CQ TODAY ONLINE NEWS
Oct. 21, 2011 – 10:12 p.m.
Deal, Ideals at Stake in Deficit Negotiations
By Joseph J. Schatz, CQ Staff
With less than a month until its November deadline, the joint deficit committee faces structural and outside pressures to reach a deal, even as political calculations suggest that a compromise might be less than desirable.
The architects of the joint deficit committee made sure to include several powerful incentives for negotiators to reach agreement, most notably the threat of automatic defense cuts, as well as domestic spending reductions, if an accord can’t be reached. But whether those levers will be enough to prompt an agreement remains unclear to lawmakers and outside observers as the panel’s Nov. 23 deadline nears.
Discussions about cutting entitlement programs and overhauling the tax code have not yielded any obvious progress. Republican leaders on both sides of the Capitol remain in agreement, at least publicly, against trading tax increases for changes to Medicare and Medicaid, and Democratic leaders remain committed to protecting those entitlements unless they can pair any changes with revenue-raising options.
And there are groups in both parties that would rather see no deal, reasoning that the political fallout from failed negotiations would be easier to handle than a compromise in which the parties have to cede significant ground.
As the standoff continues, absent obvious progress, all sides are left to handicap the possible outcomes: a far-reaching deal that would total trillions of dollars in savings, a $1.2 trillion deal that would avoid painful automatic cuts, a partial deal that would fall short of $1.2 trillion — or no deal at all.
Still, there are factors, including outside pressure from financial markets, that might favor some kind of deal over a collapse in the committee’s proceedings. And the deficit reduction committee process has other built-in pressure points beyond just the threat of defense cuts, including fast-track procedural protections for any committee-written deal.
There is also fear that a failure to reach an agreement, with Wall Street watching closely, could prompt another ratings agency to downgrade U.S. debt, as Standard & Poor’s did during the summer after the debt ceiling fight. An analysis from J.P. Morgan’s research arm in early October argued that the panel’s “action will be an important marker on the timeline of the United States and its ability to sustain its economic primacy of the last 100 years.”
An inability to reach a compromise would be “bad for a lot of reasons,” says Sen.
“There are lots of reasons to do this,” he said.
Lawmakers Watch Their Defense Flank
Defense hawks in both chambers have taken a largely bipartisan stand against the idea of major defense cuts — and the prospect of a painful sequester, the technical term for automatic reductions, that would institute them more summarily. To put pressure on Republicans, Democrats insisted last summer that the automatic cuts apply equally to security and non-security programs.
House Armed Services Chairman
Deficit panel member Sen.
Deal, Ideals at Stake in Deficit Negotiations
And House GOP leaders are warning their members that the threat of a sequester is very real. If the joint committee does not produce a plan and a sequester is triggered, defense hawks could try to change the sequester or restore anticipated defense cuts through the appropriations process and pressure vulnerable Democrats to support the move. But that would be extremely difficult, and it could also raise concerns in financial markets by changing the long-term discretionary spending caps in the debt ceiling law (PL 112-25).
Lawmakers who are skeptical of a farther-reaching deal note that a partial agreement, meaning a pact to cut the deficit that falls short of the $1.2 trillion minimum necessary to avoid a sequester, would blunt the impact of the automatic cuts in 2013. For instance, if the panel agreed to, and Congress approved, an $800 billion deficit reduction pact, it would reduce the total sequester amount to $400 billion.
The Committee for a Responsible Federal Budget, which has been playing a vocal outside role during the budget negotiations, is pushing in the other direction.
The group put out a report Oct. 21 urging the panel to pursue a far-reaching plan involving taxes and entitlements, arguing that only a “go big” approach would make a full agreement politically feasible. It compared the pros and cons of constructing a deal totaling $600 billion to $800 billion with a package of between $3 trillion and $4 trillion.
The smaller approach, the group argued, might include about $200 billion from changes to the consumer price index used to make cost-of-living changes to federal programs, $150 billion to $250 billion in spending reductions from non-health mandatory programs such as farm subsidies, between $100 billion and $200 billion from slower growth in discretionary spending caps and about $100 billion in interest savings.
“Without reforms to each area of the budget, including critical entitlement and tax reforms, it’s difficult to see how the supercommittee could navigate the political constraints to achieve its target of at least $1.2 trillion in savings,” said Maya MacGuineas, president of the organization. “However, a Go Big approach opens up a whole new world of fiscal possibilities. We find that putting more policies on the table actually brings more people to the table.”