CQ TODAY ONLINE NEWS
Nov. 2, 2011 – 11:07 p.m.
Deal May Be Eluding Deficit Panel
By Paul M. Krawzak, CQ Staff
With time running short for Democrats and Republicans on the joint deficit reduction committee to cut a deal, the two sides appear more polarized than they have since the special panel was created in August.
And for the first time, the odds seem to be growing that the committee might not reach agreement.
The unveiling of partisan proposals during closed meetings of the Joint Select Committee on Deficit Reduction last week might have been an obvious first step toward narrowing the two sides’ differences over the amount that revenue should contribute to budgetary savings. Instead, Republicans and Democrats on the panel rejected each other’s plans out of hand and have since dug in on their positions. Each says the next move must come from across the aisle.
The committee lacks a schedule, which is one sign that there is no clear way forward. For the first time since it organized, in early September, the committee has not scheduled any closed-door meetings this week. At any time, the committee might find a reason to gather. But congressional aides close to the panel say the absence of any full meetings of the group is telling.
In the meantime, the six Republican and six Democratic members of the panel continue to talk with each other individually and across party lines and to consult with leaders about how to get the negotiations back on track. The panel, created by the debt limit law known as the Budget Control Act (PL 112-25), has until Nov. 23 to produce legislation to reduce the deficit by at least $1.2 trillion over a decade.
Revenue Always at Issue
Since the summer debt limit showdown, which resulted in the committee’s formation, the ideological divide over the role of revenue in deficit reduction has been the chief obstacle to an agreement. In many respects, the rhetoric around the committee’s deliberations is identical to what was heard during the debt limit debate.
Democrats insist that any savings include tax increases counted by the Congressional Budget Office using conventional scorekeeping. Republicans flatly oppose allowing for extra revenue that can be called a tax increase.
In their plan, which would reduce the deficit by about $2.2 trillion over a decade, Republican members of the panel proposed generating tax revenue through economic growth fostered by a tax overhaul. They also counted revenue from fees, broadband spectrum auctions and federal property sales in their outline, which relied primarily on spending cuts.
Democrats proposed $3 trillion in savings and counted $1.3 trillion in revenue, most of it generated through a tax overhaul.
“It’s going to be almost impossible to bring them all together,” said Sen.
Although members of the committee are reluctant to describe their negotiations as stalled, aides said the two sides are at least temporarily caught in a stalemate.
“No, we’re not at a standstill,”
Deal May Be Eluding Deficit Panel
But a Republican aide familiar with the process said the negotiations are blocked by the revenue dispute. “We will never give on that,” he said.
After the two sides exchanged plans last week, the committee held one closed-door meeting on Oct. 27 that aides described as “unproductive.”
There was talk of a meeting on Sunday, Oct. 30, but it did not occur. “There’s no meeting today, no meeting tomorrow, no meeting Friday,” the GOP aide said on Wednesday.
A Democratic aide close to the committee said his party is waiting for Republicans to show flexibility on taxes. He noted that revenue increases were central to a pair of bipartisan plans examined by the joint committee during a public hearing Nov. 1.
“There’s been no movement whatsoever on revenues,” the aide said. “Until we see some willingness from their side, I don’t know that there’s a lot to discuss. The ball is really in their court.”
Senate Minority Whip
Other lawmakers and outside groups have repeatedly pressed their views on the joint committee. The latest effort to steer it toward an agreement — a bipartisan letter on Wednesday signed by 40 House Republicans and 60 House Democrats, urging the panel to aim for more than its $1.2 trillion savings target — showed no signs of breaking the stalemate.
The letter said that all options, including mandatory and discretionary spending cuts and revenue, “must be on the table.” However, the letter does not insist that taxes, in particular, have to be part of a deal.
Based on the statements of several Republicans who signed the letter, it is doubtful that many would have joined in the message if it had included the word “taxes.”
And even if that formulation might be a way to bridge the gap between the parties, Hatch said he was skeptical that the joint committee would be able to accomplish a tax overhaul, because of both the lack of time and the impasse over revenue totals.
The committee is “having a rough time coming up with any revenue numbers,” Hatch said. “I have a fairly decent idea of how difficult it is. They are all over the map as far as what they are going to do. At least, that is the impression that I get.”
Deal May Be Eluding Deficit Panel
Consequences of No Deal
If the panel does not reach an agreement, there may be a political price to pay with voters, just as the debt limit impasse led to a drop in congressional approval ratings.
But there are indications that a downgrade of the government’s credit rating, as occurred during the summer, would not necessarily follow.
The design of the deficit reduction process, with its fail-safe mechanism of automatic spending cuts that guarantee $1.2 trillion in budgetary savings, substantially reduces the risk that investors might react negatively to a deadlocked panel.
For the time being, investors remain willing to lend the federal government money at very low interest rates, although analysts and economists broadly agree that Washington needs to get its fiscal house in order to remain in the good graces of the credit markets and to avoid further downgrades from credit-rating companies.
By ensuring that the deficit is pared back, either through a deal or through automatic cuts, the architects of the debt limit law may have largely mollified bond buyers. The risk may be, however, that lawmakers will get cold feet and attempt to undo the automatic cuts if they are triggered.
“While there is a risk of another sovereign downgrade, recent comments by rating agencies imply that the risk to the U.S. rating hinges less on whether the supercommittee reaches formal agreement, and more on whether Congress reverses any of the fiscal consolidation agreed to in August, including the automatic spending cuts,” said a research note issued Wednesday by Goldman Sachs.
Richard E. Cohen, Benton Ives, Alan K. Ota and Frances Symes contributed to this story.