November 9, 2011
Amid a glimmer of hope of a breakthrough in “Super Committee” deliberations, a slender majority of Fiscal Times budget and political experts surveyed this week predicted the 12-member bipartisan congressional panel will meet its looming deadline to reach accord on a major deficit-reduction plan.
The committee, created by Congress and President Obama last summer as part of a deal to raise the debt ceiling, has until Nov. 23 to submit its proposals to Congress for action to avert automatic spending cuts or “sequestration” that could wreak havoc with the defense budget and many social programs. After months of refusing to consider tax increases as part of an overall agreement, congressional Republicans late Monday offered to increase tax revenue by nearly $300 billion over the next decade through an overhaul of the federal tax code.
A mere seven of the 13 Fiscal Times experts surveyed said they believe the panel, co-chaired by Sen. Patty Murray, D-Wash., and Rep. Jeb Hensarling, R-Tex., will agree to $1.2 trillion of savings over the coming decade, the minimum the committee must approve to prevent the automatic defense and domestic program cuts. Committee members might have to resort to budget accounting gimmicks in order to achieve even that relatively modest goal, the experts said.
University of Virginia political scientist Larry Sabato said, “My guess is that they’ll agree to something substantial just in time. Both parties don’t like the automatic cuts, and more important, for all of the controversy their recommendations would inevitably generate, they want the praise that will come from many quarters for ‘doing something responsible,’” Sabato added. “I find it hard to believe they won’t do better than the current $1.2 trillion [of deficit reduction], maybe even two or three trillion dollars, to make the package look more impressive.”
Alice Rivlin, a former White House budget director and head of the Congressional Budget Office, said there is little doubt the panel will meet its Thanksgiving deadline. “I certainly think they will make the $1.2 trillion and avoid the sequester,” she said. “The big question is, will they go beyond that into a two-stage process, and I’m still hopeful that they will.”
Rivlin, widely considered the grand dame of the Washington budget scene who also served on the Bowles-Simpson fiscal reform commission last year, said the idea of a major $4 trillion deficit reduction package including reforms of Medicare and Social Security and the tax code is “still in play.”
The GOP offer currently under consideration would entail a major overhaul of the tax code that would lower rates for everyone while raising overall tax collections by $250 billion, mainly by limiting the value of itemized deductions such as write-offs for home mortgage interest, state and local taxes and other expenses.
Yet few other experts believe the committee will strike a “Grand Bargain” of as much as $4 trillion in spending cuts and revenue increases, in light of deep divisions between the two parties over entitlement spending and tax policy – the central factors that are fueling the long-term debt.
“There is a fundamental philosophical divide greater than the Grand Canyon which involves the pledge for no new taxes on the Republican side and the commitment of the Democrats not to consider significant entitlement reductions unless there is meaningful tax changes,” said Robert D. Reischauer, president of the Urban Institute. He says he is doubtful any deal will be struck this month.
“My best guess is that [the committee] will not be able to craft a genuine deficit reduction package,” Reischauer said. “If the process doesn’t implode with a flurry of recriminations, we will see a gimmick-laden package of faux measures or we will see a proposal that effectively kicks the can down the road by requiring the regular committees of jurisdiction to produce tax and entitlement reforms by some future date when the atmosphere is likely to be even more politically charged than it is today.”
Robert Bixby, executive director of the Concord Coalition, a deficit watchdog group, believes the Super Committee “will make their target,” but he agrees with Reischauer that panel members “might get there with some creative scoring because apparently they can define their own [budget] baseline.”
That “creative scoring” could mean anything from claiming hundreds of billions of dollars in savings for the planned withdrawal of U.S. troops from Afghanistan and Iraq that the Obama administration already has already announced to proposing a cost-saving adjustment to the Social Security cost of living formula. As part of the offer unveiled Monday evening, congressional Republicans proposed to use a less generous measure of inflation to adjust formulas government-wide – an approach that would push people more rapidly into higher tax brackets.
Until now, the special House-Senate deficit reduction panel has been practically running in place in search of a compromise to fulfill the mandate of last summer’s debt ceiling legislation. The problem is that House Speaker John Boehner, R-Ohio, and President Obama and the Democrats have staked out such mutually exclusive positions on taxes and spending that there was little room for compromise by committee members.
GOP leaders have repeatedly said that raising taxes to help reduce the long term deficit was out of the question, while Democrats on the super committee have refused to meet with the full group until Republicans make a more “serious” offer that includes revenue increases. Sen. Charles Schumer of New York, one of the top Senate Democratic leaders, declared on Monday that the panel was doomed to failure because of Republican opposition to raising taxes.
The experts surveyed are generally divided into two camps: those who believe the Super Committee and Congress have no alternative but to reach agreement on additional deficit reductions, and those who think the political divide is simply too great to bridge heading into the 2012 election.
Richard F. Goodstein, a lawyer and Democratic strategist, said, “I think [members of Congress] were so spooked by the market’s reaction to that whole mess from the debt ceiling increase last summer that they don’t want to dare risk going through that again.”
“If I were a betting person and they had a line on this in Las Vegas, I’d put my money on them hitting $1.2 trillion or something pretty close,” Goodstein said, adding that the threat of an automatic cut in defense and domestic spending seems to have worked by “forcing people to really get serious here.”
Maya MacGuineas, president of the Committee for a Responsible Federal Budget, echoed Goodstein’s gambling theme, saying, “If I were the betting type, which I am, my money would be on a slightly larger package -- $1.8 trillion, including some gimmicks, but my heart is with ‘Go Big’ at $4 trillion.”
Former Rep. Martin Frost, D-Tex., a Washington lawyer and political analyst, flatly predicted that the Super Committee would produce a $1.2 trillion package by the deadline, which will include a limited amount of new revenue, “probably disguised as fees.” The panel may also direct the House Ways and Means Committee and Senate Finance Committee to produce a reform of the personal and corporate income tax system by a certain time --perhaps 6 months -- and will remain silent on whether or not these changes are to be revenue neutral, he said.“Everyone will declare victory, without any big victory laps or popping of corks, and go home for the holidays,” Frost predicted.
Bill Hoagland, a former Republican Senate budget staff director, said that while the Super Committee will reach agreement on a $1.2 trillion deficit reduction package, “the achievement will not fundamentally change the country’s current unsustainable course of fiscal policy.”
But others were far less sanguine. James R. Horney, director of federal policy at the Center on Budget and Policy Priorities, said, “The most likely outcome is they don’t reach any agreement.”
“I think that if they do reach an agreement, it likely would be less than $1.2 trillion, certainly less than that by conventional scoring, particularly if you don’t count [war] savings, which I’m not sure they would agree to anyway. So it seems to me most likely that nothing will happen. And the next most likely outcome would be something considerably less than $1.2 trillion and not much real progress towards putting the budget where we need to be.”
Ross Baker, a Rutgers University political science professor, said: “I think they won’t make it, there will be a sequestration, and then what Congress will do would be systematically to subvert the sequestration. The model of that of course was set by the Gramm-Rudman-Hollings Act back in the 1980s, which seemed very draconian on the face of it, but over time became almost without any effect at all.”
George Hager, a USA Today editorial writer, said, “It's hard to go wrong betting on failure when it comes to deficit reduction, especially when the world isn't going to end without an agreement – and that’s the case with the Super Committee.” Here’s why, according to Hager:
- The “doomsday sequester” wouldn't begin until January 2013, plenty of time to change it, gut it or subsume it in the next negotiation, which could roll in another debt-limit extension, the fate of the Bush tax cuts and so on, all in late 2012. The sequester might never happen. Why agree until you really, really have to?
- The possibility of a bad market reaction to failure seems relatively low, since Wall Street already has little confidence in Congress and low expectations negotiators can produce a deal.
- The chief obstacle is the same as it always has been -- Republicans can't budge on taxes without dividing followers who've repeatedly been told that this is the GOP's single most important principle. Democrats seem more willing to take on entitlements, but so what?
“Both sides seem to think they can win the blame game,” according to Hager.
Former CBO Director Douglas Holtz-Eakin says there’s a “60-40” chance of success by the Super Committee, but that the “real wild card in this puzzle is the president.”
“I think the Super Committee will succeed or fail depending on what the White House does,” said Holtz-Eakin, who advised Republican Sen. John McCain in the 2008 presidential campaign.. “I hope the White House is quietly, beneath the surface, weighing in to say, ‘We didn’t say Social Security or entitlements had to be on the table, but those items could be on the table here.’”
Michelle Hirsch and Jennifer DePaul contributed to this report.