The congressional “supercommittee” that is supposed to come up with at least $1.2 trillion in federal budget savings is finally talking turkey, and not a minute too soon, since the panel is scheduled to issue its report by Thanksgiving.
But it is already time to lower our expectations, which were none too high in the first place. This is not a situation where everyone is going to posture and preen until the last minute before miraculously coming to an agreement. These folks are only interested in the posturing and the preening.
This was already more or less evident when the panel was established to resolve this summer’s impasse over raising the national debt limit. It became a foregone conclusion when, as The Washington Post reported yesterday, the panel’s Senate Democrats offered a $3 trillion deficit-reduction plan that included at least $1.3 trillion in tax increases and $300 billion in immediate additional spending as part of President Obama’s stalled employment-stimulus plan. Those ideas could not even make it through the Senate, where Republicans would filibuster them despite the Democrats’ nominal 53-47 majority. If the Senate somehow did approve those measures, they would never see the light of day in the Republican-controlled House of Representatives.
Senate Democrats know this perfectly well. Their goal is not to get their ideas adopted, nor even to establish a bargaining position for an eventual compromise. Each side is much too entrenched in its own political and economic position for that. The idea is to establish a platform on which Senate Democrats who are up for re-election next year can run. A secondary goal would be to bolster the president’s re-election prospects by making the case that Republicans are more interested in protecting the wealthy from taxes than in fixing the nation’s fiscal problems.
Republicans are willing to play their part in this script because they, too, have a message to send to voters: Give us control of the White House and the Senate, along with the House, and we’ll rein in the federal budget by bringing spending under control, without raising taxes. The panel’s GOP members staked out their turf yesterday with a counter-proposal to the Democrats, The Associated Press reported last night.
Neither side has much appetite right now for going into unpleasant details. Rep. Paul Ryan, the chairman of the House Budget Committee, has put forth a thoughtful plan to reform Medicare and Social Security, which together with Medicaid are the great gashes in the hull of our federal fiscal ship. House Republicans, at some political cost, have already endorsed his proposal to turn Medicare into a block-grant program so future retirees can buy their way into privately run health plans. But for now, most Republicans are avoiding politically unpalatable specifics, though The AP said yesterday’s Republican proposal did include some increases in Medicare premiums.
Democrats have become similarly coy. President Obama talked with Republicans during the summer about raising the Medicare eligibility age and reducing future increases in Social Security payments. Both ideas are heresy among the Democratic base, and such talk died in the partisan standoff over the debt ceiling. The AP reported yesterday that the Democrats’ proposal this week did include some cuts in Medicare, Social Security and Medicaid, but that not even all the Democratic members of the supercommittee have endorsed those measures. In other words, Democrats are not even united behind their own proposal. That does not bode well for any agreement between the parties any time soon.
The debt ceiling agreement a few months ago just kicked the can down the road – and we have not yet gone far enough down the road to catch up with the can. Until we get there, nothing is going to happen.
Let’s recap. The agreement had two stages. Back in August, when it was enacted, the debt limit was raised by $900 billion – enough to fund about eight months’ worth of federal red ink – and spending was cut by a projected $917 billion, though it would take a decade to amass those savings. At the same, the supercommittee was established with three members of each party from the House and the Senate. Its mission was to come up with at least another $1.5 trillion in deficit reduction (over a decade) to offset an additional $1.5 trillion in authorized borrowing, which would take the country just about to the next presidential inauguration in early 2013.
The agreement calls for automatic budget cuts if the supercommittee cannot come to an agreement. That is just what the Republicans want. So to keep Republicans from simply refusing to agree on anything, those automatic cuts include draconian reductions in defense spending, to which most (though not all) Republicans would object. The original theory was that this would be incentive enough to get Republicans to compromise with Democrats on taxes.
I don’t see how this has even a prayer of working. Those automatic budget cuts will not come until 2013, to avoid slashing government spending while the economy is still struggling to grow. Republicans see an excellent chance of winning at least the White House next year, and it hardly matters who holds a small majority in the Senate, since the minority party has filibuster power. Republicans are likely to sit tight and hope to negotiate with a president of their own party about countermanding the defense cuts that would take effect in the next administration.
Besides, a lot of Democrats don’t like the automatic defense cuts either. This is particularly true of Democrats in conservative-leaning states with large military bases. If the supercommittee deadlocks, Republicans can pick up Democratic votes next year to reconfigure the 2013 automatic cuts without having to accept new taxes.
Moreover, the Bush-era tax cuts that were extended by two years last December are due to expire at the end of 2012. Once again, we will be heading into an autumn in which most Americans, not just the very well off, will be facing significant tax hikes unless Congress acts. And the economy may still fighting to gain traction at that point, with unemployment likely to still be high, and a president will be fighting for re-election. Republicans who got pretty much everything they wanted on taxes last year have every reason to believe they will get at least as good a deal next year. If they don’t, they can hope for a Republican president to give it to them in 2013.
So even though we’ll hear a lot about the supercommittee for the next month or two, it isn’t going to matter. Its members will reach no agreement. If they did reach an agreement, it would not pass Congress, and the “automatic” budget cuts would queue up for January 2013, along with the expiration of the Bush tax cuts. But it isn’t going to play out like that. Sometime in late 2012 or early 2013, a real meal will pop out of that congressional oven. Maybe something better than a turkey.
Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book,
Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us,” and Chapter 4, “The Family Business.” Larry was also among the authors of the firm’s book
The High Achiever’s Guide To Wealth.
Posted by Larry M. Elkin, CPA, CFP®
The congressional “supercommittee” that is supposed to come up with at least $1.2 trillion in federal budget savings is finally talking turkey, and not a minute too soon, since the panel is scheduled to issue its report by Thanksgiving.
But it is already time to lower our expectations, which were none too high in the first place. This is not a situation where everyone is going to posture and preen until the last minute before miraculously coming to an agreement. These folks are only interested in the posturing and the preening.
This was already more or less evident when the panel was established to resolve this summer’s impasse over raising the national debt limit. It became a foregone conclusion when, as The Washington Post reported yesterday, the panel’s Senate Democrats offered a $3 trillion deficit-reduction plan that included at least $1.3 trillion in tax increases and $300 billion in immediate additional spending as part of President Obama’s stalled employment-stimulus plan. Those ideas could not even make it through the Senate, where Republicans would filibuster them despite the Democrats’ nominal 53-47 majority. If the Senate somehow did approve those measures, they would never see the light of day in the Republican-controlled House of Representatives.
Senate Democrats know this perfectly well. Their goal is not to get their ideas adopted, nor even to establish a bargaining position for an eventual compromise. Each side is much too entrenched in its own political and economic position for that. The idea is to establish a platform on which Senate Democrats who are up for re-election next year can run. A secondary goal would be to bolster the president’s re-election prospects by making the case that Republicans are more interested in protecting the wealthy from taxes than in fixing the nation’s fiscal problems.
Republicans are willing to play their part in this script because they, too, have a message to send to voters: Give us control of the White House and the Senate, along with the House, and we’ll rein in the federal budget by bringing spending under control, without raising taxes. The panel’s GOP members staked out their turf yesterday with a counter-proposal to the Democrats, The Associated Press reported last night.
Neither side has much appetite right now for going into unpleasant details. Rep. Paul Ryan, the chairman of the House Budget Committee, has put forth a thoughtful plan to reform Medicare and Social Security, which together with Medicaid are the great gashes in the hull of our federal fiscal ship. House Republicans, at some political cost, have already endorsed his proposal to turn Medicare into a block-grant program so future retirees can buy their way into privately run health plans. But for now, most Republicans are avoiding politically unpalatable specifics, though The AP said yesterday’s Republican proposal did include some increases in Medicare premiums.
Democrats have become similarly coy. President Obama talked with Republicans during the summer about raising the Medicare eligibility age and reducing future increases in Social Security payments. Both ideas are heresy among the Democratic base, and such talk died in the partisan standoff over the debt ceiling. The AP reported yesterday that the Democrats’ proposal this week did include some cuts in Medicare, Social Security and Medicaid, but that not even all the Democratic members of the supercommittee have endorsed those measures. In other words, Democrats are not even united behind their own proposal. That does not bode well for any agreement between the parties any time soon.
The debt ceiling agreement a few months ago just kicked the can down the road – and we have not yet gone far enough down the road to catch up with the can. Until we get there, nothing is going to happen.
Let’s recap. The agreement had two stages. Back in August, when it was enacted, the debt limit was raised by $900 billion – enough to fund about eight months’ worth of federal red ink – and spending was cut by a projected $917 billion, though it would take a decade to amass those savings. At the same, the supercommittee was established with three members of each party from the House and the Senate. Its mission was to come up with at least another $1.5 trillion in deficit reduction (over a decade) to offset an additional $1.5 trillion in authorized borrowing, which would take the country just about to the next presidential inauguration in early 2013.
The agreement calls for automatic budget cuts if the supercommittee cannot come to an agreement. That is just what the Republicans want. So to keep Republicans from simply refusing to agree on anything, those automatic cuts include draconian reductions in defense spending, to which most (though not all) Republicans would object. The original theory was that this would be incentive enough to get Republicans to compromise with Democrats on taxes.
I don’t see how this has even a prayer of working. Those automatic budget cuts will not come until 2013, to avoid slashing government spending while the economy is still struggling to grow. Republicans see an excellent chance of winning at least the White House next year, and it hardly matters who holds a small majority in the Senate, since the minority party has filibuster power. Republicans are likely to sit tight and hope to negotiate with a president of their own party about countermanding the defense cuts that would take effect in the next administration.
Besides, a lot of Democrats don’t like the automatic defense cuts either. This is particularly true of Democrats in conservative-leaning states with large military bases. If the supercommittee deadlocks, Republicans can pick up Democratic votes next year to reconfigure the 2013 automatic cuts without having to accept new taxes.
Moreover, the Bush-era tax cuts that were extended by two years last December are due to expire at the end of 2012. Once again, we will be heading into an autumn in which most Americans, not just the very well off, will be facing significant tax hikes unless Congress acts. And the economy may still fighting to gain traction at that point, with unemployment likely to still be high, and a president will be fighting for re-election. Republicans who got pretty much everything they wanted on taxes last year have every reason to believe they will get at least as good a deal next year. If they don’t, they can hope for a Republican president to give it to them in 2013.
So even though we’ll hear a lot about the supercommittee for the next month or two, it isn’t going to matter. Its members will reach no agreement. If they did reach an agreement, it would not pass Congress, and the “automatic” budget cuts would queue up for January 2013, along with the expiration of the Bush tax cuts. But it isn’t going to play out like that. Sometime in late 2012 or early 2013, a real meal will pop out of that congressional oven. Maybe something better than a turkey.
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