Interest Groups Gear Up to Fight Cuts, Defend Tax Breaks
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The Fiscal Times
July 7, 2011

With the White House and Republicans moving toward a possible deal to raise the debt ceiling, corporate and other special interest groups are mobilizing to fight cuts in their prized programs and elimination of special tax breaks. 

The White House upped the ante this week by committing to $4 trillion in cuts over the next decade. In a major break with Republican orthodoxy on Thursday, top-ranking Senator, Jon Kyl, R-Ariz., announced Republicans will approve between $150 billion and $200 billion in revenue increases as part of a deal.

This marks a major departure for the caucus, which has stood firm over the last few weeks by refusing to include even modest revenue increases as part of a package to lift the debt ceiling.  But House Speaker John Boehner met secretly with President Obama this past weekend, where the two discussed the possibility of as much as $1 trillion in unspecified new revenues, according to published reports.

That still requires finding at least $3 trillion in spending cuts to reach $4 trillion. That level of deficit reduction – the same target set by the Simpson-Bowles deficit commission last December – would lead to unprecedented changes in a wide array of government entitlement programs aimed at seniors and the poor, and steep reductions in a broad cross-section of discretionary government spending programs, including defense. 

With few details emerging from secret White House meetings between the president, his staff and leaders of both political parties on Capitol Hill, speculation has focused on a final package that will include cuts in Social Security, Medicare, Medicaid, and military spending, which so far has been held sacrosanct by both political parties. So-called discretionary domestic spending, which includes most spending on the environment, highways, and research, would also be in for sharp cuts, according to policy experts interviewed by The Fiscal Times.

“Anywhere you go here, you’re in a room full of landmines,” said Michael Franc, vice president of government studies at the Heritage Foundation, a conservative think tank. “If you turn right, you hit certain landmines, if you turn left you hit others, and if you go right down the middle you hit a ton as well.  There’s no escaping the landmines if we’re going to get a number that’s big enough to make a dent.”

'Not My Program'
Lobbying groups are already rallying to escape the axe by aggressively defending their programs and arguing that cutting them will damage the economic recovery. They say many of the dramatic cuts being proposed by Republicans will backfire by raising other government costs.  “We are just pushing these costs of compliance with environmental laws on to the populace and their pocket books, and that eventually circles back on to the government,” said Melinda Pierce, legislative director for the Sierra Club, a top environmental lobbying group. Liberal groups are also mobilizing to save programs aimed at the poor like Medicaid, which they say are underfunded to begin with. “Most providers are underpaid on their Medicaid,” said Georges Benjamin, executive director of the American Public Health Association. “There really isn’t much left there to cut.”

Benjamin warned that Republican plans to convert Medicaid to a bloc grant program, or making other major cuts will simply shift the program’s costs onto other payers. “By pushing those people into the emergency care system, or no care, you really punt those costs downstream,” he said.

The oil and gas industries are fighting hard to preserve their $45 billion in annual tax subsidies, which President Obama has targeted in his speeches. The economic loss from removing those tax subsidies would trump the revenue gain, said John Felmy, chief economist at the American Petroleum Institute. “History has shown that you have negative consequences as a result of taxing the industry.  It has resulted in increased imports, reduced production, loss of good-paying jobs and loss of support industries.”

A deficit reduction-debt ceiling deal could be a major boon to fundraising by liberal groups.  The Sierra Club, for instance, says funds are pouring into its coffers from its 1.4 million members in response to proposed cuts in Environmental Protection Agency and the Interior Department.

The president has publicly stated that he would like to see as much as $400 billion in defense cuts over the next decade as part of a final package; other reports suggested that cuts as high as $700 billion may be on the table.  Any defense cuts would likely take the form of delayed procurement of supplies and maintenance of facilities, said Heritage’s Franc.

For example, if the military committed to buy 15 aircraft fighter jets, they might dial that back to 10 jets and postpone buying the rest. Defense spending advocates like Franc believe such cuts are penny-wise, pound foolish and could wind up costing the government more. ”That drives up the per-unit cost of those machines, whether it’s tanks, Jeeps, hummers or fighter jets.  It’s like not buying at Walmart in bulk—you’re going to pay more per unit otherwise,” he said.

Yet Congress may have no other choice if it wants to cut defense. “The last thing any member of Congress wants to do is cut pay, benefits, or health care for active duty military men and women—that’s the third rail here,” he said.

More coverage from The Fiscal Times:
Social Security Cuts: Tax Hikes Linked or No Deal
3 Reasons Conservatives Must Cut a Debt Limit Deal
GOP May Close Tax Loopholes If Rates are Reduced