Congressional debt panel faces complications from Obama jobs plan

WASHINGTON – Members of a special House-Senate deficit-cutting “supercommittee” urged their colleagues Tuesday to go beyond the panel’s minimum spending-cut target of $1.2 trillion over the coming decade, but the pricetag on President Barack Obama’s $447 billion jobs plan is complicating the panel’s work.

“We need to ‘go big’ and reach savings of more than $1.5 trillion to address long-term deficits,” said Sen. John Kerry, D-Mass. “We need to ‘go long’ and address our long-term budget issues. And most importantly of all we need to ‘go smart’ and address the budget without preconceived dogmas or political agendas.”

As the panel convened its second session, it also got a sobering message about the budget deficit’s toxic effect on the economy over the long term from economist Douglas Elmendorf, director of the nonpartisan Congressional Budget Office.

Elmendorf warned that spiraling interest payments could swamp the government’s ability to pay for its operations and could spark a financial crisis if nothing is done: “Under current policies, the federal budget is quickly heading into territory that is unfamiliar to the United States and to most other developed countries as well.”

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“The nation cannot continue to sustain the spending programs and policies of the past with the tax revenues it has been accustomed to paying,” Elmendorf said in a statement. “Citizens will either have to pay more for their government, accept less in government services and benefits, or both.”

Obama’s jobs plan calls for a temporary boost in spending on roads, schools and blighted neighbourhoods combined with cuts to the Social Security payroll taxes paid by workers and their employers. He would pay for the initiative with a tax increases on wealthier workers, oil companies and hedge fund managers – all proposals that are opposed by the GOP.

Elmendorf, a former Brookings Institution scholar initially named to the CBO post by Democrats, said that Obama’s jobs plan – which combines tax cuts with spending stimulus – was well within mainstream economic thought which holds that it doesn’t make sense to raise taxes or impose sharp spending cuts in periods of slack economic growth.

“If policymakers wanted to achieve both a short-term economic boost and medium-term and long-term fiscal sustainability, a combination of policies would be required: changes in taxes and spending that would widen the deficit now but reduce it later in the decade,” Elmendorf said.

But every dollar spent stimulating the economy makes the supercommittee’s task that much more difficult. Co-chairman Rep. Jeb Hensarling, R-Texas, is clearly irked.

“This proposal would make the already arduous challenge of finding bipartisan agreement on deficit reduction nearly impossible, removing our options for deficit reduction for a plan that won’t reduce the deficit by one penny,” Hensarling said recently. “It’s not the role of this committee to spend more money we don’t have on jobs we don’t get.”

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And the top Senate Republican, Mitch McConnell of Kentucky, weighed in with a broadside Tuesday that labeled Obama’s jobs plan a transparently political exercise.

“Despite the president’s calls to pass this bill immediately, the real plan is to let it hang out there for a while so Democrats can use it as an issue on the campaign trail,” McConnell said, noting Democratic opposition to Obama’s proposals to increase taxes on charitable tax deductions taken by the wealthy. “The central tax hike included in this bill … was already dismissed by a filibuster-proof, Democrat-controlled Senate in 2009.”

The supercommittee is charged with finding at least $1.2 trillion in deficit cuts over the coming decade, which would come on top of about $900 billion in savings wrung from the operating budgets of Cabinet agencies over the same period.

Recent CBO studies say the recent budget pact is just a starting point on the more draconian changes that would be needed to stabilize the national debt so it doesn’t spiral out of control and drag the economy down with it.

Numerous lawmakers and deficit hawks outside the government are pressing the panel to exceed the $1.2 trillion goal and perhaps pick up elements of the $4 trillion “grand bargain” that Obama and House Speaker John Boehner, R-Ohio, were working on this summer. It combined higher tax revenues with sharper spending cuts.

Elmendorf didn’t offer an opinion as to how much the panel should try to cut the deficit. But he said that simply meeting the 10-year, $1.2 trillion goal wouldn’t be enough because the national debt will continue to grow relative to the size of the economy. That growth, he said, likely will crowd out the ability of the government to keep pace with the new obligations.

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“At a minimum, federal debt cannot continually increase as a share of the economy because the interest payments on that debt would then continually grow relative to the size of the tax base that would be available for generating revenues to cover those payments, and all of the other activities of the government,” Elmendorf said.

“Let’s not duck those realities,” said Rep. Chris Van Hollen, D-Md. “Go big.”

There’s considerable skepticism in Washington that the panel will be able to agree on serious cuts, especially with next year’s elections approaching. Most Democrats are ardently against cuts in expensive benefits like health care for the elderly, while Republicans are adamantly against higher taxes – the two most plentiful sources of potential deficit reduction.

Under the debt ceiling agreement, which narrowly averted a potential federal default, Congress must approve at least $1.2 trillion in savings by Dec. 25. If it doesn’t, the difference would be made up by automatic spending cuts, divided evenly among defence and many domestic programs.

A CBO study released Monday shows that the impact of the across-the-board cuts would hit the Pentagon with a 10 per cent budget cut in 2013 and cuts almost that big to domestic agencies.


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