Who Has the Ear of the Supercommittee?

As the November 23rd deadline approaches, the Joint Select Committee on Deficit Reduction, also known as the supercommittee, has continued to meet and hold hearings, but has not said much about the progress toward an agreement.

The supercommittee has had extensive input from lobbyists.  The health care industry spent more on lobbying than any other sector of the economy. Some members of the committee  and their affiliated committees have continued to hold fundraisers. Representative Chris Van Hollen (D.-Mich.)  doubled his second quarter campaign fund contributions during the third quarter of 2011.  Rep. Camp (R-Mich.) was a beneficiary of a fundraiser reception by the Tuesday Group PAC Rep. James Clyburn has held several fundraisers and benefited from Democratic party events as well.

The October 26th testimony of Douglas Elmendorf, Director of the Congressional Budget Office focused on discretionary spending and potential cuts.  Significantly, Elmendorf stated that the “default” cuts that will become effective if  no legislation results from the committee’s work would not be enough to curb spending either on the defense or the nondefense side because the expenditures are expected to increase faster than inflation.

At a hearing on November 1, 2011, the supercommittee heard from four experts who have worked on proposals for deficit reduction and budget reform that received bipartisan support.A ll four witnesses urged the committee to set aside their ideological differences and cooperate for the good of the country.

Erskine Bowles and former Senator Alan Simpson, both of whom served as co-chairs of the National Commission on Fiscal Responsibility and Reform,  discussed the commission’s findings and recommendations.  The Fiscal Commission’s plan would reduce the deficit by $4 trillion over the next ten years, Bowles said. Bowles told the supercommittee that the current fiscal crisis had four main causes: (1) skyrocketing costs for health care without commensurate results; (2) excessive defense spending; (3) an anti-competitive tax code; and (4) interest on the national debt. We can ‘t resolve this problem with growth and spending cuts alone, he said.

Their commission would not cut spending on cash assistance programs that benefit the poor, such as Supplemental Security Income (SSI) or unemployment compensation. However, they would eliminate subsidies for agriculture and other low priority or wasteful spending,  reform  military and civil service pensions and the Pension Benefit Guaranty Commission, and ask the President to set a limit to spending on war. The savings from drawing down troops from the war in Iraq would be applied directly to reducing the deficit rather than to other defense spending.

They proposed elimination of “tax expenditures”, i.e., deductions and credits for certain activity, with tax rates of 12, 22 and 28 percent. Capital gains would be taxed at 28 percent, with an exclusion of the first $500 ($1,000 for couples). Most itemized deductions and other credits would be eliminated. There would be credits for mortgage interest and charitable contributions up to a 12 percent limit. The earned income credit and child credit would remain or be replaced with an equivalent benefit.

The Fiscal Commission would change the methodology for Medicare spending and restructure the federal employees health benefit program. Medicare cost sharing and Social Security benefits would be tied to income, with a gradual increase in the amount of wages or salary subject to the payroll tax.

Former Senator Pete Domenici and Dr. Alice Rivlin, co-chairs of the Debt Reduction Task Force of the Bipartisan Policy Center, focused on health care spending as a primary cause of the deficit. They recommended that:

  • the exclusion of employer-sponsored insurance from taxable income be capped and then gradually eliminated;
  • Medicare be transitioned to a defined-support system, where the government contributes to premiums for plans that are competitively bid and purchased through national exchanges;
  • the cost sharing for Parts A and B be combined;
  •  catastrophic coverage be added.

Some of their recommendations on tax reform were similar to the Fiscal Commission’s. These included the three-tiered tax rates, taxation of capital gains at the same rate as ordinary income, the corporate tax rate of 28 percent and the elimination of the standard deduction and personal exemptions, so as to tax the “first dollar of income”. The deductions for home mortgage interest and charitable contributions would be replaced by a refundable credit up to $25,000 and a 15 percent credit (or deduction at higher income levels), respectively.  Certain deductions from adjusted gross income would remain. A limit would be placed on tax-favored retirement contributions, and there would be a one-year payroll tax holiday to stimulate spending. Domenici and Rivlin also recommended that the supercommittee approve the general terms of the bargain and task the committees with jurisdiction to work out the details.

What’s next? A bipartisan gang of six may try to hammer out a deal. Perhaps the supercommittee will pass a resolution giving itself for more time and kick the can down the road again.