US Politics Feature: Can Super-Committee "Get It Done" on Debt Reduction? The Signs Say No

The "Super Committee"Next Thursday, the Joint Committee on Deficit Reduction --- the so-called Super Committee --- begins in earnest its search for $1.5 trillion or more in cuts to the national debt over the next ten years. Its first item, “Overview: Revenue Options and Reforming the Tax Code", will look at ways that the code can be simplified through the elimination of many tax "breaks" currently enjoyed by both individuals and corporations. No surprise there: proposals for tax reform, of varying scales, have been included in every deficit reduction plan that has appeared since the publication of the  Bowles-Simpson report in January, and both sides of the political divide have made noises over the past year that they are willing to consider changes in the way Americans are taxed to help stabilise the debt.

But that is as optimistic, for those who actually want to see the committee achieve its goal, as it gets these days in Washington. Already, the two political parties are staking the same rhetorical and ideological positions on revenues that soured the debt-ceiling negotiations back in July, talks that resulted in historic nationwide disapproval of politicians in Congress. 

Legislators have come back to Washington after their August break declaring that they have listened to their constituents' frustration. Take this statement by Sen. Max Baucus  (D-Montana) at the opening hearing of the Super Committee on Tuesday:

I was back home in Montana again this weekend, and folks kept repeating the same thing: “Let’s get it done.”  They want to see results.  They want us to work together and find a balanced approach to cut our debt and create jobs, and I bet my colleagues hear the same thing when they go home as well.  It’s time to listen to these folks and work together to get our economy moving again.

But in reality, nothing has changed since July. In the House of Representatives, Speaker John Boehner (R-Ohio), and Minority Leader Nancy Pelosi (D-California) both indicated on Thursday that neither is willing to alter positions on increasing revenues through tax reform.

Republicans argue that America's ever-mounting deficits are the result of too much government spending, not a lack of revenues. Speaker Boehner reiterated that message to the Economic Club of Washington , where he argued the tax code should be reformed, but not with the intention of raising more money for the Treasury. He commented:

Tax increases I think are off the table and I don’t think l they are a viable option for the Joint Committee. It’s a very simple equation. Tax increases destroy jobs.  And the Joint Committee is a jobs committee. Its mission is to reduce the deficit that is threatening job creation in our country.

Republicans agree with Democrats that the the current tax system currently subsidises certain powerful interest groups, but believe that the money saved from eliminating those loopholes should be passed on in total to taxpayers --- both individual and corporate. This "Fair, Competitive and Simple" redistribution of taxes they contend, as Rep Paul Ryan (R-Wisconsin) has illustrated, would help boost the economy and thus ease the deficit problem.

However, Pelosi made it clear that Democrats regarded tax reform as a means of raising revenue to cut the federal deficit, stating at a press conference at the Capitol, "You can't just say we're going to have reforms that would lower the corporate rate — which I would fully support — unless you have enough reform to reduce the deficit, too.”

Whether this is only partisan posturing before a compromise is reached remains to be seen, but the disagreement over the purpose of tax reform occurred only a couple of days after Douglas W. Elmendorf, Director of the Congressional Budget Office, testified at the first meeting of the Super Committee that the US faces a serious threat to its future stability if the problems behind the nation's deficits are not resolved.

Elmendorf set out some of the scenarios facing the US if it wants to reduce debt as a share of GDP over the next decade. In the most painful, yet utterly realistic, if the Super Committee retains some funding that is due to expire maintaining some current provisions in law that are due to expire, such as the 29% scheduled cut in Medicare payments to physicians (explained by EA back in May), then the legislators will need to find $6.2 trillion in deficit reduction over the next 10 years. That average of $620 billion a year is roughly equal to the entire defence budget.

Elmendorf's testimony also included a revised estimate of the Output Gap between actual GDP and potential GDP, which assumes America's labor and capital resources are fully utilised, since 2007 --- in effect, a scorecard on the impact of the financial crisis on the US economy. Elmendorf related: “Between late 2007 and mid-2011, the cumulative difference between GDP and estimated potential GDP amounted to roughly $2½ trillion; by the time the nation’s output rises back to its potential level, the cumulative shortfall is expected to equal about $5 trillion.”

And the recession is not only costing a great deal of money. Elmendorf argued that if job growth rates had remained the same as they were before December 2007, 10 million jobs would have been created. The number illuminated the CBO's report, "Losing a Job During a Recession", explaining some of the long-term damage to someone who, even if they find a new job quickly, is unemployed when the economy is in a downturn.

There is a long way to go before we can reach a final judgement on the effectiveness of the Super Committee. But some of the optimism, as in the adoptionby groups like the Blue Dog Democrats of the the call for the Super Committee to "Go Big'" in deficit reduction suggestions, is beginning to fade. And that pessimism, alongside the return to entrenched partisan positions by Pelosi and Boehner, was reinforced on Thursday by a curious report in The Hill. 

The title of the article, "Deficit Panel is Unlikely to Go Big" is straightforward enough. But this was not an opinion piece --- it was a report written after an interview with an anonymous “key lawmaker” who is on the Super Committee. Noting the appeals by some, including Sen. John Kerry (D-Massachusetts), that the Committee look for $4 trillion in deficit reduction, The Hill explained:

The supercommittee member who spoke on background cast doubt on the ability of the panel to be so ambitious.  There does not appear to be any consensus to cut Medicare payments to doctors, the Defense Department, or other large programs with strong political support, the lawmaker said.

It is a struggle to understand the agenda of this anonymous member of the committee, but it does not hold out much hope that this latest attempt at deficit reduction will, to paraphrase Sen. Baucus, "get it done".