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Deficit Supercommittee Admits Failure: Now What?

November 21, 2011 at 12:00 AM EST
The bipartisan congressional committee charged with cutting the U.S. deficit admitted failure on Monday. Judy Woodruff discusses the legislative logjam with Norman Ornstein of the American Enterprise Institute, Maya MacGuineas of the Committee for a Responsible Federal Budget and Henry Aaron of the Brookings Institution.
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JUDY WOODRUFF: The deficit supercommittee threw in the towel today on trying to reach a sweeping 10-year agreement. The announcement had been expected all day, and the fallout was felt on Wall Street. The Dow Jones industrial average lost more than 248 points to close at 11,547. The Nasdaq fell 49 points to close at 2,523.

Beyond the market effects, the super committee’s admission of failure left an unsettled political picture.

Reporters waited through the day as last-ditch talks took place in the offices of Democratic Sen. John Kerry.

SEN. JOHN KERRY, D-Mass.: I think it’s pretty imperative to get done what we — I think there’s a time limit on us that’s coming down to hours.

JUDY WOODRUFF: But, in the end, there was no deal. In a statement, the panel’s leaders said, “We are deeply disappointed that we have been unable to come to a bipartisan deficit reduction agreement.”

The 12 Republicans and Democrats on the supercommittee had tried for nearly three months. Their mandate was to find at least $1.2 trillion in deficit savings over 10 years. By law, failure triggers automatic spending cuts of the same amount starting in 2013.

Those cuts would mean reductions in Medicaid and other domestic spending and up to $450 billion in the Pentagon budget, bringing U.S. ground forces to their lowest levels since 1940.

President Obama was quick to lament the super committee’s failure.

PRESIDENT BARACK OBAMA: Already, some in Congress are trying to undo these automatic spending cuts. My message to them is simple: No. I will veto any effort to get rid of those automatic spending cuts to domestic and defense spending. There will be no easy off-ramps on this one. We need to keep the pressure up to compromise, not turn off the pressure.

JUDY WOODRUFF: But the prospect of such cuts failed to force agreement. Instead, the two sides debated who is to blame on the Sunday talk shows. Democrats accused Republicans of protecting the Bush era tax cuts for the wealthy, no matter the cost.

Washington State Sen. Patty Murray, a supercommittee co-chair, appeared Sunday on CNN.

SEN. PATTY MURRAY, D-Wash.: But there is one sticking divide. And that is the issue of what I call shared sacrifice, where everybody contributes in a very challenging time for our country.

JUDY WOODRUFF: On FOX, Republican co-chair Congressman Jeb Hensarling of Texas said the real problem was Democrats’ refusal to be serious about spending cuts.

REP. JEB HENSARLING, R-Texas: It’s a huge missed opportunity. But, unfortunately, what we haven’t seen in these talks from the other side is any Democrat willing to put a proposal on the table that actually solves the problem.

JUDY WOODRUFF: The stalemate over reaching a debt deal also foreshadows more battles in a sharply divided Congress. The two sides are likely to split over extending the payroll tax cut, now set to expire at the end of the year. A similar fight awaits on extending jobless benefits for the long-term unemployed, also set to expire Dec. 31.

With no agreement possible, we assess the legislative logjam and where things go next with three people who watch all of this closely.

Maya MacGuineas is president of the Committee for a Responsible Federal Budget. Henry Aaron tracks entitlement and budget issues at the Brookings Institution. And Norm Ornstein is a longtime congressional observer at the American Enterprise Institute.

And we thank you, all three, for being here.

Norm, on this I guess momentous day, was this committee doomed to failure from the start?

NORMAN ORNSTEIN, American Enterprise Institute: I don’t think it was doomed to failure from the start.

I actually had what had to be cautious optimism, which meant maybe there’s a 25 percent chance of success, because there’s some things that drive them towards an agreement. And that includes a dire economic situation in Europe and the possibility that failure will lead to something much worse.

But, you know, in the end, the dysfunction in the system and the partisan divide meant that an agreement, a template out there that we have had now for more than a year from three separate bipartisan groups, they just couldn’t bring it together. And it was the tax issue and the Republicans’ just inability to move on that in a way that Simpson-Bowls, Rivlin-Domenici, the gang of six, the three groups that have done this, had set out for them.

JUDY WOODRUFF: Was one side more culpable than another here?

NORMAN ORNSTEIN: I really do think that the issue was taxes.

Democrats had signaled a willingness to move on entitlements, which is the trade-off that we are going to have here, and on tax reform. And that included many of the members of the committee saying that they were willing to entertain raising the Medicaid — Medicare age from 65 to 67.

It was a signal that they could reach this kind of template, you know, Simpson-Bowles. All the others were $4 trillion over 10 years, with at least a trillion coming from revenues with tax reform, and with at least another trillion coming from the large entitlement programs. But it was the inability to bring the tax issue to the fore, in anything more than small amounts that kept Republicans from getting across that divide.

JUDY WOODRUFF: Maya MacGuineas, there are some people arguing today that the country is better off without an agreement, that what they would have come up with wouldn’t have helped things, might have made things worse. What do you think?

MAYA MACGUINEAS, Committee for a Responsible Federal Budget: I think that is absolutely the wrong argument.

I think what we are on track right now is to have cuts that come from a sequester, which is automatic spending cuts, not done thoughtfully, but done automatically across the board, to some of the wrong parts of the budget. It doesn’t do anything to help fix Social Security. It doesn’t do anything on the revenue side. And it’s not the thoughtful way to fix the problem.

What we should have done is moved forward with a bigger plan that was big enough to actually fix the problem, because even the sequester, at $1.2 trillion, will still leave us facing tremendous debt problems. And we need to do a plan, like Norm was saying, that has all parts of the budget on the table. And we need to proactively put them in place, not have some automatic hammer that does our budgeting for us. This reflects this dysfunction that we have in Congress right now.

JUDY WOODRUFF: Henry Aaron, what about this argument that maybe we would have been better off without any deal?

HENRY AARON, Brookings Institution: Well, I think there are three things wrong with the way in which the discussion has been proceeding so far.

The first is that we are discussing the second most important problem the nation faces, not the most important problem. The most important problem is the fact that 20 million Americans are either unemployed or out of the labor force because there are no job opportunities.

Job number one should be to stimulate the economy today. We do face a serious longer-term budget problem. And Maya is exactly right that what was under discussion is not large enough to deal with that problem. So, what I feared from this discussion and the kind of deal that was on the table here was that, even if they had reached agreement, and everybody celebrated the success of dealing with the deficit problem, just two years from now, we are going to face budget projections just as bad as those we face today, if that’s all they do.

JUDY WOODRUFF: Well, what are you saying they should have done?

HENRY AARON: I think the right way to approach this is to look for a larger package, and I think there’s an important parameter or provision that should be a ground rule for this discussion.

The deficit reduction should consist in equal parts of revenue increases and spending reductions, because, if we rely on spending cuts of the magnitude that have been widely discussed, we are not, over the longer haul, going to be able to sustain the major social insurance programs in the United States.

JUDY WOODRUFF: But is something like that, was that ever in the cards with this supercommittee, Maya MacGuineas?

MAYA MACGUINEAS: Well, I think that actually the supercommittee gave it a shot to both go big and go small. And I think if they had stayed on that path of trying to go big, they might have been more successful.

JUDY WOODRUFF: And why didn’t they?

MAYA MACGUINEAS: Well, what happened was — and I think there was a lot of actually good starts in the super committee. So Sen. Baucus put out a plan that had a whole lot of good provisions in it, did a lot on health care and was bigger than their original mandate.

And then we saw increasingly smaller packages. And I think that another helpful moment was when Sen. Toomey put revenues on the table, which some people said — and I agree with — weren’t enough in revenues, but it was an important start to get them out there.

But then we kind of ping-ponged back and forth, where each of the deals got smaller and smaller and smaller. And we saw, as things taken off the table, we got farther away from the deal. And I think if you’re going to make all these hard choices, the upside of it is that you actually fix the problem.

And so I do think when we go back to this — and we will have to, because we have this problem. We can’t take a year off. They should start with a package that is big enough to actually fix the problem, stabilize the debt — $4 trillion is what we’re going to need to talk about.

JUDY WOODRUFF: Which raises the question, Norm Ornstein, where does Congress go from here? There are some immediate decisions to be made, as we referenced a minute ago.

NORMAN ORNSTEIN: Of course, the first thing they are going to do is go home for the Thanksgiving holiday, where they’re going to get some comments from their constituents and a piece of their minds.

And one real question is, how much will that blowback affect members of Congress when they come back? How many of their constituents are going to stay, you go back there, get to work and do that big package, or, for many of the Republicans, especially in the House facing primaries ahead, will the feedback be, if you raise a dime in taxes, we will take you out in a primary?

JUDY WOODRUFF: But haven’t they already been feeling heat?

NORMAN ORNSTEIN: Yes, but it hasn’t been enough to cause a recalculation.

Even at a 9 percent approval rating for Congress, most incumbents are still more worried about where the base will be than anywhere else. After that, when they come back, we do have these decisions. And they get to Henry’s first point. If we don’t extend the payroll tax cuts and unemployment, the objective independent analysts say that we could cut growth in the U.S., which is already projected to be at a very sluggish level, by one to two percentage points.

And what we now have is yet another of these “my way or the highway” negotiations. The House Republicans have said, we will not extend those tax cuts or unemployment benefits unless there are immediate offsets. Of course, the immediate offsets mean that the stimulus is offset itself. And if we get into another of these endgame negotiations, Congress is going to look even worse before Christmas.

JUDY WOODRUFF: Well, Henry Aaron, what’s just happened doesn’t bode well for those decisions on unemployment benefits and the Social Security payroll taxes.

HENRY AARON: No, it’s really quite depressing.

And there’s another issue that the president didn’t mention in his statement, but that is a very large shoe waiting to drop. Under current law, fees under Medicare are scheduled to be cut 27 percent at the start of next year.

JUDY WOODRUFF: These are fees to physicians.

HENRY AARON: Physicians. That’s correct. In past years, Congress has waived those. And they may well do so again.

But there’s a problem. If they waive them, that is a spending increase, as recorded in our accounts. And it makes the job of meeting these targets even harder than it otherwise would have been. But it can’t be allowed to take effect, because the consequences for Medicare patient could be extreme disruption.

JUDY WOODRUFF: Maya MacGuineas, what do we look for from here on out? We are heading into a presidential election, congressional elections. Is there — the incentive that Norman Ornstein talked about, is that there for members of Congress to make the kind of big decisions that you’re saying need to be made?

MAYA MACGUINEAS: You know, I think it is, because I think all of the national attention is now on this issue. And I think it’s not going away until we do something.

And so you hear the narrative. Some people are saying, well, we’re just going to have to figure this out in the election. That is not going to work. That is not going to be something that goes through in the election.

JUDY WOODRUFF: Why not?

MAYA MACGUINEAS: Because we will end up with a discussion where people promise about things they won’t do: I’m not going to raise taxes. I’m not going to raise the retirement age. I’m not going to touch Social Security and Medicare.

Well, guess what? Those are the things we’re going to have to do. And we’re going to have a national discussion about doing that. And that means the people who support going big or putting a plan in place moving forward now in a bipartisan way.

And if we wait until after the election, I fear that we have a lot of economic risks that are standing there waiting to kind of — markets that are going to put pressure on. What’s going on in Europe is going to affect things that are going on here. And there is going to be a growing dissatisfaction with Congress across the board. So…

HENRY AARON: Could I mention one area…

JUDY WOODRUFF: Sure, quickly.

HENRY AARON: … where I think something was put on the table? Maya was happy with it, but I don’t think it was a step forward.

And that was the tax plan during this negotiation that was put forward by Sen. Toomey and the Republicans. The proposal was to curtail tax expenditures, about $3 trillion worth, that would mostly affect the middle class, and about 85 or 90 percent of that revenue would have been used for cutting revenues on the well-to-do. That is precisely the direction we don’t want to go in, a kind of divisiveness that I think we need to avoid.

JUDY WOODRUFF: So you’re saying…

MAYA MACGUINEAS: But what we do need is tax reform.

HENRY AARON: We do need tax reform.

MAYA MACGUINEAS: And so that’s how we move forward is on these bigger ideas of tax reform and entitlement reform…

HENRY AARON: But not that way.

MAYA MACGUINEAS: … and things that we know we’re going to need to work on.

JUDY WOODRUFF: Thirty seconds.

NORMAN ORNSTEIN: Just the political…

JUDY WOODRUFF: Right.

NORMAN ORNSTEIN: Two things we have to remember in the politics.

One is, the Bush tax cuts on the rich expire before Obama’s term is over. And he has said he will have an $800 billion tax increase, with nothing in return. Republicans have to think about that. But also remember we get to January, and immediately we have Iowa caucuses, a Republican presidential process that pulls the party further to the right that’s going to complicate the task of members of Congress trying to reach a deal that involves compromises that the base out there voting won’t like.

JUDY WOODRUFF: More tough, tough questions ahead.

Norman Ornstein, Maya MacGuineas, Henry Aaron, we thank you, all three.

HENRY AARON: Thank you, Judy.

MAYA MACGUINEAS: Thank you.