Deficit-panel failure: Prepare for fights
The failure Monday of Congress' supercommittee — the bipartisan panel assigned the task of cutting at least $1.2 trillion from federal deficits — will trigger a fresh series of partisan clashes over taxes, spending, Social Security and a host of other matters.
The triggersThe Budget Control Act passed in August stipulates that failure of the supercommittee and Congress to act on further deficit reduction will trigger across-the-board cuts of $1.2 trillion in both defense and nondefense programs, starting in 2013. A general look at how those cuts may play out through 2021 (some savings would occur later):
Defense caps: Congress-approved military spending would be reduced from 10 percent in 2013 to 8.5 percent in 2021.
Nondefense caps: Congress-approved nondefense spending would be reduced from 7.8 percent in 2013 to 5.5 percent in 2021. Most Medicare spending would be reduced by 2 percent a year.
Mandatory cuts: The Center on Budget and Policy Priorities (CBPP) says cuts to mandatory programs in 2013 would include about $10.8 billion in Medicare payments to providers and insurance plans and about $5.2 billion to other programs such as farm price supports.
Exemptions: Mandatory programs exempt from cuts include Social Security, Medicaid, food stamps, the CHIP children's' health program, child nutrition, Supplemental Security Income, the Earned Income Tax Credit, veterans' benefits and federal retirement. Veterans' medical care and Pell grants also would be exempt from cuts to discretionary programs.
The Associated Press
WASHINGTON — The failure Monday of Congress' supercommittee — the bipartisan panel assigned the task of cutting at least $1.2 trillion from federal deficits — will trigger a fresh series of partisan clashes over taxes, spending, Social Security and a host of other matters.
The collapse of the 12-member panel, announced in a joint statement by co-chairs Sen. Patty Murray, D-Wash., and Rep. Jeb Hensarling, R-Texas, sent stock prices plunging and created at least another year of fiscal uncertainty, right in the middle of an already contentious 2012 election campaign.
When Congress returns next week from a Thanksgiving recess, at least four thorny, pressing issues will be confronted quickly.
Lawmakers must consider extending this year's Social Security 2 percent payroll tax cut; approving extended unemployment benefits; adjusting the alternative minimum tax (AMT) so it doesn't hurt the middle class; and changing how physicians are paid for Medicare patient care.
Each is likely to detonate new partisan skirmishes and could increase annual deficits. The national debt exceeded $15 trillion last week.
Next year will bring new challenges. The Bush-era tax cuts are scheduled to expire at the end of 2012, and $1.2 trillion in automatic spending cuts are to be triggered starting in January 2013 because of the supercommittee's failure. Half would come from defense, half from domestic spending, but lower-income programs and Social Security would be exempt. Medicare cuts would affect only providers.
Partisan confrontations are likely on all these issues in an election year, when voters are disgusted and financial markets increasingly are rattled.
An hour after the supercommittee officially gave up, Standard & Poor's said the government's credit ratings "are not affected by the announcement." Yet, the agency warned that pressure to downgrade "could build" if budget limits enacted this summer are eased."
President Obama appeared in the White House briefing room soon after the panel's collapse and put the blame squarely on Republicans. Too many congressional Republicans "have refused to listen to the voices of reason and compromise that are coming from outside of Washington," he said.
And don't try to undo the automatic cuts, he warned Congress, unless there's an equally bold alternative.
"I will veto any effort to get rid of those automatic spending cuts," Obama said. "... There will be no easy offramps on this one."
The mood on Capitol Hill was glum, and analysts said the down mood was well-founded.
"All in all, this is just a stunning combination of cynicism and irresponsibility," said Burdett Loomis, a University of Kansas political-science professor.
Refusals to budge
The panel, created as part of the August agreement to raise the government's debt limit, could not agree because the two parties would barely budge off long-held positions. Democrats insisted any deal must include big revenue-raisers, including higher taxes on the wealthy. Republicans insisted on targeting spending on entitlements such as Medicare.
It became clear last week that neither side would give in.
Democrats were well aware that, if the panel failed, they still could achieve many policy goals. The Bush-era tax cuts will expire if nothing is done, meaning the current top tax rates of 33 percent and 35 percent would revert to 36 percent and 39.6 percent. In addition, automatic across-the-board spending cuts totaling as much as $1 trillion over nine years would begin in January 2013, but programs for the poor would be spared.
Republicans, on the other hand, believe they gain politically because they blocked higher taxes, at least for now. And, despite Obama's promise of a veto, some hope to alter the automatic cuts before 2013 to protect defense.
House Armed Services Committee Chairman Howard "Buck" McKeon, R-Calif., promised to introduce legislation to prevent the cuts. Sens. John McCain of Arizona, the top Republican on the Senate Armed Services Committee, and Lindsey Graham, R-S.C., a member of the panel, also said they would "pursue all options" to avoid deeper defense cuts.
There's hardly unanimity, however, to undo the automatic cuts. Deficit-cutting tea partyers side with liberal Democrats in signaling they're ready to allow military reductions. House Speaker John Boehner, R-Ohio, and Senate Majority Leader Harry Reid, D-Nev., say they will abide by the deficit-fighting law — and they control which bills move forward.
Freshman Sen. Rand Paul, R-Ky., a tea-party favorite, even questioned the legitimacy of the outcry over military reductions, from Defense Secretary Leon Panetta contending the cuts would be devastating to McKeon's comments.
"I think we need to be honest about it," Paul said Sunday on CNN. "The interesting thing is there will be no cuts in military spending. ... Spending is still rising under any of these plans."
According to the nonpartisan Congressional Budget Office, the planned Pentagon budget for 2021 would be $700 billion, an increase over today's $520 billion. Cuts now in the works plus the automatic reductions would trim the projected amount by about $110 billion.
Independent analysts say both parties are engaged in a dangerous game.
"I fear what's going to happen is we're going to descend into election-year politics. They're honing the blame game," said Robert Bixby, executive director of the Concord Coalition, a nonpartisan budget watchdog group.
He predicted that any attempt to remove or change the automatic 2013 triggers would alienate the public and alarm financial markets.
"Their credibility is pretty darn low, but it will go even lower if they try to fix the triggers," Bixby said.
Payroll-tax fight next
The next fiscal flash point could come as soon as next week. Many lawmakers are uneasy about continuing this year's 2-percentage-point cut in the Social Security tax, fearing it will starve the system's trust fund and increase the federal deficit. The tax paid by employees would return to 6.2 percent next year if nothing is done.
Other provisions also require quick action. Medicare payments to doctors would drop as much as 29.5 percent next year unless Congress acts. The AMT could have an impact on middle-income taxpayers unless adjusted.
Provisions allowing unemployed people to receive up to 73 weeks of extended benefits would expire, and an estimated 2.1 million people could lose benefits through mid-February. Regular benefits are available for up to 26 weeks, but in Washington and other states with higher jobless rates, those without work can get more.
"Something's got to be done about that stuff," said Alice Rivlin, a former budget director and Federal Reserve vice chair, "and it's expensive."
Obama on Monday did sign a small piece of a $447 billion jobs package into law. It will repeal a requirement, scheduled to take effect in 2013, that government withhold 3 percent of payments to almost all contractors. The bill also will award breaks for companies that hire military veterans.
The rest of Obama's 3-month-old jobs proposals have languished, and few, if any, have much chance of passage.
Still, the president said Monday: "My message to every member of Congress is keep going. Keep working. Keep finding more ways to put partisanship aside and put more Americans back to work."
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