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Thursday
Dec082011

Supercommitted

The Joint Select Committee on Deficit Reduction, better known as the supercommittee, was created this past summer in effort to develop a bipartisan solution to the nation’s ever-growing debt problem. The committee, consisting of 12 members of congress (six from each party) was supposed to have recommended a course of action to the American public by November 23, 2011. On the 21st, however, the committee released the following statement: “After months of hard work and intense deliberations, we have come to the conclusion today that it will not be possible to make any bipartisan agreement available to the public before the committee’s deadline.” Bummer. So why did the supercommittee fail to compromise, and what does this mean for the American people? We’ll take a look in this post.

Arguably, the chief reason for the impasse between Democrats and Republicans on reining in the debt relates to whether or not the exceptionally wealthy should pay more in taxes. Most Republicans are unwilling to impose tax hikes, even on the wealthiest Americans, while Democrats feel the very rich should pay a larger share of the tax burden. The Economist puts it nicely: “(the democrats) can't walk away from the supercommittee negotiations without a significant tax hike on the very rich. Similarly, it doesn't look like the Republicans can walk away from the supercommittee negotiations having allowed that to happen…”

The fact that we’re approaching an election year isn’t helping either, as neither party is willing to cede anything for fear of the political ramifications. Although most economists would agree some tax increases are going to be necessary to rein in our massive debt burden, previous contracts made by Republicans with certain people of influence may make this difficult to achieve.

Doomsday?

So Washington is at a standstill in terms of developing a solution to our nation’s debt problems. Well, it’s a good thing they imposed a “doomsday device” of sorts to force themselves into enacting a plan. The Budget Control Act that was passed last summer stipulated that if the supercommittee failed to reach an agreement on reducing the budget deficit, so called “automatic spending cuts” of $1.2 trillion would be initiated in 2013.

These cuts would affect a number of areas, but would impact the U.S. armed forces considerably; the Defense Department is looking at shouldering roughly one fifth of the burden during the 10 years following 2013. According to Barack Obama’s Secretary of Defense, Leon Panetta, this would result in the smallest ground force since 1940, the fewest number of naval ships since 1915, and the smallest air force in its history. (The U.S. does, however, spend about 5 percent of GDP on defense, considerably more than most countries.)

Though many agree that these automatic spending cuts may be drastic and somewhat problematic, at least they would constitute significant steps towards reducing our long-term debt issues, right? Not so fast. This doomsday device of spending cuts is already being reconsidered by many of the very people who signed it into law. Although Republicans have been a bit more vocal about modifying or eliminating some of the automatic cuts, members of both parties are looking to make changes.

Government in Action

So let’s go through, step-by-step, what congress has done to tackle our long-term fiscal problems:

  1. After being unable to come up with solutions beyond raising the debt ceiling, congress created the supercommittee
  2. The supercommittee, supposedly removed from partisan politics, failed to come up with a solution due to partisan issues
  3. Pending a lack of resolution to help control our debt situation, automatic spending cuts are set to take hold
  4. The automatic spending cuts are now being reconsidered

At this point, there isn’t much else that this blogger can say, other than I’m glad I chose to skip politics for a career in economics instead. You could say I’m supercommitted.

Reader Comments (3)

If automatic defense cuts go through, it's a doomsday scenario when we retreat to 2007's defense spending level. The Horror.

The fact that the President didn't push whole-heartedly for the bipartisan recommendations of the Bowles-Simpson committee (which contained one each of the most liberal and conservative members of congress) in all this shows a real lack of effective leadership. Oh bummer.

December 8, 2011 | Unregistered CommenterBen Downeer-Ferdays

Ben, very good point. It would appear we are lacking leadership at the top. Do you favor higher taxes for the rich?

December 8, 2011 | Registered CommenterMisix

I'm in favor of drastically reducing the size of government. Seeing as that's not going to happen any time soon to a degree that would fix our fiscal problems, I would favor higher taxes on the wealthy. I agree with the arguments of David Stockman, Reagan's former OMB director, who stated that Bush's 8 year binge of government spending coupled with relatively low revenue needs to be made up somehow. Keeping taxes at their current levels merely forces us to borrow from inevitably higher taxes in the future (i.e. through borrowing). Economists are in near unanimous agreement that a small change to income rates at the top 1% will not impact work and investment incentives. I would be more in favor of simplifying the tax code (i.e like suggested by Bowles-Simpson) that would lower the overall rates, but eliminate loopholes and the complexity, which would ultimately raise more revenue.

Entitlement reform (the real timebomb) and other spending needs to be a part of the mix as well to make a real impact.

December 8, 2011 | Unregistered CommenterBen Downeer-Ferdays

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