This article was last updated on December 27
[Latest Update] As many had predicted, the debt Super Committee has failed to come up with a deficit reduction plan. Basically the not-so-super members failed to get past party line bickering and will now face the prospect of justifying to an angry public why they could not compromise. Further, the automatic triggers to cut defense and discretionary (non-entitlement) spending via sequestration come into effect. These will take place in 2013, unless Congress gives votes against (yes, they can do this!).
[Previous update – Deal or No Deal] Deadlines for the Congressionally appointed special joint “Super Committee” – which includes 12 members of Congress – to provide a comprehensive debt reduction plan are fast approaching. November 23rd, the day before Thanksgiving, is the initial deadline for the committee to vote on a draft plan that provides at least $1.5 trillion in cuts to the national debt. The committee then has till December 2nd to get bipartisan support for submitting a final plan to Congress and the President. If the committee cannot make this date, “triggers” that were approved in the Budget Control Act earlier this summer, would go into place that will enact $1.2 trillion of automatic spending cuts to defense and discretionary (non-entitlement) program budgets.
If the committee does reach consensus and provides a formal debt reduction plan, Congress has till December 23rd to vote on the bill and send it to the President for enactment. If the bill fails to pass in Congress, the trigger provisions would get enacted. It would also raise the scenario of another government shutdown, similar to the summer fiasco.
Not surprisingly, party politics have spilled over into Super-committee deliberations (which are being done mostly behind closed doors) and reports have recently come out saying that a bipartisan deal is still far from being reached. Democrats want tax hikes (revenue raising approach), Republicans want more tax and entitlement program cuts (cut spending approach). This is along party lines arguments, which seems to be the basis around any major fiscal decision Congress has to make.
Insiders on the panel say that the deal being offered by Democrats is less than $1 of spending cuts for every $1 of new taxes. Democrats want to count the $900 billion of discretionary spending cuts already agreed to in the debt bill and $1 trillion in troop withdrawals from Afghanistan and Iraq, which may not happen. Meanwhile they are insisting on close to $1.2 trillion of tax increases in exchange for less than $1 trillion in entitlement reforms. The president’s own deficit reduction committee, Simpson-Bowles, offered $2 of cuts for every $1 of new taxes. The GOP House budget passed last spring contained some $4.5 trillion in cuts—three times more than the super committee must find. (WSJ.com)
President Obama said the threat of automatic budget cuts should prod lawmakers “to move off rigid positions and do what was required to help the country.” He repeated his call for Congress to take a “balanced” approach that won’t make severe cuts in education or programs that aid the poor and elderly. That will require raising revenue, including higher taxes for the wealthiest Americans. The President has also said he will veto any measure that tries to change the terms of sequestration. (Bloomberg)
Automatic Trigger Provisions
So what happens if the super committee fails to provide a consensus plan? Almost all Americans will be affected as mandatory across-the-board spending cuts, split between domestic discretionary and defense budgets, go into effect. Here are the key impacts:
– Defense cuts. This area of government spending will take the biggest hit, with 50% of the $1.2 trillion in cuts to come from the DoD budget. The motivation behind defense cuts were to put pressure on super committee Republicans to accept tax hikes rather than endanger national security. Defense Secretary, Leon Panetta, has already launched a vigorous campaign arguing that adding $500 billion in defense cuts to the $400 billion already planned last spring would do “real damage to our security… and our ability to protect the nation.”
– Discretionary spending ($600bn) – The other big automatic cut will be to non-entitlement programs like which will see significant cuts, affecting millions of Americans. This part of the trigger, was to put pressure on Democrats to accept real entitlement reform. Social security and Medicare will not be included in these cuts.
– Higher taxes. With the failure of a debt reduction plan any temporary tax measures that are due to expire next year will not be renewed. This includes the Bush-era tax cuts and various payroll tax breaks.
Cuts to spending will happen with or without a deficit reduction plan. The difference is that with a jointly authored plan, the extent, timing and application of the cuts is likely to be much more favorable (particularly in an election year). However, if the cuts are done via the automated trigger – via a process known as sequestration – they will be broad and could affect folks more adversely and quicker than expected.