Bloomberg News

Supercommittee Impasse Seen by Democrats as Weapon in Tax Battle

November 25, 2011

Nov. 18 (Bloomberg) -- A bloc of congressional Democrats is viewing the potential impasse of the supercommittee as a chance to revive fights over ending the George W. Bush-era tax cuts and making deep reductions in entitlement spending.

These lawmakers said they are worried about proposals that have been discussed in the deficit-reduction supercommittee, such as lowering the top tax rate to 28 percent from 35 percent or cutting spending by $876 billion. If the panel remains deadlocked past its Nov. 23 deadline, at least $1.2 trillion in automatic spending cuts would take effect in 2013 and would be split between defense and domestic discretionary programs.

In an effort to find a path forward for the talks, a bipartisan group of supercommittee members, including Democratic Senators John Kerry of Massachusetts and Max Baucus of Montana and Arizona Republican Senator Jon Kyl, met for at several hours last night.

“I’ll talk and work until the last dog dies, as they say,” Kerry said after the meeting. “There are some serious hurdles.”

That automatic budget-cutting process, known on Capitol Hill as sequestration, was supposed to be the stick that would encourage Democrats to agree to entitlement program cuts and Republicans to accept tax increases. Instead, Democrats who represent districts with many elderly or low-income residents said sequestration is preferable to some options being considered by the supercommittee, such as limiting benefits in programs like Medicare.

‘Not the Worst’

“Sequestration is not the worst thing that could happen,” said Representative Keith Ellison, a Minnesota Democrat and co- chairman of the Congressional Progressive Caucus. “Getting a deal where there’s minimal revenue and all cuts on ordinary people, I’d rather see sequestration than that.”

That thinking was echoed in interviews with Democratic Representatives Raul Grijalva of Arizona, Laura Richardson of California, Michael Capuano of Massachusetts, Chaka Fattah of Pennsylvania and Sheila Jackson Lee of Texas.

Richardson said across-the-board cuts are the most equitable way to reduce the deficit by hitting programs favored by both Democrats and Republicans.

“Defense is going to have to pay its fair share,” Richardson said. “I’m not going to be inclined to support further domestic discretionary cuts until I see other groups taking some of the same responsibilities.”

Path to Passage

Even if the supercommittee agrees to legislative language that would reduce the deficit by $1.5 trillion over 10 years, the position of these lawmakers reflects the challenge leaders will face shepherding a deal through Congress. Both chambers must pass legislation by Dec. 23 to avoid the cuts. Democratic votes will be needed because many Republicans, especially in the House of Representatives, have signaled they won’t support an agreement that includes tax increases or lacks big cuts to entitlement programs.

Republicans and Democrats on the supercommittee yesterday called on each other to make the first move toward compromise. The supercommittee’s Democratic co-chairwoman, Senator Patty Murray of Washington, told reporters Democrats are willing to accept a proposal from Republicans if they agree to additional tax increases.

Republicans have to “resolve the differences on their side on revenue, and that’s what we’re waiting for,” she said.

Dispute Over Taxes

Representative Jeb Hensarling of Texas, the panel’s Republican co-chairman, has said his party won’t go beyond its offer to increase tax revenue by $300 billion until Democrats offer a plan to address the growth in federal spending on entitlement programs.

House Democratic leader Nancy Pelosi said the “only way we will be able to reach an agreement” is if Republicans accept balance between revenue increases and spending cuts.

Democrats have no plans to propose structural changes to entitlement programs unless they are part of a bigger deal that would raise close to $1 trillion in revenue, said a Senate leadership aide. The aide said yesterday the process is deadlocked and neither side wants to declare it dead until next week. The talks are continuing in the hope of a breakthrough, the aide said.

If the supercommittee falters, lawmakers will face a debate this time next year over expiration of the Bush-era tax cuts that President Barack Obama agreed to extend in December 2010. Obama has said he won’t support renewing the tax cuts again for high earners. Congressional Democrats want to apply to deficit reduction the $800 billion in revenue over 10 years that would result from ending tax cuts to those earning more than $200,000 a year and married couples earning more than $250,000.

Automatic Cuts

“If the supercommittee did nothing, you’d have a couple of things happen,” Fattah said. “You’d have the sequestration of funds, but you’d also have the Bush tax cuts go out of existence and that would be another almost $4 trillion in revenue.”

The supercommittee has unique influence because, if it agrees to a deficit-reduction proposal, that legislation must be considered on the House and Senate floors and can’t be subjected to amendments or filibusters. Capuano said he would like to “fight it out” over the tax cuts through the regular legislative process next year.

“I didn’t vote for them; I didn’t vote to extend them and I won’t vote to extend them again,” he said.

Jackson Lee said she doesn’t “relish” the supercommittee’s struggles. She said, however, that the process was flawed and that Congress should take a more “deliberative” approach to fiscal policy next year.

--With assistance from Catherine Dodge, Heidi Przybyla, James Rowley and Richard Rubin in Washington. Editors: Jodi Schneider, Robin Meszoly, Jim Rubin.

To contact the reporters on this story: Steven Sloan in Washington at ssloan7@bloomberg.net; Kathleen Hunter in Washington at khunter9@bloomberg.net

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


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