermine national security” as Panetta has warned.


Senators John McCain the ranking Republican on the Senate Armed Services Committee, and Lindsey Graham, who also is a member of the committee, said they would “pursue all options” to avoid deeper defense cuts.




But Obama was quick to issue a threat to veto any spending bill that would restore defense spending without a broader deficit-reduction plan.


“Already, some in Congress are trying to undo these automatic spending cuts. My message to them is simple: No,” Obama said in a nationally televised statement.


“There will be no easy off-ramps on this one. We need to keep the pressure up to compromise, not turn off the pressure,” Obama 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.”


Repeating one of his old political themes, Obama blamed the committee’s failure to reach a deal on the Republicans for refusing to raise taxes on the wealthy rather than his own complete absence from the negotiating process.


That prompted a sharp response from Texas Governor Rick Perry, who is running for the GOP presidential nomination, saying, “It’s amazing to what lengths he (Obama) will go to avoid making tough decisions.”


The collapse of the “supercommittee” offered fresh evidence that Washington is still in partisan gridlock as the 2012 election campaign gathers momentum..


Leaders from both parties spent more time blaming one another for the political paralysis than suggesting workable solutions.


Republican Senator Olympia Snowe called the panel “a monumental waste of time and opportunity” that “represents yet another regrettable milestone in Congress’s steady march toward abject ineffectiveness. It paints a portrait of dysfunction that further crystallizes for the American people their government’s incapacity for producing solutions to our major challenges.”




In a scathing news conference Monday after the committee admitted failure, New York City’s independent Mayor Michael Bloomberg blamed Obama and lawmakers in both parties for the stalemate, calling the supercommittee collapse an “indictment of Washington’s inability to govern this country.” Bloomberg said that while everyone played a part in the failure to reach a bi-partisan agreement, the bulk of the responsibility has to fall on the president’s shoulders, because he is ultimately responsible for running the federal government. Bloomberg also noted that in other recent Washington partisan stalemates, the deadlock was always broken by a presidential initiative, but in this case, President Obama was literally absent during the crucial final stages of negotiations.


When asked what he would do if he were president, Bloomberg said that he would announce that all of the Bush era tax cuts, for rich and poor alike, would be allowed to expire at the end of 2012 which would generate enough new tax income to make a major dent in future deficits.




The failure of the committee to reach an agreement did not come as a surprise.


Before and during the talks, Democrats said they would agree to significant savings from cuts to benefit programs like Medicare, Medicaid and Social Security only if Republicans would agree to a hefty dose of higher taxes, including cancellation of Bush-era cuts at upper-income brackets. In contrast, the GOP side said that excess spending, not a shortage of revenue, was the cause of the government’s chronic budget deficits, and insisted that the tax cuts approved in the previous decade all be made permanent.


By late last week, hope for a deal had faded, leaving panel members to spend a weekend talking with their aides and making recrimination-filled appearances on the Sunday talk shows to deflect the blame for the looming failure on the other party.




Some of the committee members made a last minute attempt to reach a deal on Monday. “Both sides are feeling angst and greater angst at the possibility of no agreement,” Democrat Senator Max Baucus said as he left a midday meeting with Democrat Senator John Kerry. “So they’re working harder, more creatively, to see what can be accomplished.” Others involved in the last minute consultations included Democrat Congressman Chris Van Hollen, and three Republicans, Congressman Fred Upton and Senators Jon Kyl and Rob Portman. But according to those from both parties who were part of the negotiations, a deal was never close.


Senator Kerry later issued a statement saying that, “I’m deeply disappointed with this outcome. We all are. This was a historic moment to do something big, bold, and balanced that demanded shared sacrifice to put our country first. It’s too easy just to say that Washington is broken or Congress is broken. These issues aren’t going away; in fact they are becoming more urgent.”


Republican Senator Pat Toomey, who authored a GOP offer during the supercommittee talks, said, “Unfortunately, our Democratic colleagues refused to agree to any meaningful deficit reduction without $1 trillion in job-crushing tax increases.”




Toomey’s plan was proposed two weeks ago. It included an additional $250 billion in tax revenue through an overhaul of the tax code that included reducing the top tax rate from 35 percent to 28 percent. Some Republicans criticized it as a violation of the party’s long-standing pledge not to raise taxes. Even some in the GOP leadership, including Senate Republican Leader Mitch McConnell of Kentucky and House Majority Leader Eric Cantor of Virginia, declined to endorse it in public.


Democrats on the panel also had problems in reaching agreement on their own deficit cutting plan. An offer presented by Senator Baucus to cut about $3 trillion from future deficits failed to win the backing of two of the six committee members of his own party. They objected because it would have curtailed future cost-of-living increases for Social Security recipients.




In the end, the negotiations in Washington earlier this year led by Vice President Joseph Biden, followed by an extraordinary round of White House talks in which Obama and House Speaker John Boehner sought a sweeping compromise to cut trillions from future deficits, came closer to a reaching a deal than the supercommittee did. Obama and Boehner had been negotiating an accord that would make far-reaching changes in Medicare and other programs, while generating up to $800 billion in higher revenue through an overhaul of the tax code. But in the end, they failed to agree.


By contrast, the members of the supercommittee never tried to reach a comprehensive agreement. They simply swapped small-bore offers that the other side swiftly rejected.


The only saving grace was that the joint statement announcing the failure of the supercommittee was not announced until after the stock markets closed Monday. However, the markets did not fall much at the opening Tuesday morning, reflecting the skepticism investors always had over the chances of reaching an agreement.


The partisan impasse in Washington left a cloud of uncertainty over the US economy at the same time that Greece, Italy, Spain and other European countries are reeling from a spreading debt crisis and recession worries. Ironically, the only bright part of the world economic picture is that the US economy has been growing at a faster rate than had been expected, leading to an increase in the strength of the US dollar.




The supercommittee’s failure left lawmakers confronting a large and controversial agenda for December, including Obama’s call to extend an expiring 2% payroll tax cut and another extension of unemployment benefits. Congress will also have to act before the end of the year to stave off a 27 percent cut in payments to doctors who treat Medicare patients.


Because passage of all of these measures enjoy some bipartisan support, some last minute compromise to pass most or all of them before year’s end is widely expected. While significant in themselves, these economic issues pale in anticipation of the upcoming political battle in next year’s presidential election campaign over the nation’s fundamental spending and taxing priorities. Some argue that the partisan debate over these issues actually started last summer, with the deadlock which led to the formation of the supercommittee in the first place.


Therefore, some analysts argue that committee’s failure to reach an agreement should not come as any surprise. Such agreements cannot be reached until the nation first establishes its overall attitude towards government spending and taxation, and that can only be determined in the voting booth.


The Washington Post and the Associated Press contributed to this story



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