Debt Deal Supercommittee Fails: What Happens Next?
The Joint Select Committee on Deficit Reduction, or “supercommittee,” is expected to announce Monday afternoon, two days before their deadline, that they failed to reach an agreement on $1.2 trillion in deficit reduction.
Compromise proved to be the supercommittee's kryptonite as neither side found a path forward that would reconcile their opposing views on tax and entitlement reform. Republicans wanted to limit revenue increases and rely mostly upon reducing the growth of Medicare and Social Security. Democrats would not agree to entitlement reform without tax increases on the wealthy.
The task of deficit reduction will now fall to the full Congress. The “Gang of Six,” which has now morphed into the “Gang of 150,” has indicated they will take the lead on building a bipartisan compromise on deficit reduction. Others argue that the best path forward is to do nothing.
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Before the supercommittee was created, the Gang of Six (three Republican and three Democratic senators) had been working on putting the Bowles-Simpson commission's recommendations into law. The Bowles-Simpson commission, formally known as the National Commission on Fiscal Responsibility and Reform, was created by President Obama, but Obama never fully embraced its recommendations. The Gang of Six, however, began meeting in January of this year to try to put those recommendations into law.
Bowles-Simpson recommended $4 trillion in deficit reduction to get the nation's finances in order. It included slowing the growth of Medicare and Social Security, and tax reform. The tax reforms would raise about $900 billion in revenue by eliminating many tax deductions and credits and lowering overall rates.
On Nov. 2, Reps. Mike Simpson (R-Idaho) and Heath Shuler (D-N.C.) wrote a letter to the supercommittee, initially signed by 100 members of Congress, asking it to “go big” and reduce future deficits by $4 trillion by keeping “all options on the table.” Over 150 members have now joined that group, including Sen. Joe Manchin (D-W.Va.).
Manchin said Sunday on CBS' “Face the Nation” that the “Gang of 150” would be looking to implement the “Gang of Six,” or Bowles-Simpson, proposals if the supercommittee were to fail.
“If they can't get to a deal, they're gonna have to step aside and hopefully there will be enough of us stepping forward to basically re-introduce the Bowles-Simpson plan,” Manchin said.
Others, however, have argued that the best option is for Congress to do nothing. Under current law, if the supercommittee, or Congress, fails to come up with $1.2 trillion in spending cuts, automatic spending cuts will go into effect starting in 2013. Additionally, doing nothing would mean that additional revenue would be raised when the payroll tax cuts and unemployment benefits expire in 2012, and the Bush-era tax cuts expire in 2013.
The “do-nothing” idea was first suggested by Jonathan Chait, columnist for The New Republic, and has since been championed by E. J. Dionne, columnist for The Washington Post.
Dionne calculates that doing nothing will lead to $7.1 trillion in deficit reduction, far more than the $4 trillion minimum that Bowles-Simpson says is required for fiscal stability.
Defense Secretary Leon Panetta has warned that the automatic cuts to the Department of Defense budget that will go into effect if Congress fails to act would “hollow out” the nation's military capability.
Presidential candidate and former Massachusetts Governor Mitt Romney asked President Obama on Tuesday to act to prevent the Defense cuts. “I do call on the president to immediately introduce legislation that says we will not have a $600 billion cut to America's military. We should not cut any funding from our base Department of Defense budget.”
Sen. Rand Paul (R-Ky.) was less concerned about Defense cuts in a Sunday interview on CNN's “State of the Union.”
“The interesting thing is there will be no cuts in military spending. This may surprise some people, but there will be no cuts in military spending because we are only cutting proposed increases. If we do nothing military spending goes up 23 percent over 10 years, if we sequester the money, it'll still go up 16 percent. The spending is still rising under any of these plans.”
Conservative columnist George Will was also less concerned on ABC's “This Week” about the automatic spending cuts that would result from the supercommittee's pending failure.
“Even if the sequester takes hold in 2013, 2013 spending will be a third larger than it was in 2007, just six years ago.”
Will also argued that the 2012 election is needed to resolve the impasse between the two sides, because, “what we need is not a big committee, we need a big election to sort out some of these [disagreements].”
The failure of the supercommittee shows that Congress is performing its representation function well, according to Will.
“This is the transactions costs of democracy. It's untidy, of course it is. It's supposed to be that way. The Congress, far from being dysfunctional, is functioning as a representative institution, representing a country that is of two minds about its government.”
