WASHINGTON & SANTA FE, NM (By Jake Sherman and Manu Raju, Politico) November 16, 2011 ― It’s one week from a drop-dead moment for the supercommittee, and the powerful panel is at risk of failing, adding yet another black mark on what is already the most unpopular Congress in modern history.

There isn’t a shred of bill language circulating publicly and no scent of a bipartisan deal before a Nov. 23 deadline to show the public how a panel granted such sweeping authority is trying to solve America’s great fiscal crisis.

Even worse for Republicans, there seems to be a growing civil war on the right over the idea of tax revenues. Rank-and-file conservatives have always been suspicious of the supercommittee, and they’ve started to go public with their complaints, warning against the tax revenue proposals coming from their own party.

“I think that is a danger,” said Sen. Jeff Sessions (R-Ala.), the ranking Republican on the Budget Committee. “We’re in a national discussion about whether to deal with our deficit through tax increases or spending reductions, and I think the American people demonstrated in the last election they were prepared to take spending reductions. I don’t think we’ve done a very good job of expressing that, frankly.”

To be clear, a modest deal could still come together – this Congress has had a way of stumbling into 11th hour budget deals that nobody seems to like yet still barely pass both chambers.

“I hope they’re able to pull the rabbit out of the hat here at the end,” said Sen. John Cornyn (R-Texas).

But as of Tuesday night, the pessimism was palpable.

Supercommittee co-chairman Jeb Hensarling (R-Texas), speaking bluntly to a closed House Republican meeting Tuesday said any deal that the panel produces will either be an “abject [failure] or a ‘kiss your sister agreement.’”

Sensing that the end game is approaching, Speaker John Boehner and Senate Majority Leader Harry Reid met Tuesday to discuss the supercommittee’s outlook. While the leaders downplayed their talks, their direct involvement suggested they’re looking for an escape hatch before the Thanksgiving Eve deadline.

Adding to pressure to the supercommittee are liberals in Congress who fear Democrats may take a huge whack out of cherished entitlement programs — as well as a bipartisan group of lawmakers who will continue to demand Wednesday that the panel “go big” in its deficit goals and take money out of Medicare while raising tax revenues. Any bipartisan deal would split both parties.

Before Republicans make any deals with Democrats, however, they’ll need to make peace in their own party.

“I think what it’s really come down is this: this is such a huge problem and we’re so near crisis if not in the midst of crisis that if this doesn’t get fixed, everybody pays a huge price,” said Sen. Mike Johanns, the Nebraska Republican who has endorsed calls for higher revenue.

On one side of the revenue debate are conservative Republicans like Hensarling of Texas and Sen. Pat Toomey of Pennsylvania, two members of the deficit cutting supercommittee, who are privately telling their colleagues that they aren’t abandoning their principles by raising several hundreds of billions in fresh revenue by closing loopholes, as long as Congress is able to lower tax rates across the board.

On the other side are conservatives like Sen. Jim Inhofe of Oklahoma, Rep. Patrick McHenry of North Carolina and roughly 70 House Republicans, who are adamantly opposed to the bulk of the revenue raisers proposed, warning it’s bad policy and politics, and could become a black eye for their party.

Republicans don’t have much room to move. Democrats want more than the $250 billion in new revenues Toomey put on the table in an offer last week and to drop calls for permanently extending the Bush tax cuts, placing the GOP in between Democratic demands and a loud conservative base frustrated at their party’s negotiators to offer a tax concession.

House Republicans will have to again contend with the conservative Republican Study Committee, which is circulating a letter against the Toomey plan. The letter, which McHenry is pushing, will go out Wednesday, saying that “marginal rates must be maintained or lowered and that repeal of any tax credit or deduction be offset with an equal or greater tax cut.”

“New tax revenue under static scoring can only be called one thing: a tax increase,” McHenry told POLITICO. “Republicans should not raise taxes — it’s counter to our core principles, bad for the economy and politically short-sighted.”

On the table now are proposals by Democrats to raise revenue by $1 trillion through closing deductions and overhauling the corporate tax code, as well as to slash $1 trillion in spending from discretionary and mandatory accounts, including $350 billion out of Medicare and $200 billion out of defense. Democrats have been weighing whether to lower that tax target in the $800 billion range.

Under the Toomey plan, Republicans would cut $1.2 trillion, the minimum amount called for by the law creating the panel. About $776 billion would come from spending reductions, including $275 billion from health programs. Another $240 billion in cuts would affect the federal workforce, while $161 billion in savings by changing the formula for Social Security payments.

Of the $600 billion in new revenues, the proposal assumes about $100 billion would be raised through economic growth. And in a break from the GOP’s anti-tax pledges, about $250 billion in new revenues would be raised by capping certain tax deductions at a percentage of the taxpayers’ income.

As a condition of that tax pledge, Republicans are proposing to permanently extend the Bush-era tax cuts, including to lower to 28 percent the rate for the wealthiest tax bracket, down from the 39.6 percent that would take effect in 2013 if current law expires.

Democrats say extending the Bush-era tax cuts would blow a hole in the budget and protect the rich — but Republicans call it a major concession. And the GOP has rejected Democrats’ tax proposals.

At this point, most members are completely out of the loop about the committee’s proceedings. There are no proposals circulating to the rank-and-file. Efforts to cut a deal are once again occurring in the back room, frustrating lawmakers from both parties about the breadth of proposals under consideration.

On Nov. 21, the committee has to circulate a proposal with a price tag from the Congressional Budget Office. Two days later, the committee must vote.

The stakes are high for everyone involved. Boehner (R-Ohio) desperately wants a deal to show that the Congress President Barack Obama is using as a foil in his reelection campaign isn’t broken — and that his Republican party isn’t as intransigent as Democrats say. Reid (D-Nev.) helped created this committee during the debt ceiling negotiations and a number of in-cycle Democrats want a deficit-reduction plan to campaign on.

While a failure could bolster Obama’s argument against Republicans Congress, it would also make him confront the messy across-the-board cuts of $1.2 trillion, which would occur if the committee fails to reach a deal and which Defense Secretary Leon Panetta said would cripple the Pentagon.

In a 20-minute presentation Tuesday, Hensarling told his House Republican colleagues that it was in their interest to cut a deal now since Obama could keep the White House, and Republicans should look at the proposal as avoiding a huge rate hike in 2013, when the Bush tax cuts expire. The usually rambunctious House Republican Conference gave Hensarling a standing ovation.

Rep. Phil Gingrey, a conservative Georgia Republican, said Hensarling was fairly convincing and that the debate within the party gets down to “semantics” and “the definition of raising taxes” and that he would look carefully at a final proposal.

But conservative Rep. Tim Scott of South Carolina said he was not convinced, saying he voted against the creation of the panel and he “would vote against it again.”

In an interview on Tuesday, Toomey — a former head of the anti-tax Club for Growth — said he understands conservatives’ concerns.

But he said it’s “worth paying the price” to avoid rate hikes on taxpayers in 2013 and propose a policy he claimed would generate economic growth.

Congressional negotiators on both sides of the aisle maintain that they’re looking at a two-step mechanism, that requires revenue and spending cuts in a first phase and tax reform and more money for the Treasury in a second step. Both parties say they are waiting on proposals from one another.

“I still firmly believe that we get a better result around here, when there’s open dialogue and the American people actually know what members of Congress are doing,” said Sen. Kelly Ayotte (R-N.H.).

 

As Deadline Nears, What If the 'Super Committee' Fails?

A Nov. 23 deadline for the U.S. congressional "super committee" to agree on a plan to cut the federal deficit is drawing near with no sign of a deal in sight, raising concerns about what will happen if the panel fails.

The legislation that established the panel of six Democrats and six Republicans put in place an enforcement mechanism that will trigger automatic cuts if the committee fails to reach agreement on $1.2 trillion in deficit cuts over 10 years.

Triggers would also would kick in if the super committee plan is rejected by Congress, if President Barack Obama vetoes it, or if the panel presents only a partial deal.

It would take more than a year before the first cuts take effect and they could ultimately be reversed by Congress.

Below are some questions and answers on what happens if no deal is reached.

What Happens If the Committee Fails to Agree?

Across-the-board cuts equal to $1.2 trillion over 10 years would start in January 2013. Furthermore, Bush-era tax cuts are set to expire at the end of 2012 and tax rates would snap back to pre-2001 levels if Congress fails to act.

Washington has been running annual deficits of more than $1 trillion since 2009. Most financial analysts say that cannot continue indefinitely without creating a debt crisis similar than the one that is now hitting Europe and hurting global economic growth.

If the panel comes up with only a partial deal, the remainder would come through automatic cuts. The cuts would be split equally between defense and non-defense programs.

In reality, only about $984 billion in cuts over 10 years would be ordered because the legislation allows for lower interest payments on the U.S. debt after taking into account deficit reduction.

The Center for Budget and Policy Priorities calculates that $54.7 billion in cuts would be ordered annually in both defense and non-defense spending from 2013 through 2021.

For defense, that would be on top of $350 billion in cuts over 10 years already enacted into law. U.S. defense spending, including war costs, has been around $700 billion a year.

It is possible Congress may not allow the cuts to take effect. Congress has the power to vote to rescind some or all of them.

Republican Senator Jon Kyl, a super committee member, has vowed to lead the charge against more military savings. Republican Senators John McCain and Lindsey Graham already are working on legislation to stop any military spending cuts triggered.

Those spending cuts could become a powerful issue in 2012 presidential and congressional election campaigns. The White House has said Obama would block any effort to roll back automatic spending cuts.

Do Lawmakers Have Any Say on the Triggers?

Yes, to some degree. Spending caps would be set for broad categories of government programs and senior lawmakers will have authority to allocate money to programs within those caps.

By January 2013, Congress will have agreed on spending levels for the fiscal year that starts Oct. 1, 2012, and any across-the-board cuts triggered for 2013 would be against those appropriated amounts.

Obama would be free to exempt some or all military personnel funding from the automatic cuts. If he does, funding cuts for other defense programs would go up.

If the automatic cuts are triggered, Congress could still take all of 2012 — an election year — to rescind or change any of those spending cuts.

While the deficit-cutting action taken by the current Congress could be undone by lawmakers following the November 2012 elections, it also could be scrapped by the new Congress that will be seated in January 2013.

What Happens to Medicare and Other Programs?

The Social Security retirement program is exempt from the automatic spending cuts.

The Medicaid health-care program is also protected as are veterans' benefits, food stamps, and a handful of other programs to help the poor and disabled.

While Medicare benefits would be spared from the automatic cuts, payments to hospitals, and other health-care providers would be reduced. But those cuts would be limited to 2 percent a year.

Still, the idea of provider cuts on top of those included in Obama's health-care overhaul has upset doctors and hospital groups.

Farm price supports, food safety, education, foreign aid, public safety, and law enforcement budgets would all be hit with across-the-board spending cuts, as would low-income housing, energy assistance, and other government functions.

The top Democrat on the House Appropriations Committee, Representative Norm Dicks, warned that automatic cuts would force reductions at the Commodity Futures Trading Commission and the Security Exchange Commission that would make it hard for those agencies to enforce rules and investigate fraud.

Are There Other Consequences of Failure?

Failure to overcome partisan differences and come to grips with U.S. deficits could fuel public disgust with lawmakers and feed anti-incumbent feelings in 2012 elections.

It also will not diminish the need to tackle well-known, long-term budget imbalances that are unsustainable.

Spending on health-care and retirement programs will rise sharply and consume an ever greater share of the federal budget as the 77 million strong baby boom generation, born between 1946 and 1964, retires and draws on government benefits.

Lawmakers have to face that demographic reality by cutting spending on those programs or raising taxes. Most financial experts agree that borrowing ever more money from China and other investors is not a sustainable option.

Some credit rating agencies have warned of a potential downgrade of the top-notch AAA U.S. debt rating if Congress fails to rein in U.S. deficits and the costs of health and retirement benefits.

Standard & Poor's lowered its U.S. rating by a notch in August because political brinkmanship in the fight to raise the U.S. debt limit raised questions about Washington's ability to deal with long-term deficits.

Moody's Investors Service and Fitch Ratings maintained their top rating for U.S. debt but warned that additional deficit reduction would be needed order to keep it.

A credit rating downgrade could lead to higher interest rates across the U.S. economy. But some analysts note that U.S. interest rates actually fell after the S&P downgrade.