Half of Deficit Reduction Could Come from Spending Cuts — and That Half Is Done

Super Committee Should Either Focus Entirely on Revenue, or Simply Allow Automatic Sequestration to Go into Effect

Numerous surveys show that large majorities of Americans want Congress to address the deficit with a combination of spending cuts and tax increases. The first half of deficit reduction accomplished under the newly enacted debt deal will be entirely through spending cuts. This means that the second half of the deficit reduction — which is to be determined by a Congressional “super committee” — should be accomplished entirely by increased revenue. Responsible members of the super committee should walk away from any deal that falls short of this goal.

The super committee has many options to increase revenue, particularly by eliminating or reducing subsidies provided through the personal income tax and corporate income tax to business and wealthy investors. As CTJ director Bob McIntyre explained to the Senate Budget Committee in the spring, these tax subsidies cost a billion dollars a day.

If the super committee cannot agree on such revenue-raising measures, they should do nothing. The $1.2 trillion in automatic spending cuts that would result from the super committee’s failure to reach agreement are not the worst possible outcome. Half of the automatic spending cuts would come from defense spending (which has increased by 70 percent since 2001). If the super committee comes to an agreement that avoids the automatic cuts but lacks revenue increases, the consequences could be far worse. For example, the committee could choose to focus cuts instead on public services that working Americans rely on in order to protect powerful defense contractors.

Further, President Obama and responsible members of Congress will have another opportunity to take an anti-deficit stance at the end of 2012, when they can demand that the Bush tax cuts will either expire for the rich or expire entirely. The Bush tax cuts expire under current law at the end of 2012, and proponents of the tax cuts have no power to extend them without the support of President Obama and the Democratic leadership in the Senate.

The Budget Control Act

The Budget Control Act, signed into law last week to raise the debt ceiling, reduces the deficit and lifts the ceiling in two stages. First, caps on discretionary spending (both defense and domestic) are in effect and will save $900 billion over ten years. Second, a Congressional “super committee” of six Senators and six Representatives, divided evenly by party, must by Thanksgiving come up with measures to save between $1.2 trillion and $1.5 trillion over ten years. Whatever plan is approved by a majority of the committee could then be passed by a simple majority in the House and Senate and sent to the President.

If this process fails (or fails to save as much as $1.2 trillion) then automatic triggers will go into effect that sequester $1.2 trillion of spending (or the difference between what the super committee’s plan saves and $1.2 trillion) over ten years. The spending sequestered would be divided evenly between domestic and defense.

Republican Super Committee Members Pledge No Taxes. Will Democratic Members Start with Compromise?

There is no responsible way for Democratic members of the super committee to “compromise” without convincing Republicans members to violate their pledge. The United States is one of the least taxed countries in the industrial world. (Only Mexico and Chile collect less taxes as a share of their economy.)

The Democrats generally seem vastly more likely to cave on their core principles, given their recent agreement to raise the debt ceiling without any guarantee of increased revenues.

It’s true that Congress has a very difficult time providing immediate solutions when the political parties have irreconcilable worldviews. But there is a process to resolve that, and it’s called an election. And this process will work if voters know which lawmakers prioritize tax breaks for corporations and wealthy investors, and which lawmakers prioritize Medicare, Social Security, education and the other public services that working Americans rely on.

Photo via Gage Skidmore and The White House Creative Commons Attribution License 2.0