Bloomberg News

Supercommittee Debt Agreement at Risk as Lawmakers Target Cuts

September 26, 2011

Sept. 26 (Bloomberg) -- Members of Congress already are trying to weaken the new congressional supercommittee seeking a $1.5 trillion debt-reduction agreement.

In an appearance yesterday on the “Fox News Sunday” program, Senator Lindsey Graham said he will introduce legislation to protect the Defense Department from automatic cuts that would take effect if the panel of 12 members deadlocks.

“I hope the supercommittee works,” said Graham of South Carolina. “But if it fails, let’s don’t destroy the Defense Department.” Senator Jon Kyl of Arizona, the second-ranking Senate Republican and a member of the supercommittee, also has said he would seek a waiver to protect the Pentagon from additional cuts.

Graham’s comments mark the start of what’s likely to be a bipartisan effort to dismantle the automatic spending cuts to defense and domestic programs scheduled to take effect in 2013 if Congress doesn’t enact a deficit-cutting plan, said Steve Bell, a senior director at the Bipartisan Policy Center in Washington and a former longtime Senate Budget Committee aide.

The threat of $1.2 trillion in across-the-board cuts is designed to force the six Democrats and six Republicans into an agreement by inflicting mutual political pain on Republicans, who champion Pentagon spending, and Democrats, who tend to promote domestic programs like education and infrastructure.

“It’s the beginning of the unraveling,” Bell said. “These cuts were becoming so Draconian a lot of people thought they’d never happen.”

Nov. 23 Deadline

The 12-member supercommittee was created in the Aug. 2 law that raised the nation’s debt limit and averted a default. The panel was given a Nov. 23 deadline to find $1.5 trillion in budget savings over 10 years. Congress would have to decide by Dec. 23 whether to approve the plan.

There are signs the supercommittee is at risk of failing even before lawmakers like Graham introduce legislation to disengage the so-called trigger mechanism.

Supercommittee members are in a standoff on whether Republicans will agree to Democrats’ insistence on including new revenue in the deficit-cutting plan, according to two aides close to the committee who weren’t authorized to speak publicly.

Lawmakers are holding full-day meetings today and tomorrow, excluding staff members until they determine whether they can resolve the revenue question, the aides said.

Upfront Commitment

Republicans are pressing Democrats to agree to $1 trillion in spending cuts that were on the table during talks between Vice President Joe Biden and lawmakers. Those talks imploded when Republican leaders refused to consider revenue increases. This time, Democrats are seeking an upfront commitment from Republicans on revenue increases before proceeding with talks on specific spending cuts, the aides said.

The role of new revenue in a debt-reduction agreement took on new importance last week when President Barack Obama proposed a minimum tax on millionaires and threatened to veto any agreement out of the supercommittee that cuts entitlement benefits such as Medicare without raising taxes on the wealthy. The previous week, House Speaker John Boehner underscored that tax increases should be off the table.

At a Sept. 8 Capitol Hill event, Kyl said he would seek a waiver to protect the Pentagon from additional cuts.

Unemployment Rate

The Pentagon has said the defense cuts that would be triggered by a supercommittee stalemate may add one percentage point to the national unemployment rate.

As much as $1 trillion could be slashed from the Defense Department over the coming decade, including $330 billion agreed to under the agreement to raise the nation’s borrowing limit, the department has said.

Some Republicans are trying to find a compromise on the revenue issue. Republican lawmakers on and off the supercommittee are suggesting the solution may be to generate new revenue through economic growth spurred by overhauling the tax code, an idea some Democrats say they will consider as long as Republicans are willing to guarantee the revenue materializes.

“We need to get outside that traditional battling territory,” said Idaho Senator Mike Crapo, a Republican and member of a bipartisan group of six senators who agreed to $1 trillion in new revenue as part of a plan based on this model. “That’s where I believe we can find the solution.”

’Fundamental’ Tax Changes

In a Sept. 22 hearing, Republicans on the supercommittee pressed the issue. Lawmakers may be able to agree that “fundamental” tax changes “can result in both revenue from economic growth for the federal government and more jobs,” said Texas Representative Jeb Hensarling, co-chairman of the committee.

Some Democrats say the idea will work only if Republicans are willing to guarantee that any shortfall in the new revenue would be made up by rescinding some of the tax cuts for wealthy Americans first enacted under former President George W. Bush.

Dick Durbin of Illinois, the No. 2 Democrat in the Senate, said it’s not enough to simply say “if the economy grows, more taxes will be paid, so let’s cut taxes.” Asked if an enforcement mechanism could be a middle ground, he said: “That’s another story. It could be.”

Ed Lorenzen, a former aide on Obama’s fiscal commission, said a tax overhaul is the key to a deal.

“Is there a way where you can have tax reform that is pro- growth” and also have “some type of protection to ensure that those revenues actually do materialize,” he said. “Finding a compromise on that issue is going to be key.”

--With assistance from Roxana Tiron in Washington. Editors: Laurie Asseo, Justin Blum

To contact the reporter on this story: Heidi Przybyla in Washington at hprzybyla@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net


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