Debt Panel: The Real Problem Is That Consensus Will Prevail

Last Updated Aug 4, 2011 10:00 AM EDT

Some pundits expect blood to flow when a congressional "supercommittee" convenes this fall to locate $1.5 trillion in spending cuts. Under this scenario, Republicans will howl at the merest mention of tax hikes. Democrats, people-persons that they are, will block social-service cuts like Gandalf confronting the Balrog.

That's half right. President Obama had barely finished signing the Budget Control Act of 2011 before Republican leaders where telling official Washington where to stick those tax increases (hint: It would hurt). And the other side? Well, they just caved on a $2.1 trillion deal that included not a penny of revenue. So unless Dems get some guts between now and Nov. 23, when the panel must issue its proposal, I wouldn't exactly count on a slugfest.

It largely comes down to who each party will appoint to sit on the 12-member committee, which will make its recommendations by majority rule. So right off the bat you have six Republican votes against tax increases. Democratic leaders Sen. Harry Reid and Rep. Nancy Pelosi might throw a bone to the left by placing a liberal or two on the panel. But the party's other tribunes are likely to be "moderates," meaning lawmakers who accept the basic premise that reducing the deficit takes precedence over creating jobs (and who face re-election next year, it's worth noting). As the WSJ's David Wessel says:

In the end, if a majority of the committee wants to advocate higher taxes â€"- and that is one big "if" â€"- it will find a way to do so. And if the six Republicans on the panel insist on relying exclusively on spending cuts, then the committee won't be able to recommend tax increases of any sort.
Cuts alone won't spur growth
In other words, the combat is likely to take place along the same fiscal and political lines that we saw in the debt-ceiling fight -- not taxing v. spending, but cutting more here v. cutting more there.

For instance, Republicans could take another whack at Medicare, as Rep. Paul Ryan, R-Wis. (a leading candidate to sit on the panel), did in his House-approved budget plan. Democrats would make at least a token stink over cutting payments for beneficiaries, rather than for health care providers as specified under the new debt law. But it will be hard to come up with $1.5 trillion in discretionary spending cuts without slicing into Medicare and other entitlement programs. And certainly the White House's willingness to raise the program's eligibility age sends the signal that Dems would consider it.

Given this likely mission creep, should the panel consider ways to raise tax revenue? Of course. After all, plunging tax revenue in recent years is a major reason the deficit has grown. Letting the Bush-era tax cuts expire at the end of 2012, as scheduled, would lop $3.8 trillion off the deficit over the next decade, while allowing them to lapse for the top 2 percent of income-earners would save $700 billion.

Federal taxes in the U.S. are also historically very low, both for the rich and the middle-class. And as the Center on Budget and Policy Priorities notes, among industrialized countries we rank near the bottom in tax receipts.

If the supercom is going to focus on deficit reduction -- a dubious goal to begin with as the economy sputters -- it must also explore ways of creating jobs. As even the humblest hobbit knows by now, there will be no recovery until unemployment abates. And cuts alone won't deliver the jolt necessary to boost growth.

It's a no-brainer, which may still be too high a standard for Congress.


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    Alain Sherter covers business and economic affairs for