Crunch time is rapidly approaching for the congressional super-committee, with less than a week to go before the November 23rd deadline. Failure to reach a deal by then will trigger automatic spending cuts of $1.2 trillion over the course of a decade beginning in 2013. Those cuts will be evenly divided between military and non-military spending, and therein lies the rub: Defense Secretary Leon Panetta has warned Congress that such automatic cuts could cripple the American military. That potential was best expressed in an exchange between Panetta and Senator Lindsey Graham (R-SC) on September 22nd. Graham asked, “If we pull that [automatic] trigger, would we be shooting ourselves in the foot?” Panetta answered, “We’d be shooting ourselves in the head.”
Whether such a dire assessment forces the panel to reach a deal remains to be seen. Both parties are constrained by ideological boundaries, the abandonment of which is viewed as extremely problematic, if not politically suicidal by their respective constituencies. For Democrats, any attempts to trim social spending, despite the reality that cuts to programs such as Social Security, Medicaid, food stamps, and veterans’ benefits remain off limits, would raise the ire of Americans long used to entitlements which many now view as necessities. For Republicans, raising taxes would be seen by their constituents as an economically illiterate move in a down economy, as well as an abandonment of principle. It may also be seen as breaking an implicit promise signified by the majority of the electorate handing fiscal conservatives a significant increase in power in the 2010 election.
Such is the stuff of which impasses are made.
Given all that is at stake in the negotiations, there does appear to be some movement. On Tuesday, Republicans presented their fellow party members a deal which would raise over $250 billion in new tax revenue over a ten year period. The number would be reached mostly by limiting certain itemized deductions for upper-income households, with “upper income” as yet undefined. In return, they want Democrats to begin revamping the tax code, part of which would entail freezing income tax brackets a their current level. Such a freeze would maintain the Bush tax cuts set to expire in 2012.
Some House Republicans are reportedly on board as a result of a closed-door meeting led by Jeb Hensarling (R-TX), who explained that refusing to accept such a deal would be a Pyrrhic victory, in that the scheduled elimination of the Bush tax cuts would amount to a $4 trillion tax hike.
The biggest stumbling block for the GOP? “I really think in this environment it would be very, very hard to find much support on the Republican side, particularly with the freshmen, to raise any taxes,” said freshman Rep. Chuck Fleischmann (R-TN). “It’s going to be very hard for members to run away from the pledge.” The pledge to which Mr. Fleischmann is referring is the “Taxpayer Protection Pledge” initially endorsed by Ronald Reagan in 1986, which binds signers to oppose “any and all tax increases.”
The pledge is the brainchild of anti-tax crusader Grover Norquist, president of Americans for Tax Reform (ATR). ATR currently has signatures from 238 House representatives, 41 senators, 13 governors, and all of the GOP presidential candidates except former Utah Governor Jon Huntsman. A few Democrats have also signed on. Yet as the deadline for a deal approaches, some Republicans are starting to view the pledge as an unnecessarily rigid constraint best expressed by Sen. John Thune (R-SD). “We shouldn’t be bound by something that could be interpreted different ways if what we’re trying to accomplish is broad-based tax reform,” he told MSNBC last month.
And since there are very few coincidences in politics, it should be noted that Thune made his remarks a day after Rep. Frank Wolf (R-VA) publicly berated Norquist on the House floor. “Have we really reached a point where one person’s demand for ideological purity is paralyzing Congress to the point that even a discussion of tax reform is viewed as breaking a no-tax pledge?” Wolf asked.
Yet even if the Republicans come to terms with a $250 billion tax increase by whatever manner they wish to achieve it, Democrats are likely to balk. Last week, after rejecting a Republican proposal, they countered with $1 trillion in savings matched by $1 trillion in tax increases. The cuts would have included $400 billion from Medicare and Medicaid, another $400 billion equally divided between defense and non-defense spending, and an additional $200 billion from unspecified provisions under discussion by the Super Committee. Tax reform was not part of the equation.
As of yesterday, Democrats were considering whether or not to lower that demand to $800 billion. Left unclear is how Democrats would get there. Their original proposal included several provisions: a “down payment” of $350 billion coming from a “miscellaneous revenue provision” and a $650-billion proposal to kick the tax reform can down the road until January; yet another trigger which would raise $650 billion if Congress fails to reach an agreement on tax reform, including an automatic “deficit reduction charge,” applied to a taxpayer’s income prior to any deductions; and the withholding of the $400 billion in entitlement cuts until either tax reform or the penalties for not passing it have taken effect.