Absent a super committee, now who'll lean on Congress to cut US deficit?
Global markets or deadlines for extending tax breaks may yet force Congress to try again for a 'grand bargain' to shrink the US deficit. But big action before the 2012 election is unlikely.
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But, for different reasons, these outcomes are unacceptable to both sides. Here is why:Skip to next paragraph
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Bush tax cuts. Republicans want to permanently extend the Bush tax cuts, a move that would increase the federal debt by almost $3 trillion over the next 10 years, according to the Congressional Research Service.
President Obama and most Democrats say the tax cuts should be extended for all but the highest-income taxpayers, which would increase federal debt overall by $2 trillion. Letting the cuts expire for high-income taxpayers is expected to increase tax revenues by $931 billion over 10 years.
Automatic spending cuts. Republicans are already signaling an intent to challenge the automatic spending cuts for the Pentagon. Sens. John McCain (R) of Arizona and Lindsey Graham (R) of South Carolina announced in a joint statement that they aim to "pursue all options" to ensure that the mandated $600 billion in automatic spending cuts for the Pentagon do not occur.
Mr. Obama says he will veto any effort by lawmakers to repeal the cuts. "We need to keep the pressure up to compromise, not turn off the pressure," he said in a press conference on Nov. 23.
Payroll tax cuts. Although Republicans have supported extension of the cuts in the past, GOP leaders have held back an endorsement for a new extension, expected to come to the floor as soon as Dec. 2. The payroll tax break was negotiated as part of a deal to extend the Bush tax cuts in December 2010, after Democrats took a drubbing in midterm elections. Extending that tax break could add $250 billion to federal deficits.
Democrats propose extending and further lowering the payroll tax paid by workers to 3.1 percent and also cutting employers' share of the payroll tax from 6.2 percent to 3.1 percent. Mirroring their standoff in the super committee deliberations, Republicans say the payroll tax cuts must be offset by spending cuts.
While each of these items has its own pros and cons, they are now tied to the prospect of another run at a grand bargain after the 2012 elections.
"What everyone wants is a bipartisan deficit-reduction package, and we still have 13 months to reach it," says Mr. Greenstein of the Center on Budget and Policy Priorities.
To resolve the issues in isolation is to give up a critical pressure point, he says.
"If you take defense off automatic cuts, there's no reason for Republicans to come to the table," he says. "If you take the Bush tax cuts off the table, you completely forgo the single best political lever to try to work out an agreement with the Republicans on tax reform."
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