Super Committee Clock Starts to Tick Louder
Policy + Politics

Super Committee Clock Starts to Tick Louder

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Racing against its fast-approaching deadline to find $1.2 trillion in deficit savings over the next decade, several members of the congressional Super Committee today acknowledged that time is running out and that any deficit-reduction package should consider the entire budget, not just the discretionary portion of the federal budget. And Congressional Budget Office Director Doug Elmendorf warned that uncertainty about the federal budget is dampening the economic recovery.

Elmendorf said at a public hearing this morning that if the committee fails to find bipartisan agreement, there will be a "negative effect” for consumers, businesses, and spending. He said lack of demand is “the key factor” holding back the economic recovery.

“The uncertainty about fiscal policy is probably weighing on households and business,” he said. “They need to recognize that there will have to be as a matter of arithmetic changes in taxes and/or spending surrounding the policy. But they don’t know what those changes will be. Naturally that sort of uncertainty is in inhibiting factor in decisions particularly commitments of money over time to invest in factories and equipment, or to invest by hiring people.”

Co-chair Sen. Patty Murray, D-Washington., said that the 12-member bipartisan committee is working hard and will succeed in finding at least $1.2 trillion in additional deficit savings over the next decade by the November 23 deadline. “We aren’t there yet, but I’m confident we are making progress,” she said

If the panel deadlocks or Congress rejects it’s proposal, $1.2 trillion in automatic across-the-board spending cuts kick in, including a $600 billion hit to the Pentagon’s budget, which has some defense hawks on edge. Elmendorf told the panel that in this scenario, 71 percent of the savings would come from the discretionary side of the federal budget. This would include deep cuts to higher education, infrastructure, and state and local governments.

Rep. Chris Van Hollen, D-Md., echoed Murray and noted the panel’s rapidly approaching deadline. “We are all very aware that the clock is ticking here,” he said. Van Hollen stressed the need for a “balanced approach” that should include finding both revenue sources and budget cuts. “This is a time for shared responsibility to address our case,” he said.

Wednesday’s hearing was the panel’s third public hearing and first in over one month. The panel has been meeting for the past two months behind closed doors. The lack of transparency has left many budget experts pessimistic about the panel’s prospects of reaching a bipartisan deal. The hearing focused on discretionary appropriations but many members used their time to make partisan talking points about cuts to defense, tax reform, income inequality, and economic uncertainty.

Discretionary outlays—the part of federal spending that lawmakers generally control through annual appropriation acts—totaled about $1.35 trillion in 2011, or close to 40 percent of federal outlays, according to the Congressional Budget Office. Slightly more than half of that spending was for the Pentagon’s budget and funding the wars in Iraq and Afghanistan. Non-defense discretionary spending represents less than one-fifth of the total federal spending.

"Discretionary spending is a shrinking share of federal outlays over time," said Elmendorf, who appeared before the committee for the second time. “Mandatory spending just dominates the budget in a rapidly increasing way over time.” Elmendorf noted that discretionary spending has increased as a share of gross domestic product (GDP) since 1999 “mostly because defense spending” rose over the last decade and the 2009 stimulus program. It represents nine percent of GDP.

Murray was critical of making more cuts to the non-defense discretionary funding. “It doesn’t make sense to simply keep slashing at one small part of the budget that disproportionately affects the middle class families and the most vulnerable Americans,” she said.  She noted that $800 billion has already been cut in discretionary spending as part of the Budget Control Act passed in August and that “all the focus” has been on the discretionary side of the budget.

As of result of congressional cuts earlier this year, total discretionary funding in 2011 was at its lowest as a share of GDP since 2002, Elmendorf said.

Co-chair Jeb Hensarling, R-Texas., used his opening statement to make the point that ballooning spending on entitlements including Medicare, Medicaid, and Social Security should be considered in the committee’s final package. He said changes to discretionary spending would be “helpful” but it wouldn’t solve the panel’s entire challenges to find deficit savings. 

Hensarling said the Super Committee must create “quality health care and quality retirement security solutions” in order to meet its mandate to “significantly improve the short-term and long-term fiscal imbalance”.

Shortly after the hearing adjourned, Democrats on the committee unveiled a $2.5 trillion to $3 trillion plan to reduce the budget deficit, including revenue increases and significant cuts to Medicare, Reuters reported. The plan includes an equal mix of spending cuts and revenue increases, an idea which has been a sticking point for Republicans.

The hearing comes several days after Merrill Lynch warned that the U.S. could be headed for another credit downgrade if Congress fails to agree on a long-term deficit reduction package to tame the nation’s spiraling debt. The bank predicted Moody’s or Fitch Ratings would downgrade America’s AAA rating. In August, several days after Congress agreed to raise the debt ceiling, Standard & Poor’s cut the nation’s bond rating. “We expect at least one credit downgrade in late November or early December when the Super Committee crashes,” wrote Ethan Harris, an economist at Merrill Lynch.

The Super Committee will hold a fourth public hearing on November 1 focusing on an “overview of previous debt proposals.”